2019 (4) TMI 713 - HC - Income Tax

High Court allows Assessee-HUF's appeal for exemption under Section 54 with multiple house investments.

The High Court allowed the Assessee's appeal, holding that the Assessee-HUF was entitled to exemption under Section 54 for investments in multiple ... Exemption u/s 54 denied - Profit on sale of property used for residence - investment out of long term capital gains made in one residential house only - Assessee which is a HUF, which has a special character - scope of amendment - HELD THAT:- It is only by deeming fiction of law that a HUF, is treated as a separate assessable entity by including the same in the definition of the word 'person' under Section 2 (31) of the Act. The definition of the word 'Assessee' under Section 2(7) of the Act means a 'person' by whom any tax or sum of money is payable under the Act. Thus, the HUF is also a 'person' and a separate assessable entity under the Income Tax Act, 1961. If the word 'a' as employed under Section 54 prior to its amendment and substitution by the words 'one' with effect from 01.04.2015 could not include plural units of residential houses, there was no need to amend the said provisions by Finance Act No.2 of 2014 with effect from 01.04.2015 which the Legislature specifically made it clear to operate only prospectively from A.Y.2015- 2016. The sale being of a residential house does not necessarily restrict the meaning of 'a' to one. If the capital gains arise out of sale of plural of Captial Assets also, including the residential house, it would give rise to taxable capital gains. There is no reason to restrict the benefit of deduction upon investment in residential houses even though such units of residential houses are plural, which is not always so. The word 'a' would normally mean one. But it can in some circumstances include within its ambit and scope plural number also. It may be two or three or even more. Once we can hold that the word 'a' employed can include plural residential houses also in Section 54 prior to its amendment such interpretations will not change merely because the purchase of new assets in the form of residential houses is at different addresses which would depend upon the facts and circumstances of each case. So long as the same Assessee (HUF) purchased one or more residential houses out of the sale consideration for which the capital gain tax liability is in question in its own name, the same Assessee should be held entitled to the benefit of deduction under Section 54 of the Act, subject to the purchase or construction being within the stipulated time limit in respect of the plural number of residential houses also. The said provision also envisages an investment in the prescribed securities which to some extent the present Assessee also made and even that was held entitled to deduction from Capital Gains tax liability by the authorities below. The Assessee-HUF in the present case, in our opinion, complied with the conditions of Section 54 of the Act in its true letter and spirit and, therefore was entitled to the deduction under Section 54 of the Act for the entire investment in the properties and securities. Therefore, in our opinion, Judgment rendered by the Karnataka High Court in CIT Vs.D.Ananda Basappa (2008 (10) TMI 99 - KARNATAKA HIGH COURT) & Khoobchand M.Makhija [2013 (12) TMI 1525 - KARNATAKA HIGH COURT] cited at bar by the learned counsel for the Assessee apply on all fours to the facts of the present case. - Decided in favour of assessee. Issues Involved:1. Entitlement to exemption under Section 54 of the Income Tax Act for investment in more than one residential house.2. Interpretation of the term 'a residential house' in Section 54.3. Denial of exemption under Section 54 for amounts deposited in the Capital Gains Account Scheme.Issue-wise Detailed Analysis:1. Entitlement to exemption under Section 54 of the Income Tax Act for investment in more than one residential house:The Assessee, a Hindu Undivided Family (HUF), sold a residential house and claimed exemption under Section 54 of the Income Tax Act by investing in two residential houses and one plot of land. The Assessing Authority allowed the exemption only for one residential house, denying the benefit for the other investments. The CIT (Appeals) allowed the Assessee's claim for all investments, interpreting 'a residential house' to include multiple houses. The Tribunal reversed this decision, restricting the exemption to one house. The High Court, relying on precedents from the Karnataka High Court in CIT Vs. Khoobchand M.Makhija and CIT Vs. D.Ananda Basappa, held that the term 'a residential house' could include multiple houses, especially for an HUF, and allowed the Assessee's claim for all investments.2. Interpretation of the term 'a residential house' in Section 54:The High Court examined the interpretation of 'a residential house' in Section 54, noting that prior to the amendment by Finance (No.2) Act 2014, the term could be interpreted to include multiple houses due to Section 13 of the General Clauses Act, which states that singular includes plural. The Court referenced Karnataka High Court decisions that supported this interpretation. The amendment to Section 54, effective from 01.04.2015, which replaced 'a residential house' with 'one residential house,' was intended to clarify the provision and apply prospectively, not retrospectively.3. Denial of exemption under Section 54 for amounts deposited in the Capital Gains Account Scheme:The Assessee also invested part of the capital gains in the Capital Gains Account Scheme. The Assessing Authority denied the exemption for this investment, but the CIT (Appeals) allowed it, and the Tribunal reversed this decision. The High Court upheld the CIT (Appeals)'s interpretation, allowing the exemption for the investment in the Capital Gains Account Scheme, as it complied with the conditions of Section 54.Conclusion:The High Court allowed the Assessee's appeal, holding that the Assessee-HUF was entitled to exemption under Section 54 for investments in multiple residential houses and the Capital Gains Account Scheme. The Court emphasized the legislative intent and judicial precedents supporting a broader interpretation of 'a residential house' to include multiple houses, especially for HUFs, prior to the amendment effective from 01.04.2015. The substantial questions of law were answered in favor of the Assessee, and the Tribunal's order was set aside.