2021 (9) TMI 696 - AT - Income Tax

Tribunal grants relief to Assessee in exemption disallowance case under section 54

The Tribunal allowed the appeal of the Assessee, granting relief in the matter of disallowance of exemption under section 54 of the Act. The Tribunal held ... Disallowance exemption u/s. 54 - assessee invested capital gain in two adjacent flats - Disallowance of claim of the assessee by holding that legislature has allowed investment in one residential house - HELD THAT:- As decided in SYED ALI ADIL [2013 (6) TMI 278 - ANDHRA PRADESH HIGH COURT] expression 'a residential house' in section 54(1) of the Act has to be understood in a sense that the building should be of residential nature and 'a' should not be understood to indicate a singular number and where an assessee had purchased two residential flats, he is entitled to exemption under section 54 in respect of capital gains on sale of its property on purchase of both the flats, more so, when the flats are situated side by side and the builder has effected modification of the flats to make it as one unit, despite the fact that the flats were purchased by separate sale deeds. - Exemption to be allowed - Decided against the revenue. Issues: Delay in filing appeal, Disallowance of exemption u/s. 54 of the ActAnalysis:1. Delay in filing appeal: The appellant filed two appeals against the CIT(A)'s order, citing a delay of seven days. The Tribunal, after reviewing the reasons provided in the application and affidavit, condoned the delay and proceeded with the appeal.2. Disallowance of exemption u/s. 54 of the Act: The primary issue revolved around the appellant's claim for exemption u/s. 54 of the Act amounting to Rs. 44,05,610. The appellant had invested capital gains in two adjacent flats, seeking the benefit of the provision. However, the lower authorities denied the claim, stating that the legislation allowed investment in one residential house only and disallowed the deduction u/s. 54 of the Act.3. The appellant's contention was that the Ld. CIT(A) erred in law and on facts by disallowing the exemption u/s. 54 of the Act. The appellant had invested in two adjacent flats, and the question before the Tribunal was whether the benefit of section 54 of the Act could be extended to the appellant for this investment.4. The Tribunal considered a Co-ordinate Bench's order and the interpretation of the term 'a residential house' under section 54F of the Act. It was noted that different courts had different views on whether the term referred to one house only. The Tribunal referred to a judgment by the Hon'ble Karnataka High Court, which clarified that the term 'a residential house' did not necessarily mean a singular house but could include multiple units within the same complex.5. The Tribunal also highlighted an amendment under the provisions of section 54F of the Act, where the term 'a residential house' was replaced with 'one residential house' effective from the assessment year 2015-16. However, since the case pertained to the assessment year 2014-15, the Tribunal concluded that the appellant was eligible for exemption under section 54F for the investment made in both properties.6. Referring to a judgment of the Andhra Pradesh High Court, the Tribunal further supported the appellant's case, emphasizing that the term 'a residential house' should not be interpreted as singular when the appellant had purchased two adjacent flats that were modified to function as one unit.7. In light of the Co-ordinate Bench's order and the Andhra Pradesh High Court judgment, the Tribunal allowed the appeal of the Assessee, granting relief in line with the previous decisions that favored the appellant's interpretation of the term 'a residential house.'8. The Tribunal dismissed the appeal, stating that no substantial question of law arose for consideration. The decision to grant relief to the appellant was made in alignment with previous judgments and the interpretation of the term 'a residential house' under section 54 of the Act.9. The Tribunal also addressed penalty proceedings under section 271(1)(c), noting that since relief was granted in the quantum proceedings, penalty proceedings were considered consequential and did not require separate adjudication.10. Ultimately, both appeals filed by the Assessee were allowed, providing relief in the matter of disallowance of exemption u/s. 54 of the Act.