ITAT grants exemption under section 54 for purchase of two flats

The ITAT Surat allowed the appeal of the assessee, granting exemption under section 54 of the Income Tax Act for the purchase of two flats in the assessment year 2014-15. The tribunal ruled that the assessee was eligible for deduction for the second flat, as it was purchased before the amendment limiting the deduction to one residential house came into effect in April 2015. The judgment clarified the interpretation of section 54 and upheld the assessee's claim for exemption based on the timing of the property purchase and legislative changes in the provision.

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Issues:
1. Interpretation of section 54 of the Income Tax Act for claiming exemption on the purchase of two flats.

Analysis:
The appeal before the Appellate Tribunal ITAT Surat involved a dispute regarding the interpretation of section 54 of the Income Tax Act for claiming exemption on the purchase of two flats by the assessee. The case pertained to the assessment year 2015-16 and originated from an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961. The primary issue revolved around whether the assessee was eligible for exemption under section 54 for two flats when the registration of the sale deed was done in the assessment year 2015-16, despite the amendment in section 54 announced in July 2015. The assessee contended that the amendment should not apply as the flats were purchased in the assessment year 2014-15 before the amendment came into force.

The assessing officer disallowed the exemption for one of the flats based on the amended provisions of section 54, which allowed deduction for only one residential house. The assessing officer held that the amendment was applicable from the assessment year 2015-16 onwards. The Commissioner of Income Tax (Appeals) upheld the assessing officer's decision, leading the assessee to appeal before the ITAT Surat.

During the proceedings, the assessee argued that as per the pre-amendment provisions of section 54, the purchase of two flats should be eligible for exemption. The ITAT Surat carefully analyzed the provisions of section 54 and noted that the amendment in the section replaced "a residential house" with "one residential house" with effect from April 1, 2015. Before the amendment, the provision was interpreted to allow for the purchase of more than one residential house. Since the flats were purchased in the assessment year 2014-15 before the amendment, the ITAT Surat ruled in favor of the assessee, directing the assessing officer to grant the deduction for the second flat valued at Rs. 58,07,300.

In conclusion, the ITAT Surat allowed the appeal of the assessee, emphasizing that the factual position supported the eligibility of the assessee for deduction under section 54 of the Income Tax Act for the purchase of two flats in the assessment year 2014-15, prior to the amendment coming into force. The judgment clarified the interpretation of section 54 and the applicability of the amendment, ultimately ruling in favor of the assessee based on the specific timeline of the property purchase and the legislative changes in the relevant provision.

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