TaxTMI 
TaxTMI 
2002 (1) TMI 1296
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the expenditure incurred by the assessee to bring the new flat in a habitable condition was not includible in the cost of new flat and thereby disallowing the amount of Rs. 14,94,357. (4)The CIT(A) erred in passing an order of enhancement under section 251(2) of the Act rejecting the valuation report of a government approved valuer for fair market value as on 1-4-1981 of the flat sold by the assessee. The registered valuer had worked out the fair market value at Rs. 1,22,12,644 and the CIT(A) has applied his own method by adopting the same to be at Rs. 26,17,542. 2. Briefly stated the facts are that the assessee was owner of a flat at 7/B, Sunita, B.G. Kher Marg, Malabar Hill, Mumbai. The same was sold by the assessee for a consideration of Rs. 13,25,00,000 vide sale deed dated 29-11-1995. The assessee filed return of income disclosing the capital gain thereon based on the following working : Rs. Net consideration on sale of flat 12,84,11,500 (Details as per separate statement attached) Less : (1) Valuation of flat Rs. as on 1-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion has been claimed in respect of investments in residential flats. In this respect, a query was raised as to whether the exemption claimed under section 54 is in accordance with the provisions of the Act particularly when the investment relates to two residential flats in the same building. As explained hereinafter, the exemption claimed is in accordance with the provisions of the Act. The relevant details as to the consideration received on sale of the old residential house and the utilisation of the capital gain arising on the said transfer of the residential house in purchase of new residential houses already contained in the above mentioned statement. At the outset, it may be pointed out that section 54 of the Act is intended to give relief in respect of capital gain arising from the transfer of a residential house if the net-consideration is invested in the purchase or construction of the residential house. The opening words of section 54 are as under : 54(1) Subject to the provisions of sub-section (2), wherein, in the case of an assessee being an individual of a Hindu Undivided Family, the capital gain arises from the transfer of a long term capital assets, being bui....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elling units which are contagious and situate in the same compound and within common boundaries and having unity of structure could be regarded as one house for the purpose of granting exemption under section 5(1)(iv) of the Wealth-tax Act. The following text of clarification issued by the CBDT would further strengthen our stand outlined above as to the entitlement of exemption under section 54 as claimed in the return. The clarification issued is as under : "Assessee retained more than one house for the purpose of his own or parent';s own residence and has used them for such residence from time to time whether capital gains arising on transfer of each of such houses should qualify for exemption. Section 54 lays emphasis on the use of the property mainly for the purpose of assessee or his parents'; own residence. If an assessee has retained more than one house for the purpose of his own or the parents'; own residence, and has used them for such residence, and not for any other purpose the capital gains arising on transfer of each of such house would qualify for exemption under section 54, provided the other conditions spelt out therein are fulfilled. Letter ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er allowed an amount of Rs. 14,94,357 while working out capital gains. The same was enhanced. (2)The Fair Market Value as at 1-4-1981 in respect of the flat sold in Sunita Building was determined by registered valuer at Rs. 1,22,12,644. The same was considered as seriously defective and modifications were effected. The CIT(A) undertook a lengthy exercise and rejected the Fair Market Value adopted by the registered valuer and by this exercise came to a conclusion that the valuation should be as under : (a)Land value Rs. 7,39,065 (b)Land Development Cost (as taken by the valuer) Rs. 2,09,000 (c)Cost of construction (as taken by the valuer) Rs. 9,61,000 (d)Additional cost for various factors as discussed above Rs. 9,42,172 Total Rs. 28,51,237 Less : Depreciation on super structure for 10 years calculated at 12.5% (of c + d) Rs. 2,37,946 (Taking total durability of Rs. 26,13,291 the building to be 80 years) Applying the indexed cost valuation, CIT(A) taken the cost of the flat at Rs. 73,55,293 as....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of section 54 w.e.f. assessment year 1983-84. In fine, the CIT(A) held that the size of the assessee';s family did not persuade him to adopt an elongated meaning of residential house to accommodate two flats on two different floors, consequently exemption under section 54 in respect of first flat i.e. at 8D at Land';s End only was given. Aggrieved, the assessee is before us. 8. The learned counsel for the assessee at the outset contended that the reopening of the assessment in the instant case is bad in law. The return of income was filed by the assessee on 30-8-1996 and order under section 143(1)(a) was made and no order under section 143(3) was made. Since order under section 143(1)(a) is not an assessment, a notice under section 143(2) could have been issued. Having not done so, it can be presumed that the Assessing Officer had dispensed with the assessment and the reopening of an assessment can be made only when there is an assessment. Since order under section 143(1)(a) is not an assessment, the same cannot be reopened. Therefore, issue of notice under section 148 was not proper. 9. The learned departmental representative relied on the order of the CIT(A) in thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion available, there was no assessment of the amount involved in the reasons recorded by the Assessing Officer. Provisions of section 147 also does not debar any such situation as the words are "if the Assessing Officer has reason to believe......assess or reassess such income....." Since by the lapse of time, the notice under section 143(2) could not be issued and no dispute has been raised that there were no reasons suggesting escapement. Under these circumstances, the logical conclusion is that as far as the belief of the Assessing Officer is concerned, the income had escaped assessment, which Assessing Officer had power to assess or reassess. Consequently we uphold the order of the CIT(A) on this issue and hold that the re-assessment is valid. This issue raised by the assessee by various grounds is dismissed. 12. Coming to the second issue, the learned counsel for the assessee contended that the assessee';s family consisted of husband, wife and three married daughters and grand children. The assessee had sold her flat in Sunita Apartments and purchased one flat at 8D, 1st Floor, Land';s End Building at Dongri Road, Mumbai. The assessee wrote a letter dated 10-4-1996....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii)if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction as the case may be, the cost shall be reduced by the amount of the capital gain." The learned counsel for the assessee contended that the provisions of section 54 had undergone amendment w.e.f. assessment year 1983-84. Prior to this amendment, the flat purchased or constructed should be for the purposes of one';s own residence and as per the amended provisions, the exemption was granted if the asset purchased was a residential house. Consequently there is a shift in legislative intention from the "new asset" being compulsorily used for the self-residence to any residential house. 14. The learned counsel further contended that as per the new provisions, the wor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Shivnarayan Chaudhari v. CWT (1977) 108 ITR 104(All.) which has been followed by the Kerala High Court in CWT v. Mrs. Najima Nisar (1992) 197 ITR 258. The learned counsel further contended that the flats have a structural unity in the sense that one is on the 8th floor and the other on the 10th floor. The floors are connected by elevators, the building is same, and therefore, the approach is also connected. Therefore, looking at their structural unity point of view as also looking at the family requirement and Bombay realities, both the flats are nothing but a residential house which are eligible for deduction under section 54(1). 16. The learned departmental representative, on the other hand, argued that the language of section 54 is plain and simple and leads to one interpretation. The words in the section are to be given its ordinary grammatical meaning. The words used are - "a residential house". The plea of the learned counsel for the assessee that the revenue is overemphasising the words "the residential house" is also not correct as the section itself refers to "a residential house" in clause (i), i.e. (i) if the amount of the capital gain is greater than the cost of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uch planning. 18. The learned departmental representative further contended that "a" can be "any" but "any" cannot be "many". Besides, the statute has consciously used the words "a residential house" as well as "the residential house". The case law cited by the counsel for the assessee was sought to be distinguished on the fact that they were applicable to legislative positions as applicable prior to 1-4-1983. Therefore, they are not applicable. Besides, it was contended that once the language of the new provisions is very clear, and capable of giving plain meaning, there is no purpose in going for external aids of construction and case laws which are based on earlier provisions by drawing simile therefrom. Apart from the inconsistencies in the stand of the assessee about the legitimate residential needs it was further contended that the flats being separate and distinct residential units were on separate floor and from additional utility point of view also, they cannot be considered as a house. Reliance was placed on CIT v. Gautam Sarabhai Trust (1988) 173 ITR 216(Guj.) in the case of CIT v. Poddar Cement (P.) Ltd. (1997) 226 ITR 625. In fine it was contended that the words use....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... but the clear intent of the law. Pitted against each other, the intend of law has to prevail. According to us section 54(1), 54(1)(i) and 54(1)(ii) uses the words "a residential house" and "the residential house" for the same thing. Similarly, "the residential house" is purported to be referred to as "the new asset" for rest of the provisions. It has to be presumed that Legislature is oblivious of the selection of words. If the Legislature had an intention to exempt more than one unit it could have been done by simple words like "residential house or houses", "the new asset/assets". Similarly in clauses (i) & (ii), the cost of acquisition of new asset is directed to be taken as Nil if the new asset is sold within three years of its purchase. If the Legislature intended more than one residential units, here also it could have used the words "if there are more than one units the cost of acquisition in respect of new asset should be the date on which it is acquired". The whole Scheme of section 54(1)(i) & (ii) spells out that what the Legislature means unambiguously is one residential use. The Hon';ble Supreme Court in CIT v. Vegetable Products Ltd. (1973) 88 ITR 192has held that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....construction of one residential house. Under these circumstances we uphold the order of the lower authorities on this issue. This issue arising out of several grounds is dismissed. 21. The third issue raised is as under : "Without prejudice to ground 1 above ground III 1. The CIT(A) erred in passing an order of enhancement under section 251(2) of the Act on the alleged ground that expenditure incurred by the Appellant to bring the new flat to a habitable condition was not includible in the cost of the new flat, thereby disallowing an amount of Rs. 14,94,357 which was earlier allowed by the JCIT out of the total expenditure of Rs. 17,26,908. 2. He further erred in making certain incorrect, immaterial and/or irrelevant observations, in particular the following : (i)the expenditure for the kind of minor defects pointed out by the architect certainly could be a minor amount and not as much as Rs. 17,26,908. The appellant obviously has undertaken substantial renovation to achieve a luxury status. (ii)the term "cost of the new asset" should necessarily refer to purchase consideration and not subsequent expenditure unrelated to purchase transaction itself. He failed t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o achieve a luxury status. Reference was made to assessee';s letter dated 24-1-2000 addressed to the Assessing Officer stating that the nature of repairs were such as to make the flat comfortable enough and to be fit for occupation keeping in view the social status and the type of flat stayed earlier. The flat was built 30 years ago. Much attention was not paid in its upkeep and maintenance. The CIT(A) however, was of the view that cost of the "new asset" should necessarily refer to purchase consideration or cost of construction and not subsequent expenditure unrelated to purchase iself. Legislature have provided for cost of improvement in respect of original asset under section 48(ii), but have not provided it for the new asset. The same could not be an unintended omission. Looking at the time limit prescribed, the CIT(A) was of the view that looking at the plain langauge, further renovation, repairs after purchase could not be included in the cost of the new asset. If that was to be allowed, the Assessing Officer had to read more words into the provision than what actually existed. The assessment was accordingly enhanced by excluding the above amount out of the cost of the ne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was assailed. 25. The learned departmental representative, on the other hand, contended that the expenditure in question are improvement expenses and are incurred after effecting the purchase. Section 54(1)(ii) refers to "cost" only which in common parlance means price of the house. Wherever the Legislature have intended to increase the ambit of word "cost", necessary words are used as rightly observed by the CIT(A) in connection with section 48(iii) with reference to cost and improvement. In the existing provisions, there cannot be further addition after the purchase is completed. 26. We have heard the rival submissions and perused the material available on record. The words used about the amount spent on purchase of new asset are "cost thereto" and not "price thereto". The cost includes purchase as well. Consequently, we are of the view that the word used signifies that the amount of purchase will include other necessary expenditure in this behalf to make a residential house habitable and taken together will be the cost of the new asset. We have perused the items of the report of the architect. The residential house was in a state of general disrepair and was unhabitable. C....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a Government Approved Valuer, who had given a technical report. The CIT(A) is not a technical person. The comparative instances given are of a flat which was occupied by tenant and was to be sold at a considerably lesser amount because of the presence of a tenant. The assessee sold the flat with a vacant possession. These two instances cannot be compared. The learned CIT(A) instead of himself touching the technical aspect should have referred the same to the Departmental Valuation Officer in this behalf. A reference was made to section 55A. Reliance was placed in the case of Raj Paul Oswal v. CWT (1988) 171 ITR 489(Punj. & Har.) to the effect that the word used "may" in the provisions means "shall". The valuation report of the assessee was described and it was contended that the same being realistic and based on technical data, should have been relied on. 30. The learned departmental representative, on the other hand, contended that the valuation report submitted by the assessee is a self-serving document. Besides, it is not a final say about the FMV of any property. It was only a piece of evidence in the form of advice. Reliance was placed in the case of Hotel Amar v. CIT (199....