TaxTMI 
TaxTMI 
2018 (4) TMI 438
X X X X Extracts X X X X
X X X X Extracts X X X X
....order by contending that the First Appel late Authority did not provide opportunity to the Assessing Officer and admitted additional evidence in the form of photographs and electricity bills, thus, it is violation of rule 46A of I.T. Rules. 2.1 We have considered the rival submissions and perused the material available on record. The facts in brief are that the assessee declared original return of income on 29.07.2009, amounting to Rs. 6,85,460, which was processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter the Act). Subsequently, the case of the assessee was selected for scrutiny and assessment was framed on a total income at Rs. 15,36,660, under section 143(3) of the Act vide order dated 28.12.2011. During the proceedings, it was revealed that the assessee had sold the basement and realized capital gain of Rs. 1,24,08,721, which was invested in acquiring two house properties at "Royal Accord III". The stand of the Assessing Officer was that the basement does not fall within the purview of "Residential Flat" as envisaged u/s 54 of the Act. Thus, the same not being in the nature of capital asset, the gain arising therefrom should be taxed. The case of the assessee was r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ger city like Delhi. Normally, the basement is used as a residential unit and if there is any violation there is a separate provision of taking action by the Municipal Authorities. Even if it is used as a residential unit by the domestic helps or used as a play ground like Table Tennis, it cannot loose its character as a residential unit. There is uncontroverted finding in Para-4.3 of the impugned order that there was evidence on record to show that the basement referred as "A-2 / 30" of Sufdarjang Enclave as a habitable unit. The assessee produced the photographs of the basement clearly revealing, independent entry gate, stair case, living room, bed room, dining, wash basin, toilet, kitchen and mini-drawing room. If the Assessing Officer was apprehensive of some mala-fide nothing prevented to visit actual site / building and should have examined the factual matrix. The assessee also produced the evidences like property tax bill and electricity bills issued by BSES / Rajdhani Power Ltd. evidencing that the basement was merely used as a residential unit. Thus, such evidences cannot ignored. 3.2 Now, we shall analyze the provision of section 54 and section 54F of the Act. Section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ater than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub- section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,- (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. Explanation.-[Omitted....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nbsp; Explanation.-[Omitted by the Finance Act, 1992, w.e.f. 1-4- 1993.]" 3.4 A plain reading of the provision of section 54(1) of the Income-tax Act discloses that when an individual-assessee or Hindu undivided family-assessee sells a long term capital assets and within a specified period construct / acquire residential unit (new asset), the capital gain arises from the original asset, shall be dealt with in accordance with the provisions of this section. Such assessee can invest capital gains for purchase of residential building/house to seek exemption of the capital gains tax. Section 13 of the General Clauses Act declares that whenever the singular is used for a word, it is permissible to include the plural. The contention of the Revenue is that the phrase "a" residential house would mean one residential house and it does not appear to the correct understanding. The expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should not be understood to indicate a singular number. The combined reading of sections 54(1) and 54F of the Income- tax Act discloses that, a non residential building can be sold, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out or even the other family members can be adjusted and they can remain mutually supportive. It is neither expressly nor by necessary implication prohibited. Hon'ble Jurisdictional High Court in K.C. Kaushik vs. Income Tax Officer 185 ITR 499 (Bom) held as under: "1. The petitioner is in the service of the Bank of Baroda. He purchased a flat in Suvarnadeep Co-operative Housing Society Limited (for short "Surnadeep"), Santacruz, Bombay, on March 21, 1973, for a sum of Rs. 49,140 for the purpose of his residence. He was residing in that flat On October 24, 1979, he sold the flat for Rs. 1,25,000 and on same the date purchased another flat in Jai Priyadarshini Co-operative Housing Society Limited at Khar. Bombay (for short "Priyadarshini"), for a sum of Rs. 1,11,000. He....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e also held that to the extent the petitioner had availed of relief under section 54 against the purchase of this flat on October 24, 1979, the cost of the flat was required to be reduced. Accordingly, he computed the short-term capital gains for the year at Rs. 82,860. The petitioner's appeal thereagainst failed. According to the Commissioner of Income-tax (Appeals), the petitioner had no option or choice. Relief under section 54 was or could be available only against the purchase of the first property for residence after the sale of the residential house capital gains arising on the transfer of which were sought to be adjusted. 4. The petition was admitted on August 30, 1985, when interim relief in terms of prayer (g) was also granted. It is proposed to dispose of the preliminary objection first. It was contended by Dr. Balasubramanian, for the Revenue, that the Income-tax Act provides a complete machinery for the assessment of tax, imposition of penalty for granting relief in respect of any improper order passed by the income-tax authorities. A person aggrieved by an order of the Income-tax Officer had thus adequate remedies available to him by way of appeal to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... house property for the purposes of his own residence, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, - (i) if the amount of the capital gain greater than the cost of the new asset, the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as income of the previous year; 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 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." 7. Evidently, relief is not available under the se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of which the assessee sought relief of capital gains under section 54 is sold within a period of three years of its purchase or construction, the cost of the new asset will be required to be reduced to the extent of relief availed of on account of capital gains earned but adjusted. It is for this reason that it has become important to consider whether the new asset, i.e., the flat in Kalpana purchased by the petitioner on July 26, 1980, which was admittedly let out by the petitioner to his employer, Bank of Baroda, on and from May 27, 1982, on his transfer to Baroda can be said to be a factor that would bring the petitioner within the mischief of clause (i). In the context, it is desirable to refer to the Gujarat High Court decision in the case, CIT v. Tikyomal Jasanmal [1971]82 ITR 95. The facts in that case were that out of the total constructed portion of the house admeasuring 1,389 sq. ft., the assessee had let out an area of 734 sq. ft., i.e., more than half, immediately on completion of the construction. It was held that the new house was not constructed by the assessee for the purpose of his own residence. The court, however, observed that it was not the case of the assessee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egard as held by the Commissioner of Income-tax (Appeals). He also argued that the fact that the petitioner had to vacate and let out the flat on his transfer to Baroda was not germane to the issue. The fact is that the flat was not occupied by the petitioner for a period of three years. 11. In my view, the manner in which the provision in this regard has been construed by the Gujarat High Court in its aforesaid two decisions is reasonable and requires to be accepted. The expression "for the purpose of his own residence", in my judgment, means and refers to a situation where a new capital asset. i.e., the house property, is purchased by the assessee with the intention to use the same as his own residence. If, for some reason over which he has no control or something unforeseen happens as a result of which he has to reside at a place other than the place where such a new capital asset is situate, it could not be held that the new capital asset was not purchased for the purposes of his own residence. In the above view of the matter, both the conditions are satisfied in this case. Accordingly, the petition succeeds. Rule is made absolute in terms of prayer clauses (b) and (d)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the Special Bench case had also purchased two residential houses against sale consideration of residential flat at Gulistanâ(tm) situated at Bhulabai Desai Road, Mumbai. One residential property was at Varun Apartments at Varsova and the other property was at Erlyn Apartments, Bandra and it was held by the Special bench in the aforementioned case i.e. ITO Vs. Ms. Sushila M. Jhaveri (supra) that the assessee is entitled to get exemption only in respect of one house of her choice. Therefore, the decision of Special Bench is fully applicable to the present case and the assessee can avail exemption u/s 54 in respect of one residential house only. The factual aspect has not been disputed by ld. AR. The only dispute before us is legal proposition that whether the assessee is entitled to get exemption in respect of two independent residential houses purchased out of sale consideration of another residential house. Therefore, the issue is decided in favour of the department and it is held that the assessee is entitled to get exemption u/s 54 in respect of one property only and no question has been raised by ld. AR regarding the choice of the property or the factual aspect of the ma....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bstantial question of law arises. 7. The appeal is dismissed." 3.5 The Hon'ble High Court was approached, against the order of the Tribunal, wherein the decision in the case of D. Anand Basapa vs. ITO was also considered. The case decided by Hon'ble High Court is identical to the facts before us wherein the assessee claimed exemption in respect of two independent residential houses situated at different locations. In the case of CIT vs. D. Anand Basapa there were two houses were purchases by the assessee and was not independent properties and the builders made effected modifications in the flat and made it one unit by opening the door in between two apartments in that situation a particular decision was taken. However, in the appeal before us the alleged basement is very much part and parcel of the same residential building, therefore, the ratio laid down by the Hon'ble Punjab & Haryana High Court squarely applicable to the case of the assessee. The ratio laid down in the case of ITO vs. Mrs. Sushila M. Jhaveri 107 ITD 327 (Mum) (SB) (2007) where the houses were located at different places, the Mumbai Bench of the Tribunal held that exemption u/s 54F was ava....