AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1598
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.... On the facts and in the circumstances of the case, whether the Appellant is entitled for availing deduction under Section 54 of the Income Tax Act, 1961 against the entire capital gain arising out of sale of his flat in Mumbai in as much as he has invested the sale proceeds from the sale of his flat at Mumbai by joint venture agreement with Samant Estate Pvt. Ltd. for acquisition/construction of the 7 row houses in their project at Yashodanandan Viman Nagar, Pune ? 2) The solitary issue that arises for consideration in this appeal is whether Section 54(1) of the Act allows the Assessee to set off the purchase cost of more than one residential units against the capital gains earned from sale of a single residential house. 3) A brief reference to the facts of the case would be necessary to appreciate the controversy at hand. Residential Flat No. 30 situated at Prabhat Building, 28 B Road, Marine Drive, Mumbai-400020 (Mumbai Flat) was owned by Appellant's mother late Smt. Vishnabai Nangpal. Appellant's mother executed Will on 23rd December 1988 and bequeathed the said Mumbai Flat to the Appellant. One Madan Samant was appointed as guardian of the Appellant, since he was....
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....x, Special Range-3 Pune passed assessment order dated 27th June 1997 disallowing the deduction under Section 54 of the Act against capital gain of Rs. 1,08,30,625/- arising out of Appellant's flat at Mumbai for assessment year 1995-96. Appellant preferred appeal before the Income Tax Appellate Tribunal, Pune Bench, Pune (ITAT) against the order passed by the Deputy Commissioner claiming exemption under Section 54 of the Act against capital gain of Rs. 1,08,30,625/-. The ITAT has partly allowed the appeal preferred by the Assessee directing the Assessing Officer to consider investment made in acquiring/construction of only one row house bearing B-16 worth Rs. 21,78,000/- as qualifying for exemption under Section 54 of the Act while computing the long term capital gain arising out of sale of flat at Mumbai for a total consideration of Rs. 1,45,00,000/-. Being aggrieved by the order dated 7th March 2003, passed by ITAT in respect of block assessment years 1987-88 to 1996-97, the Assessee has preferred the present appeal under Section 260A of the Act. 5) Mr. Thakkar the learned Counsel appearing for Assessee would submit that the Assessee is entitled to exemption against the entire ....
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.... similar issue has already been answered in favour of the Assessee. He would also rely upon judgment of Madras High Court in Tilokchand & Sons Vs. ITO 2019 (413) ITR 189 (Madras) and of Delhi High Court in CIT Vs. Gita Duggal (2013) 357 ITR 153 (Delhi). He would further submit that the reliance placed by the ITAT on subsequent letting of one of the row houses after 3 years of assessment year 1989-90 is clearly erroneous. That Karnataka High Court was confronted with the similar situation in CIT Vs. D. Ananda Basappa 2009 (309) ITRA 329 (Karnataka) where occupation of flats by two different tenants was found to be irrelevant factor by the Karnataka High Court. That department's SLP against the said decision has been dismissed. On above broad submissions, Mr. Thakkar would pray for setting aside the order passed by the ITAT and for answering the question of law in favour of the Assessee. 7) The appeal is opposed by Mr. Sharma, the learned Counsel appearing for the Revenue. He would submit that the concurrent findings recorded by the department and ITAT do not warrant any interference in exercising appellate jurisdiction by this Court under Section 260A of the Act. That the interpr....
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....l gains of Rs. 1,08,30,625/- arising out of sale of his flat in Mumbai, on account of utilization thereof towards purchase of seven row houses in Pune ? To paraphrase, the issue for consideration is whether sale proceeds of one residential house, used for purchase of multiple residential houses, would qualify for exemption under Section 54(1) of the Act ? 10) Before proceeding further, it must be noted that the case pertains to the Assessment Year 1995-96, and accordingly, provisions of Section 54(1) of the Act, prior to its amendment by Finance (No. 2) Act, 2014, are relevant. The unamended Section 54(1) of the Act read thus: "54. Profit on sale of property used for residence. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head Income from house property (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years af....
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....of Section 54(1) of the Act in respect of one of the seven row houses purchased by the Assessee. 13) In our view, the amendment brought in by Finance (No. 2) Act 2014 makes the position clear that after the amendment, the capital gains can be adjusted against purchase of only 'one' residential house. The word 'a' is consciously replaced by the legislature by the word 'one' by way of amendment making the intention clear that after the amendment, it is impermissible to adjust the capital gains arising out of one house towards purchase of more than one houses. If the restriction of adjustment of capital gains against only one house was already there in the unamended Section 54(1), there was no necessity of amendment by specifically using the word 'one'. 14) The Tribunal has relied on judgment of Single Judge of this Court in K.C. Kaushik (supra) while rejecting Assessee's claim in respect of all seven row houses and while allowing the same only against one row house. However, while deciding the case in K.C. Kaushik, this Court did not have the benefit of comparing the amended and unamended provisions of Section 54(1) of the Act. Also, the issue involved before Single Judge of th....
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....sidential property in Chennai, which was sold on 9th October 2002 and in the return of income, the Assessee declared long term capital gain arising out of the sale of the said property of Rs. 15,44,009/- by claiming deduction under Section 54 of the Act in respect of two properties purchased in Bangalore on 23rd September 2002 and 23rd October 2002. The Assessing Officer, however, held that the Assessee was not entitled to claim deduction under Section 54 of the Act in respect of investment made in acquiring two residential properties. The issue for consideration is formulated in paragraph-2 of the judgment as under:- 2. The issue, which arises for consideration in this appeal is whether the assessee is entitled to claim exemption under Section 54 of the Act as he had purchased more than two houses. In order to appreciate the factual background, in which the aforesaid issue arises for considertion, reference to relevant facts is necessary, which are stated hereinafter. After taking into consideration the unamended provisions of Section 54 of the Act, the Division Bench held in paragraphs 11 to 15 as under:- "11. From close scrutiny of the aforesaid provision, i....
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....', the provisions of Section 54(1) were amended with an object to restrict the plurality to mean singularity by substituting the word 'a residential house' with the word 'one residential house'. The aforesaid amendment came into force with effect from 1-4-2015. The relevant extracts of Explanatory note to provisions of Finance (No. 2) Act, 2014 reads as under: 20.3 Certain courts had interpreted that the exemption is also available if investment is made in more than one residential house. The benefit was intended for investment in one residential house within India. Accordingly, sub-Section (1) of Section 54 of the Income-Tax Act has been amended to provide that the rollover relief under the said Section is available if the investment is made in one residential house situated in India. 20.5 Applicability:-These amendments take effect from 1st April, 2015 and will accordingly apply in relation to Assessment year 2015-16 and subsequent Assessment years. Thus it is axiomatic that the aforesaid amendment was specifically applied only prospectively with effect from Assessment year 2015-16. 14. The subsequent amendment of Section 54(1) also fort....
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....Sons as under:- "20. We have discussed about the two decisions from the Karnataka High Court, which, in our opinion, dealt with similar controversy as is raised before us herein. The only difference which we find is that the purchase of the residential houses in the present case is at different address in the same city of Madurai. In D. Ananda Basappa case stated (supra), two flats in question were admittedly adjacent to each other and which were joined to become one residential house. In the case of Khoobchand M.Makhija (supra), two door nos are given viz., 623 and 729, but the complete addresses and even the name of the city is not clear in the facts narrated in the said Judgment. But in our considered opinion, the difference of location of the newly purchased residential house(s) will not alter the position for interpretation of the word 'a residential house' to the effect that it may include more than one or plural residential houses, as held by Karnataka High Court, with which we respectfully agree. The location of the newly purchased houses by the same assessee viz., HUF out of sale consideration received on the sale of original capital Asset or a residential....
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....its of residential houses, which is a reason why the amendment was necessary. The Madras High Court has also held that even if the multiple houses are purchased bearing different addresses, the same did not make any difference, so long as the same Assessee has purchased the same out of sale consideration of the sold house. 18) Both Karnataka High Court in Arun K. Thiagarajan and Madras High Court in Tilokchand & Sons have also referred to another judgment of Karnataka High Court decision in CIT Vs. Khoobchand M. Makhija (2014) 43 taxmann.com 143/223. The Madras High Court also took note of another judgment of Karnataka High Court in CIT Vs. D. Ananda Basappa (2009) 309 ITR 329/180 Taxman 4. The Madras High Court also took note of the fact that the Special Leave Petition preferred by the Revenue against the judgment in D. Ananda Basappa was dismissed by the Supreme Court. The Delhi High Court in CIT Vs. Geeta Duggal (supra) has also adopted the same view. Thus, the issue involved in the present appeal is squarely covered by several judgments as discussed above. 19) Thus, the position appears to be fairly well settled that use of the words 'a residential house' in unamended Sec....
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....hand M. Makhija (decision rendered in 2014) and Arun K. Thiagarajan (decision rendered in 2020) have interpreted the provisions of unamended Section 54 (1) of the Act for holding that the expression 'a residential house' would also include within its ambit and scope, plural number as well. Similarly, at the time of passing the order in Pawan Arya, the Division Bench of Punjab and Haryana High Court did not have benefit of subsequent amendment brought about by the Finance (No. 2) Act, 2014. The effect of the said amendment has been discussed by the Madras High Court in Tilokchand & Sons and by Karnataka High Court in Arun K. Thiagarajan. Therefore reliance on the order of Punjab and Haryana High Court in Pawan Arya does not assist the case of Revenue. (b) The judgment in Raman Kumar Suri (supra), a decision rendered prior to amendment of Section 54 (1) of the Act, has been rendered purely in the facts of the case where two flats were joined together, and therefore, the exemption under Section 54 (1) of the unamended Act was held to be admissible. In fact, in the present case, the Assessee has contended that 6 of 7 row houses were joined by common passage and ought to have b....