Commissioner Of Income Tax vs Gita Duggal on 21 February, 2013
THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on: 21.02.2013- ITA 1237/2011
SUB: WHETHER SEVERAL INDEPENDENT UNITS CAN CONSTITUTE "A RESIDENTIAL HOUSE"
BRIEF FACTS
- The assessee entered into a development agreement pursuant to which the developer demolished the property and constructed a new building comprising of three floors.
- In consideration of granting the development rights, the assessee received Rs. 4.00 crores and two floors of the new building.
- The AO held that in computing capital gains, the cost of construction of Rs. 3.43 crores incurred by the developer on the development of the property had to be added to the sum of Rs. 4.00 crores received by the assessee.
- The assessing officer held that the two floors which were given to the assessee by the developer and on which the developer had incurred construction cost were independent of each other and self-contained and therefore they cannot be considered as one unit of residence. Accordingly, he held that the assessee was not eligible for the exemption under Section 54. Dealing with the claim for relief under Section 54F, the assessing officer held that the exemption would be available only in respect of one unit, since the two residential units were independent of each other and the assessee cannot therefore claim exemption on the footing that both constituted a single residence. In this view of the matter he recomputed the capital gains by making an addition of `98,20,722/-.
- The assessee claimed that as the said capital gains was invested in the said two floors, she was eligible for exemption u/s 54.
- ON APPEAL, THE CIT(APPEALS) agreed with the assessee's contention and following the judgment of the Karnataka High Court cited above, held that the assessee was eligible for the deduction under Section 54 in respect of the basement, ground floor, first floor and the second floor. He accordingly, allowed the appeal.
DECISION OF HON'BLE TRIBUNAL
7. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that ld. counsel of the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of the Hon‟ble Karnataka High Court in the case of CIT & Anr. Vs. Smt. K.G. Rukminiamma in ITA No.783 of 2008 vide order dated 27.8.2010 wherein it was held as under: -
"The context in which the expression „a residential house‟ is used in Section 54 makes it clear that, it was not the intention of the legislation to convey the meaning that: it refers to a single residential house, if, that was the intention, they would have used the word "one." As in the earlier part, the words used are buildings or lands which are plural in number and that: is referred to as "a residential house", the original asset. An asset newly acquired after the sale of the original asset also can be buildings or lands appurtenant thereto, which also should be "a residential house." Therefore, the letter „a‟ in the context it is used should not be construed as meaning "singular." But, being an indefinite article, the said expression should be read in consonance with the other words "buildings" and "lands" and, therefore, the singular „a residential house‟ also permits use of plural by virtue of Section 13(2) of the General Clauses Act. - CIT V. D. Ananda Bassappa (2009) 223 (kar) 186: (2009) 20 DTR (Kar) 266 followed."
8. Upon careful consideration, we find that the contentions of the assessee that the issue is covered in favour of the assessee are correct. Accordingly, we do not find any infirmity or illegality in the order of the Ld. Commissioner of Income Tax (Appeals) and hence, uphold the same."
APPEAL BEFORE HON'BLE HIGH COURT
9. In the present appeal before us, the revenue has proposed the following questions as substantial questions of law which in its opinion arise out of the order of the Tribunal.
"A) Whether the Hon'ble ITAT has erred in deleting the addition of `98,20,772/- under section 54F of the Income Tax Act, 1961 as made by the Assessing Officer?
B) Whether the Hon'ble ITAT has erred in law and facts in holding that the assessee should be given deduction under section 54 of the Income Tax Act, 1961?"
10. As held in B. Ananda Bassappa (SLP dismissed) & K G Rukminiamma, the Revenue's contention that the phrase "a" residential house would mean "one" residential house is not correct. 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.
11. Also, Section 54/54F of the IT Act, 1961 uses the expression "a residential house" and not "a residential unit".
12. Section 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the Section should be taken to have been satisfied. There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for residential use and not for commercial use.
13. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems to us that the income tax authorities cannot insist upon that requirement.
14. A person may construct a house according to his plans, requirements and compulsions. A person may construct a residential house 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. It is quite common to find such arrangements, particularly post-retirement.
15. 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. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house.
16. There may be several such considerations for a person while constructing a residential house. The physical structuring of the new residential house, whether it is lateral or vertical, cannot come in the way of considering the building as a residential house.
17. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction u/s 54/54F. It is neither expressly nor by necessary implication prohibited.
CONCLUSION
From the above decision, it is clarified that there is nothing in Section 54/54F which specifies that the residential house should be constructed in a particular manner. Any person will construct his house according to his need and on the basis of future requirements. The house build may consist of one unit or it may consist of several separate units. The exemption under Section 54/54F should not be denied on the basis of that concerned residential premises consists of several independent units. The physical structure of a building cannot come in way of providing exemption under Section 54/54F. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems that the income tax authorities cannot insist upon that requirement. A building consisting several independent units will not be allowed to be an impediment while claiming exemption under section 54/54F. it means that a building consisting several units will be considered as a single residential house for provisions of Section 54/54F of the Income Tax Act,1961.
DISCLAIMER: The above case law is only for the information and knowledge of readers. In case of necessity do consult with tax professionals.
Footnotes
SECTION 54 OF Income Tax Act,1961 provides that
Under Section 54 - Any Long Term Capital Gain, arising to an Individual or HUF, from the Sale of a Residential Property (whether Self-Occupied or on Rented) shall be exempt to the extent such capital gains is invested in the
- Purchase of another Residential Property within 1 year before or 2 years after the transfer of the Property sold and/or
- Construction of Residential house Property within a period of 3 years from the date of transfer/sale of property
Provided that the new Residential House Property purchased or constructed is not transferred within a period of 3 years from the date of acquisition. If the new property is sold within a period of 3 years from the date of its acquisition, then, for the purpose of computing the capital gains on this transfer, the cost of acquisition of this house property shall be reduced by the amount of capital gain exemption under section 54 earlier. The capital gain arising from this transfer will always be a short term capital gain.
SECTION 54F OF Income Tax Act,1961 provides that
Any Gain arising to an individual or HUF from the sale of any Long Term Asset other than Residential Property shall be exempt in full if the entire net sales consideration is invested in
- Purchase of one residential house within 1 year before or 2 years after the date of transfer of such an asset or in
- Construction of 1 Residential House within 3 years after the date of such transfer.
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