THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 21.02.2013
+ ITA 1237/2011
COMMISSIONER OF INCOME TAX ..... Appellant
versus
GITA DUGGAL ..... Respondent
Advocates who appeared in this case:
For the Appellant : Mr Kamal Sawhney, sr. standing counsel
For the Respondent : Mr P C Yadav, Adv.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE R.V.EASWAR
JUDGMENT
R.V.EASWAR, J
The revenue has filed the appeal under Section 260A of the Income
Tax Act, 1961 against the order dated 07.06.2001 passed by the Income
Tax Appellate Tribunal in ITA 3613/Del./2010 for the assessment year
2007-08.
2. The assessee which is the respondent in the appeal is an individual.
In the computation of income filed along with the return of income, she
declared long term capital gains of `2,68,25,750/- in the following
manner :-
ITA 1237/2011 Page 1 of 12
"Income from Capital Gain
Long Term
A 22 WESTEND COLONY
Consideration as per Collaboration Agreement 40,000,000.00
Less Index cost for pur. of `1575000
(Fair Value as on 1-04-81) 8,174,250.00 31,825,750.00
Less : Exemption under section 54EC (REC Bonds) 5,000,000.00
26,825,750.00"
While completing the assessment the assessing officer took the view that
on the terms of the agreement entered into with M/s Thapar Homes Ltd.
on 08.05.2006, the cost of construction of the building incurred by the
aforesaid company which was the developer of the property would also
be included in the total sale consideration. The assessee responded by
submitting that the entire cost of construction was incurred by the builder
and even if it is considered as part of the sale consideration, since it has
been fully invested in the residential house itself, the same would be
exempt under Section 54 of the Act. The assessing officer did not accept
the assessee's submission. He therefore, added an amount of
`3,43,72,529/- which was the cost of construction incurred by the
developer to the sale consideration of ` four crores received by the
assessee and computed the total sale consideration at `7,43,72,529/-.
3. Dealing with the assessee's contention that in any case the sale
consideration should be taken as having been invested in the new
residential house and thus exempt under Section 54, which was supported
ITA 1237/2011 Page 2 of 12
by a judgment of the Karnataka High Court in CIT Vs. B. Ananda
Basappa : (2009) 309 ITR 329, 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/-.
4. 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.
ITA 1237/2011 Page 3 of 12
5. The revenue carried the matter in appeal before the Tribunal and
raised the following ground :-
"On the facts and on the circumstances of the case Ld.
Commissioner of Income Tax (Appeals) has erred in law and
on the facts in deleting the addition of `98,20,722/- u/s. 54F
of the IT Act, 1961 which the Assessing Officer had allowed
in respect of only one unit by treating the units as two
separate residential properties."
The Tribunal confirmed the decision of the CIT (Appeals) by observing
as under: -
"6. 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 Honble 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
ITA 1237/2011 Page 4 of 12
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."
7. Upon careful consideration, we find that the
contentions of the assessee that the issue is covered in favour
of the assessee are correct.
7.1 Ld. Departmental Representative could not controvert
the above and no contrary decision was cited before us.
8. 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."
6. 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 Honble 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 Honble 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?"
7. We have considered the facts and taken note of the rival
submissions. To complete the narration of facts, it needs to be noticed
that the assessee was the owner of property at A/22, Westend Colony,
New Delhi comprising of the basement, ground floor, first floor and
ITA 1237/2011 Page 5 of 12
second floor. She was deriving rental income from the property. On
08.05.2006 she entered into a collaboration agreement with M/s Thapar
Homes Ltd. for developing the property. According to its terms, the
assessee being desirous of getting the property redeveloped/reconstructed
and not being possessed of sufficient finance and lacking in experience in
construction, approached the builder to develop the property for and on
behalf of the owner at the cost of the builder. The builder was to
demolish the existing structure on the plot of land and develop, construct,
and/or put up a building consisting of basement, ground floor, first floor,
second floor and third floor with terrace at its own costs and expenses. In
addition to the cost of construction incurred by the builder on
development of the property, a further payment of `four crores was
payable to the assessee as consideration against the rights of the assessee.
The builder was to get the third floor. The assessee accordingly handed
over vacant physical possession of the entire property along with 22.5%
undivided interest over the land. The handing over of possession of the
entire property was however only for the limited purpose of development;
the undivided interest in the land stood transferred to the
developer/builder only to the extent of 22.5% for his exclusive
ITA 1237/2011 Page 6 of 12
enjoyment. It was on these facts that the assessing officer first took the
view that the sale consideration for the transfer of the capital asset should
be taken not merely at `four crores which was the cash amount received
by the assessee, but the cost of construction incurred by the developer on
the development of the property amounting to `3,43,72,529/- should also
be added to the sale consideration. The assessee thereupon claimed that
if the cost of construction incurred by the builder is to be added to the
sale price, then the same should also be correspondingly taken to have
been invested in the residential house namely the two floors which the
assessee was to get in addition to the cash amount under the agreement
with the builder, and the amount so spent on the construction should be
allowed as deduction under Section 54 of the Act. It was at this stage that
the assessing officer rejected the claim for deduction under Section 54 on
the footing that the two floors obtained by the assessee contained two
separate residential units having separate entrances and cannot qualify as
a single residential unit. He agreed that the assessee was eligible for the
relief under Section 54F in respect of the cost of construction incurred on
one unit. He noted that the assessee has retained the ground floor and the
basement. He therefore, apportioned the construction cost of
ITA 1237/2011 Page 7 of 12
`3,43,72,529/- to have been incurred on the basement, ground floor, first
floor and second floor in the ratio of 1:1:1:0.5 for second floor, first floor,
ground floor, basement respectively. Since he was allowing the relief
under Section 54F of the Act only in respect of one unit, he added
`98,20,722/- which is the figure arrived at by dividing the total cost of
construction of `3,43,72,529/- by 3.5. This is how the assessment was
made. What in effect the assessing officer had done was to reject the
assessee's claim for deduction under Section 54/54F of the Act in respect
of the house/units in the first and second floors holding that they were
separate and independent residential units having separate entrances and
cannot be considered as one unit to enable the assessee to claim the
deduction. This was disapproved by the CIT(Appeals) on the basis of the
judgment of the Karnataka High Court (supra) and his decision was
approved by the Tribunal. The Tribunal expressed the view that the
words "a residential house" appearing in Section 54/54F of the Act
cannot be construed to mean a single residential house since under
Section 13(2) of the General Clauses Act, a singular includes plural.
8. It is the correctness of the above view that is questioned by the
revenue and it is contended that the interpretation placed by the Tribunal
ITA 1237/2011 Page 8 of 12
gives rise to a substantial question of law. The assessee strongly relies
upon the judgment of the Karnataka High Court (supra) which, it is
stated, has become final, the special leave petition filed by the revenue
against the said decision having been dismissed by the Supreme Court as
reported in the annual digest of Taxman publication. The judgment of the
Karnataka High Court supports the contention of the assessee. An
identical contention raised by the revenue before that Court was rejected
in the following terms :
"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 residential building
or lands appurtenant thereto, he can invest capital gains for
purchase of residential building 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 capital gain of which can be invested in a residential
building to seek exemption of capital gain tax. However, the
proviso to section 54 of the Income- tax Act, lays down that
if the assessee has already one residential building, he is not
entitled to exemption of capital gains tax, when he invests
ITA 1237/2011 Page 9 of 12
the capital gain in purchase of additional residential
building."
This judgment was followed by the same High Court in the decision in
CIT Vs. Smt. K G Rukminiamma in ITA No.783/2008 dated 27.08.2010.
8. There could also be another angle. Section 54/54F uses the
expression "a residential house". The expression used is not "a
residential unit". This is a new concept introduced by the ass essing
officer into the section. 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 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 to us that the income tax authorities cannot
insist upon that requirement. A person may construct a house according
ITA 1237/2011 Page 10 of 12
to his plans and requirements. Most of the houses are constructed
according to the needs and requirements and even compulsions. For
instance, 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.
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. There may be several
such considerations for a person while constructing a residential house.
We are therefore, unable to see how or why the physical structuring of the
new residential house, whether it is lateral or vertical, should come in the
way of considering the building as a residential house. We do not think
that the fact that the residential house consists of several independent
ITA 1237/2011 Page 11 of 12
units can be permitted to act as an impediment to the allowance of the
deduction under Section 54/54F. It is neither expressly nor by necessary
implication prohibited.
For the above reasons we are of the view that the Tribunal took the
correct view. No substantial question of law arises for our consideration.
The appeal is accordingly dismissed with no order as to costs.
R.V.EASWAR, J
BADAR DURREZ AHMED, J
21st February, 2013
vld
ITA 1237/2011 Page 12 of 12
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