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February, 27th 2013
%                                          Judgment delivered on: 21.02.2013

+       ITA 1237/2011
        COMMISSIONER OF INCOME TAX                                 ..... Appellant
        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.




        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


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
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

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

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

ITA 1237/2011                                                    Page 12 of 12
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