Referred Sections:
Section 54 of the Act
Section 54/54F.
Section 45
Referred Cases / Judgments
CIT vs Gita Duggal 357 ITR 153(Del) (2013)
In the Income-Tax Appellate Tribunal,
Delhi Bench `F', New Delhi
Before : Shri H.S. Sidhu, Judicial Member And
Shri B.R.R. Kumar, Accountant Member
ITA No. 2457/Del/2019
Assessment Year: 2013-14
Ravi Jain, FU-71, Pitampura, vs. ACIT, Circle 47(1),
New Delhi. New Delhi
PAN: AAGPJ0442F.
(Appellant) (Respondent)
Appellant by None
Respondent by Sh. Surender Pal, Sr. DR
Date of Hearing 03.06.2019
Date of Pronouncement 03.06.2019
ORDER
Per B.R.R. Kumar, A.M.:
The assessee filed appeal on 20.03.2019. Vide order sheet dated
09.05.2019,the case was adjourned to 03.06.2019 and the parties were
accordingly informed. On the designated date of hearing, nobody attended on
behalf of the assessee. Hence, the matter is being adjudicated on merits after
taking into consideration the facts available on record.
The grounds raised in appeal read as under :
ITA No. 2457/Del/2019 2
1. The Ld. CIT(A) has erred both in law and in facts in circumstances of
the case in disallowing the construction cost of Rs.24,35,431/- on the
presumption that the same is allowable at the time of calculating capital
gains as cost of improvement ignoring the fact that the expense of
construction cost is allowable deduction u/s 54/54F of the Act if the same is
done before the filling of return of income.
2. The Ld. CIT(A) has erred both in law and in facts of the case in
making the above disallowance without providing any opportunity to the
appellant to represent his case before himself.
3. The impugned assessment is invalid and without jurisdiction as the
said assessment is completed without complying with requirements of the
provisions of Income Tax Act therefore such assessment is void ab initio and
liable to be quashed.
The facts relevant for adjudication are that the assessee has sold a vacant
plot at village Budhpur, Narela, Delhi on 16.08.2012 for a consideration of
Rs.170,65,000/- and purchased three residential houses as per the details as
under :
SI. Name/address of plot Date iii purchase/ Name of party of Sale
No as per sale deed investment in purchase consideration
property
1. Property no. 421 (old) 14-Dec-2012 Smt. Veena Gupta Rs. 24,50,000/-
and new no. 521, Smt. Kiran Arora
Lahori Gate, Delhi
Property no. 420 Lahori 14-Dec-2G12 Smt. Veena Gupta Rs. 24,50,000/-
2. Gate, Delhi Smt. Kiran Arora
3. Property no. 419 Naya 13-Feb-2013 1. Sh. Tara Chand Garg
Bans, Khari Baoli, Delhi Rs. 45,00,000/-
Total Rs. 94,00,000/-
ITA No. 2457/Del/2019 3
The AO has rejected the deduction under section 54F claimed by the assessee
on the grounds that the deduction was available only for one residential house
and but not for three units. During the proceedings before the ld. CIT(A), the
assessee submitted the details of acquisition of property subsequent to the sale
of land detailed as under :
S.No. Particulars Amount (in Rs.)
1. Purchase of unit at 419 Naya Bazar, Delhi 45,00,000/-
2. Purchase of unit at 420 Naya Bazar Delhi 13,50,000/-
3. Purchase of unit at 421 Naya Bazar Delhi 21,50,000/-
Add:
4. Stamp Duty & Registration expenses 8,39,550/-
5. Cost of construction expenses 24,35,431/-
Total (1+2+3+4+5) 11,274,981/-
Before the ld. CIT(A), the assessee has taken various arguments
pertaining to eligibility u/s. 54F which are as under : There have been
controversy between taxpayer and income tax department whenever
taxpayer claims exemption under section 54 for investment made in
multiple houses. Question that now arise whether the prefix 'a' used before
the word residential house in sec 54/54F interpreted in singular or plural
sense. To resolve the controversy, it may kindly be noted that a residential
house is not defined anywhere and the same may comprise several
residential units. Even if the assessee makes investment in purchase of
different residential units which are located on different floors but are used
as residential house, it cannot be considered as more than one residential
house and where two adjacent flats are purchased and used by the assessee
as a single residential house, both flats would be considered for claiming
exemption notwithstanding the fact that they are converted into one
ITA No. 2457/Del/2019 4
residential unit or not. The Hon'ble Delhi High Court judgment in case of
CIT vs Gita Duggal 357 ITR 153(Del) (2013) which was approved by the
Hon'ble Apex Court in CIT vs. Gita Duggal (2015) 228 Taxman 62 (SC) that
there is no specific requirement in the law that house should be constructed
in a particular manner and thus, if several units were used by assessee as
single house, requirements laid down in section 54F will be satisfied.
1.6.4 Some of the recent judgments delivered by tax courts in context of
this issue are as follows:
(a) In, CIT vs Gita Duggal case (supra) which was approved by the
Hon'ble Apex Court in CIT vs. Gita Duggal (supra) emphatically deals with
the acquisition of multiple houses and held that "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. Also, section 54/54F uses the expression "a residential
house" and not "a residential unit". 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 that the income tax authorities cannot insist
upon that requirement. 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. 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
ITA No. 2457/Del/2019 5
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. 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. 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 under section 54/54F. It is neither
expressly nor by necessary implication prohibited."
(b) In CIT v. Smt. Sunita Aggarwal (2006) 284 ITR 20 (Delhi), the fact
was that the assessee had acquired four portions of property by four
different sale deeds, but they all constituted one residential house, where
she was residing with her husband and children. It was held that the benefit
under section 54 of the Act would be available in respect of all the four
portions.
1.6.3 Coming to the second objection of the AO that the appellant has
acquired more than one property within a period of one year after the date
of transfer of original asset in contravention of proviso (a)(ii) of sec 54F(1)
of the Act and therefore the exemption available u/s 54 F was denied. In this
connection, it is submitted that the following the judgment of jurisdiction
Delhi High Court in the case of Gita Duggal (supra) and other authorities
cited in para 2.2.4, the three residential units acquired by the appellant one
after another constitute a residential house and therefore even if that house
is acquired unit wise but such piecemeal acquisition in parts of bigger
residential house, it cannot be said that assessee has purchased more than
one residential house unless the other units purchased constitute a separate
house. The view taken by the AO is against the well settled position of taw
that residential units having contiguity with each other being adjacent
units are required to be considered as a single residential house. It is an
undisputed fact on record that appellant has not purchased within one year
after the date of transfer of original asset any other residential house.
Therefore the action of the AO in denying the deduction u/s 54 F of the Act
based on non-compliance of the above proviso is against the latter and
spirit of law laid down by various authorities including the decision of the
jurisdictional High Court in the case of Gita Duggal duly approved by the
Hon'bie Apex Court (both supra).
ITA No. 2457/Del/2019 6
1.6.4 Therefore in view of above it is prayed that exemption u/s 54 F as claimed
in the revised computation filed before the AO be kindly allowed and action of the
AO be quashed."
Vide the written submissions filed before the Tribunal, the assessee contended
that the explanation "a" residential house used in the section should be
understood in a sense that the building should be of residential in nature and
"a" should not be understood to indicate a single number. It was contended that
as long as the assessee acquires a building which may be constructed in such a
manner as to consists of several units which can, if the need arises, be
conveniently and independently used as an independent residence, the
requirement of section should be taken to have been satisfied. He relied on
Ananda Basappa, 309 ITR 329, KG. Rukminiamma 331 ITR 211 and the
jurisdictional High Court judgment in the case of CIT vs. Geeta Dugal, 257 CTR
208 wherein multiple investments in units in the same residential complex
were treated to qualify for deduction u/s. 54F. Thus, the argument of the
assessee revolved around the fact that even multiple residential units should be
treated as one house and deduction should be allowed.
ITA No. 2457/Del/2019 7
The provisions of section 54 F are hereby reproduced which reads as under :
54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee
being an individual or a Hindu undivided family, the capital gain arises from the transfer
of any long-term capital asset, not being a residential house (hereafter in this section
referred to as the original asset), and the assessee has, within a period of one year before
or two years after the date on which the transfer took place purchased, or has within a
period of three years after that date constructed, one residential house in India
(hereafter in this section referred to as the new asset), the capital gain shall be dealt
with in accordance with the following provisions of this section, that is to say,--
(a). if the cost of the new asset is not less than the net consideration in respect of the
original asset, the whole of such capital gain shall not be charged under section 45 ;
(b). if the cost of the new asset is less than the net consideration in respect of the original
asset, so much of the capital gain as bears to the whole of the capital gain the same
proportion as the cost of the new asset bears to the net consideration, shall not be
charged under section 45:
Provided that nothing contained in this sub-section shall apply where the assessee owns
on the date of the transfer of the original asset, or purchases, within the period of one
year after such date, or constructs, within the period of three years after such dte any
residential house, the income from which is chargeable under the head "income from
house property", other than the new asset.
Explanation.--For the purposes of this section,--
"net consideration", in relation to the transfer of a capital asset, means the full value of
the consideration received or accruing as a result 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
ITA No. 2457/Del/2019 8
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) 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 new asset is transferred.
During the proceedings before the ld. CIT(A), the report of the Inspector was
obtained to examine whether the construction on premises No. 419, 420 and
421 constitute a residential unit or not. The report of the Inspector is as under
Inspector Report
S.No. Name and address of the party Remarks
1 Property No. 421 The front of Premise No. 521, Lahori Gate, Delhi has a
(old) and new no. 521, Lahori board with premise no. 521, Lahori Gate, Naya Bazar,
Gate, Delhi. Delhi. Further, for locating the premise no. 418 which
is the back side of premise no. 521. Further, it is found
that the opposite side of building with premise no. 418
2. Property No. 420, Lahori Gate, is premise no. 423 (pictures attached). Further, on
Delhi enquiring with the nearby people, it is known that
both the premises nos. 419 and 420 are in the same
building in which premise no. 521 is located.
3. Property No. 419, Naya Bans, Therefore, it may be concluded that the Premise No.
Khari Baoli, Delhi 521, Lahori Gate, Delhi, Premise No. 420, Lahori Gate,
Delhi and Premise No. 419, Naya Bans, Khari Baoli,
Delhi is a one single building with a common boundary
wall. On physical verification, few pictures were taken
from the mobile phone which are enclosed.
In continuation to the enquiry conducted on 07.01.2019, I have again visited the
following premises as directed for enquiry on 11.01,2019. The following are the
findings:
ITA No. 2457/Del/2019 9
S.No. Name and address of the party Remarks
1 Property No. 421 On today's enquiry, it is seen that the Premise with ,
(old) and Board No. 521, Lahori Gate, Delhi is a four storey
new no. 521, Lahori Gate, Delhi Lahori Gate, Delhi building with one common
entrance from the front having a single staircase for
going to the above floors. Floors wise details are
submitted below-
Fourth Floor- This floor consists of 4 rooms with one
common kitchen space and one common bathroom in
which two rooms are found vacant. Further, in the
other two rooms one person named Sh. Kaiiash was
found to be present and on asking he informed that he
is the labour of Sh. Ravi Jain and living in these two
rooms since last 3-4 years with his family. The rent is
not paid by him to anyone.
Third Floor- This floor consists of 5 rooms with one
common kitchen space and one common bathroom in
which three rooms are found vacant, Further, in one
room one-person named Sh. Gopai was found to be
present and on asking he informed that he is the staff j
| of M/s Shree. Jaina Rice Private Limited and the rent j
is not paid by him to anyone. The fifth room was found
locked and when asked, the assessee informed that the
said side of the building where the room is located has
been sold by Sh. Ravi Jain to some Sh. Rakesh Jain.
When asked for the proof of the same, he produced the
copy of the sale deed which is enclosed with this
report.
Second Floor- This floor consists of 6 rooms with one
common kitchen space and one common bathroom in
which four rooms are found vacant. Further, in one
room one person named Sh. Mukesh was found to be
present and on asking he informed that he is living on
rent in the said room since last 5-6 months and rent of
Rs. 10,0007- is paid to Sh. Ravi Jain for the same. The
sixth room was found locked and when asked, the
assessee informed that the said side of the building
where the room is located has been sold by Sh..Ravi
Jain to some Sh. Rakesh Jain as also mentioned in the
description of third floor.
First Floor- This floor consists of 5 rooms with one
common kitchen space and one common bathroom in
which two rooms are found vacant. Further, the third
ITA No. 2457/Del/2019 10
room was found locked and the gate of the room was
having a board names "Black Tiger Corporation" and
"Ametheus Commodities Pvt. Ltd". The fourth room
was found locked with no boards attached to the gate
and when asked to the assessee about the same, he
informed that it is also given on rent. The fifth room
was also found locked and when asked, the assessee
Informed that the said side of the building where the
room is located has been sold by Sh. Ravi Jain to some
Sh. Rakesh Jain as also mentioned in the description of
third floor.
On physical verification, few pictures were taken from
the mobile phone which are enclosed.
From the inquiry of the ACIT circle 47(1), it is clear that all three premises are
in the same building with a common boundary wall, a single staircase for access
and one common entrance.
We have also gone through the various judgments quoted by the assessee. The
Hon'ble high court of Karnataka unequivocally held that 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 ss. 54(1) and 54F of the IT 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 s. 54 of the IT Act, lays down that if the assessee has already one
ITA No. 2457/Del/2019 11
residential building, he is not entitled to exemption of capital gains tax, when he
invests the capital gain in purchase of additional residential building. When an
HUF's residential house is sold, the capital gain should be invested for the
purchase of only one residential house is an incorrect proposition. After all, the
HUF property is held by the members as joint tenants. The members keeping in
view the future needs in event of separation, purchase more than one
residential building, it cannot be said that the benefit of exemption is to be
denied under s. 54(1) of the IT Act. On facts, it is shown by the assessee that the
apartments are situated side by side. The builder has also stated that he has
effected modification of the flats to make it as one unit by opening the door in
between two apartments. The fact that at the time when the Inspector
inspected the premises, the flats were occupied by two different tenants is not
the ground to hold that the apartment is not a one residential unit. The fact that
the assessee could have purchased both the flats in one single sale deed or
could have narrated the purchase of two premises as one unit in the sale deed is
not the ground to hold that the assessee had no intention to purchase the two
flats as one unit.
ITA No. 2457/Del/2019 12
Hence, keeping in view the fact that primarily the assessee is eligible for
deduction u/s. 54F and purchased the plots and constructed residential
dwellings on those plots, we hereby hold that the assessee is eligible for the
deduction and confirm the order of the ld. CIT(A) to that extent. At the same
time, we are not in support of the decision of the ld. CIT(A) wherein the cost of
the construction claimed by assessee has not been allowed and directed the
same to be treated as cost of improvement. The decision of the ld. CIT(A) is
contrary to the provisions of section 54F (1), wherein the capital gains can be
utilized for either construction or purchase of house. Since in this case, the
amount has been utilized for the construction of the house, the amount is
eligible for deduction u/s 54F in accordance with law.
As a result, the appeal of the assessee is hereby allowed.
Order pronounced in the open court on 03/06/ 2019.
Sd/- Sd/-
(H.S. Sidhu) (B.R.R. Kumar)
Judicial member Accountant Member
Dated: 3 June, 2019
*aks*
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