Friday, June 7, 2013

Sec. 54 only requires investment of cap gains, which can be in several independent residential units, HC rules

Exemption under section 54 cannot be denied, where residential house property purchased by an assessee consists of several independent units

In the instant case, the assessee had claimed deduction under section 54 in respect of two independent flats purchased by him with sale proceeds of an ancestral house property. During assessment, the AO held that deduction was to be restricted to only one flat since the two residential units purchased by the assessee were separated by a strong wall and, moreover, they were purchased from two different vendors and under separate sale deeds. On appeal, the CIT(A) sets aside the order of AO and the Tribunal confirmed the order of CIT(A). Aggrieved by the order revenue has filed the instant appeal.

The High Court held in favour of assessee as under:

The expression ‘a residential house’ used in section 54(1) has to be understood in a sense that the building should be of residential nature and ‘a’ should not be understood to indicate a singular number;

2) Where assessee had purchased two residential flats, he was entitled to exemption under section 54 in respect of both the flats, more so, when the flats were situated side by side and the builder had effected modification of the flats to make them as one unit, despite the fact that the flats were purchased by separate sale deeds;

3) The two flats purchased by the assessee were adjacent to one another and had a common meeting point. Exemption under section 54 only requires that the property should be of residential nature. The fact that residential house consists of several independent units can’t be an impediment to grant relief under section 54, even if such independent units are on different floors;

4) The decision in ITO v. Shushila M. Jhaveri [2007] 107 ITD 327 (Mum) (SB) holding that only one residential house had to be given the relief under section 54 didn’t appear to be correct and was to be disapproved. Hence, sec. 54F exemption was to be granted to assessee in respect of two independent flats purchased by him – CIT v. Syed Ali Adil [2013] 33 212 (Andhra Pradesh)