Sec. 54 relief allowed as two houses were acquired instead of one big house to avoid disharmony among children

Facts:

The assessee sold his house and invested the capital gains from sale of house in purchasing two independent residential houses for his two sons. 

The issue for consideration of High Court was:

Whether exemption under sec. 54 would be available in respect of two separate residential houses acquired out of capital gains?

The High Court held in favour of assessee as under:

1)  It was open to the assessee to purchase a big residential house out of the sales consideration so as to accommodate his two sons and avail of exemption under section 54. Instead, he chose to purchase two small residential houses to avoid any litigation or disharmony;

2)  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 Legislature to convey the meaning that it referred to a single residential house;

3)  The singular 'a residential house' also permits use of plural by virtue of section 13(2) of the General Clauses Act. Therefore, the acquisition of two residential houses by the assessee out of the capital gains would fall within the phrase 'residential house' and, accordingly, the assessee would be entitled to the benefit under sec. 54(1);

4)  However, while interpreting this word, the authorities have to keep in mind the facts of the particular case. When we hold 'a' could not be read as singular, it also could not be read as multiples and so as to avoid paying taxes. – CIT v. Khoobchand M. Makhija [2014] 43 taxmann.com 143 (Karnataka)