31 August 2007
An assessee hold terrace rights of a residential house property in Delhi and during the F.Y. 2006-2007, he sold such terrace rights. Out of the sale proceeds, he purchased three flats in a residential complex at Mumbai. One flat on 6th floor, second at 7th floor and third at 9th floor. He converted flats at 6th & 7th floors in a duplex flat and have a combined registry for both flats. He have a separate registry for third flat. All these flats are self-occupied for his residential purpose. My query is that whether he can claim exemption u/s. 54F claiming all these flats as a single residential unit?
01 September 2007
This very issue was taken up by the Special Bench of Mumbai ITAT I am reproducing the head note please go through this judgment for details:
[2007] 107 itd 327 (mum.) (SB)
IN THE ITAT MUMBAI BENCH ‘I’ (SPECIAL BENCH)
Income-tax Officer*, Ward-19(3)-4, Mumbai
v.
Ms. Sushila M. Jhaveri
G.E. VEERABHADRAPPA, VICE PRESIDENT
K.C. SINGHAL, JUDICIAL MEMBER
AND DR. O.K. NARAYANAN, ACCOUNTANT MEMBER
IT APPEAL NO. 2865 (MUM.) OF 2002
[ASSESSMENT YEAR 1995-96]
APRIL 17, 2007
Section 54, read with section 54F, of the Income-tax Act, 1961 - Capital gains - Profit on sale of property used for residential house - Assessment year 1995-96 - Whether exemption under sections 54 and 54F is allowable in respect of one residential house only - Held, yes - Whether if assessee has purchased more than one residential house, then choice would be with assessee to avail exemption in respect of either of houses, provided other conditions are fulfilled - Held, yes - Assessee sold a residential flat and reinvested total sale consideration in purchasing two independently located residential flats - Assessee claimed exemption under section 54 in respect of total long-term capital gain arising from sale of residential flat - Whether assessee was entitled to exemption in respect of investment in only one flat of her choice - Held, yes
Facts
The assessee was owner of a residential flat situated at Mumbai. During the previous year, the assessee had sold the said flat and reinvested the total sale consideration in purchasing two residential flats at different locations in Mumbai. The assessee claimed exemption under section 54 in respect of total long-term capital gain arising from the sale of the residential flat at Mumbai. The Assessing Officer held that exemption was available only in respect of investment in one residential house. The Assessing Officer, therefore, allowed exemption under section 54 in respect of the house, which permitted higher exemption.
On appeal, the Commissioner (Appeals), following the decision of the Mumbai Bench of the Tribunal rendered in the case of Ratanchand Murarka v. Jt. CIT [IT Appeal No. 4485 (Mum.) of 1999, dated 12-9-2001], held that exemption was available in respect of investment made in both the flats.
On revenue’s appeal :
Held
Section 45, which is charging section, uses the expression ‘transfer of a capital asset’. Here the word ‘a’ means ‘every’, since capital gain of each capital asset has to be computed depending upon the period of holding. Exemption from the levy of capital gain tax is provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F and 54H as is apparent from section 45 itself. A perusal of the provisions of sections 54, 54B, 54D, 54E, 54EA, 54EB and 54F clearly reveals that the Legislature has used the words ‘a’ and ‘any’ with reference to investment of capital gain/sale consideration in certain asset or assets. The Legislature was not oblivious regarding the meaning of these two words. The word ‘any’ has been used by the Legislature in sections 54B, 54D, 54E, 54EA and 54EB while the word ‘a’ has been used in sections 54 and 54F. This clearly shows that the Legislature intended different meanings to be given to these two words. A close reading of these sections shows that Legislature intended to allow exemption in respect of investment in more than one asset by using the word ‘any’. Section 54E allows exemption in respect of investment in any ‘specified asset’. Explanation 1 to section 54E defines the ‘specified asset’. It includes various assets in which investment can be made by the assessees who are eligible for exemption under section 54E. There is nothing to indicate that investment is restricted to any of the specified assets. Had the Legislature intended to restrict investment in any one of the specified assets, it would have used the words ‘in any one of the specified assets’ instead of ‘in any specified asset’. This clearly shows that the word ‘any’ has been used where the Legislature intended investment in more than one asset. Similarly, in section 54EB, the Legislature has used the words ‘in any of the assets specified by the Board’. Similar is the position in section 54EA. Section 54B and section 54D also use the word ‘any other land’ and ‘any other land and building’ respectively. The expression ‘any other land’ is an expression of widest amplitude and, therefore, its meaning cannot be restricted to any one piece of land. On the other hand, the Legislature has used the word ‘a’ in sections 54 and 54F. Had the Legislature intended for investment in more than one asset, it could have easily used the words ‘in any residential house’ in sections 54 and 54F instead of the words ‘a residential house’. Superfluous words are not used by the Legislature. Different words like ‘a’ and ‘any’ have been deliberately used by the Legislature to convey different meanings. Therefore, the Legislature used the word ‘a’, where it intended investment in one residential house only and used the word ‘any’, where it intended investment in one or more assets. [Para 8]
Thus, the intention of the Legislature was to allow exemption under sections 54 and 54F in respect of investment in one single residential house. [Para 9]
Therefore, the exemption under sections 54 and 54F would be allowable in respect of one residential house only. If the assessee has purchased more than one residential house, then the choice would be with assessee to avail the exemption in respect of either of the houses, provided the other conditions are fulfilled. However, where more than one unit are purchased which are adjacent to each other and are converted into one house for the purpose of residence by having common passage, common kitchen, etc., then it would be a case of investment in one residential house and consequently, the assessee would be entitled to exemption. [Para 11]
In the instant case, the investment was made in two flats located at different localities in Mumbai. Accordingly, the assessee was entitled to exemption in respect of investment in one house only of her choice. The Assessing Officer had already allowed exemption in respect of house, which permitted higher exemption. Therefore, the order of the Commissioner (Appeals) was to be reversed on this issue and the order of Assessing Officer was to be restored. [Para 12]
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