Commissioner Of Income Taxcoimbatore v. Smt.v.r.karpagam

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 18.08.2014 CORAM THE HONOURABLE MR.JUSTICE R.SUDHAKARANDTHE HONOURABLE MR.JUSTICE G.M.AKBAR ALI Tax Case (Appeal) No.301 of 2014 Commissioner of Income TaxCoimbatore. ...Appellant/Respondent Vs. Smt.V.R.Karpagam ...Respondent/Appellant APPEAL under Section 260A of the Income Tax Act against theorder dated 07.03.2013 made in I.T.A.No.1082/Mds/2010 on the fileof the Income Tax Appellate Tribunal 'D' Bench, Chennai for theassessment year 2007-08 as against the order of Commissioner ofIncome Tax (Appeals)-I, Coimbatore, order dated 06.05.2010 made inITA No.304/09-10 and arising out the Assessment order dated31.12.2009 for the Assessment Year 2007-2008 by Assessing OfficerWard III (1), Coimbatore, under Section 143 (3) of the Income TaxAct. For Appellant : Mr.T.R.Senthil KumarStanding Counsel for Income TaxJ U D G M E N T(Delivered by R.SUDHAKAR,J.) This Tax Case (Appeal) is filed by the Revenue as against theIncome Tax Appellate Tribunal for the assessment year 2007-08raising the following substantial questions of law:"1. Whether on the facts and circumstances of thecase, the Tribunal was justified in treating fiveindependent flats in a multi-storey construction as asingle residential unit under Section 54F, withoutconsidering the intention of the legislature to restrictthe reinvestment to only one more residential unit underSection 54F? 2. Whether on the facts and circumstances of thecase, the Tribunal was right in interpreting the phrase "aresidential house" in plural connotation for the purposeof reinvestment of capital gain for claiming exemptionunder Section 54F?"https://hcservices.ecourts.gov.in/hcservices/ 2. The brief facts are as follows:The respondent/assessee had entered into an agreement with oneM/s.Mount Housing and Infrastructure Ltd., for development of apiece of land measuring 13,059 sq.ft. owned by her at Door No.29F,Race Course, Coimbatore. As per the agreement, the assessee was toreceive 43.75% of the built up area after the development. This43.75% built up area was translated into five flats. The assessee,while filing her return of income, calculated the capital gainsbased on the sale consideration of Rs.1,09,75,620/-. As per theassessee, this was the value of the flats, which were to bereceived by her and was equivalent to 56.25% of the undivided shareof land given by her to M/s.Mount Housing and Infrastructure Ltd.The assessee claimed exemption under Section 54F of the Income TaxAct on the value of the five flats. According to the assesseethere were no capital gains whatsoever left for assessment. 3. Before the Assessing Officer, two issues were raised, oneon the value of the built-up area of the five flats and the otherwas whether the assessee would be entitled to the benefit ofSection 54F of the Income Tax Act in respect of the five flats.The Assessing Officer granted the benefit of capital gains inrespect of one flat and that too on the higher extent with regardto the floor space, viz., 2413.36 sq.ft.. Aggrieved by the same,the assessee preferred an appeal before the Commissioner of IncomeTax (Appeals). 4. The Commissioner of Income Tax (Appeals), by order dated06.05.2010, after discussing the provisions of Sections 54 and 54Fof the Income Tax Act, held that the claim of the assessee underSection 54F for all the five flats could not be admitted, buthowever, he took the view that the assessee would be entitled tothe benefit of Section 54F in respect of one single flat withlargest area of 4814.36 sq.ft. and accordingly directed theAssessing Officer to calculate the exemption under Section 54F ofthe Income Tax Act. Aggrieved by this order, the assessee preferredfurther appeal before the Income Tax Appellate Tribunal. 4. The Commissioner of Income Tax (Appeals), by order dated06.05.2010, after discussing the provisions of Sections 54 and 54Fof the Income Tax Act, held that the claim of the assessee underSection 54F for all the five flats could not be admitted, buthowever, he took the view that the assessee would be entitled tothe benefit of Section 54F in respect of one single flat withlargest area of 4814.36 sq.ft. and accordingly directed theAssessing Officer to calculate the exemption under Section 54F ofthe Income Tax Act. Aggrieved by this order, the assessee preferredfurther appeal before the Income Tax Appellate Tribunal. 5. The Tribunal, after considering the orders of theAuthorities below, held in paragraph No.4 of the order that as theassessee's representative admitted that with regard to thesubstitution of sale consideration based on the cost ofconstruction of the developer, M/s.Mount Housing and InfrastructureLtd., the order of the Commissioner of Income Tax (Appeals) couldnot be faulted. Also, the Tribunal, by considering the provisionof Section 54F of the Income Tax Act and taking note of thedecision of the Karnataka High Court in the case of CIT V. Smt.K.G.Rukminiamma reported in 331 ITR 211, which referred to Section13 of the General Clauses Act, held that the word 'a' appearing inSection 54F of the Income Tax Act should not be construed insingular, but should be understood in plural. Hence, following thehttps://hcservices.ecourts.gov.in/hcservices/said decision of the Karnataka High Court, the Tribunal held as follows: "8. Their Lordships has clearly held in the abovejudgment that 'residential house' in the context couldnot be construed as a singular. In the said case also,claim for exemption was with regard to four flats inlieu of share in land, but the claim was under section54 of the Act and not under section 54F of the Act.However, in our opinion the meaning given to theexpression "a residential house" will apply paripassu toSec.54F also, since the expression used here is also 'aresidential house'. New asset defined in the sec.54F,as 'a residential house' has also to be understood inthe plural. It is not necessary that all residentialunits should have a single door number allotted to it asargued by the Ld. D.R. No doubt Hon'ble jurisdictionalHigh Court in the case of G.Saroja (supra) did considerthe fact that different flats were having one doornumber. However, this alone was not the reason whyassessee was held to be eligible for claiming ofexemption under section 54F of the Act. Their Lordshipstook cue from the decision of Hon'ble Karnataka HighCourt in the case of Smt.K.G.Rukminiamma (Supra).Similar exemption was given by the Hon'blejurisdictional High Court again in the case of Dr.(Smt.)P.K.Vasanthi Rangarajan (supra) wherein there was noclaim that flats allotted in lieu were having singlenumber. We are therefore of the opinion that assesseewas eligible for claiming exemption under section 54F ofthe Act on the five flats received by her in lieu of theland she had parted with." 6. The Tribunal further held that the principles mentioned inSection 54 of the Income Tax Act, as interpreted by the KarnatakaHigh Court in the above-said decision, would apply paripassu toSection 54F also. Hence, the Tribunal came to the conclusion thatthe assessee was eligible for exemption under Section 54F of theIncome Tax Act on the five flats received by her in lieu of theland she had parted with. Aggrieved by this order of the Tribunal,the Revenue has preferred the present appeal raising the above-saidsubstantial questions of law. 6. The Tribunal further held that the principles mentioned inSection 54 of the Income Tax Act, as interpreted by the KarnatakaHigh Court in the above-said decision, would apply paripassu toSection 54F also. Hence, the Tribunal came to the conclusion thatthe assessee was eligible for exemption under Section 54F of theIncome Tax Act on the five flats received by her in lieu of theland she had parted with. Aggrieved by this order of the Tribunal,the Revenue has preferred the present appeal raising the above-saidsubstantial questions of law. 7. Learned counsel appearing for the Revenue submits that aresidential house mentioned in Section 54F of the Income Tax Actshould not be construed as one unit, even though different flatsare constructed; but it should be construed as one residentialflat, as every residential apartment contains separate kitchen,entrance etc. He also pointed out to the amendment brought toSection 54F of the Income Tax Act vide Finance (No.2) Act, 2014with effect from 01.04.2015, wherein the word 'a residential house'is substituted to 'one residential house'. Hence, the assessee isnot eligible for exemption under Section 54F of the Income Tax Act.https://hcservices.ecourts.gov.in/hcservices/ 8. We have heard the learned Standing counsel appearing forthe Revenue at length and perused the materials placed before thisCourt and the decision relied on by the Tribunal in the case of CITV. Smt. K.G.Rukminiamma reported in 331 ITR 211. We find that therelevant provision is this case is Section 54F of the Income TaxAct, which reads as follows: 54F. Capital gain on transfer of certain capitalassets not to be charged in case of investment inresidential house.-- (1) Subject to the provisions of sub-section (4), where,in the case of an assessee being an individual or aHindu undivided family, the capital gain arises from thetransfer of any long-term capital asset, not being aresidential house (hereafter in this section referred toas the original asset), and the assessee has, within aperiod of one year before two years after the date onwhich the transfer took place purchased, or has within aperiod of three years after that date constructed, aresidential house (hereafter in this section referred toas the new asset), the capital gain shall be dealt within accordance with the following provisions of thissection, that is to say,-- (a) if the cost of the new asset is not less thanthe net consideration in respect of the original asset,the whole of such capital gain shall not be chargedunder section 45: (b) if the cost of the new asset is less than thenet consideration in respect of the original asset, somuch of the capital gain as bears to the whole of thecapital gain the same proportion as the cost of the newasset bears to the net consideration, shall not becharged under section 45:Provided that nothing contained in this sub-sectionshall apply where— (a) the assessee,— (i) owns more than one residential house, otherthan the new asset, on the date of transfer of theoriginal asset ; or (ii) purchases any residential house, otherthan the new asset, within a period of one year afterthe date of transfer of the original asset ; or (iii) constructs any residential house, otherthan the new asset, within a period of three years afterthe date of transfer of the original asset; and (b) the income from such residential house, other thanthe one residential house owned on the date of transferof the original asset, is chargeable under the head‘‘Income from house property’’. 9. It is relevant to note herein that an amendment was madeto the above-said provision with regard to the word 'a' by thehttps://hcservices.ecourts.gov.in/hcservices/Finance (No.2) Act, 2014, which will come into effect from 01.04.2015. The said amendment reads as follows:"32a. Words “constructed , one residential house inIndia” shall be substituted for “constructed, aresidential house” by the Finance (No.2) Act, 2014, witheffect from 01.04.2015." (iii) constructs any residential house, otherthan the new asset, within a period of three years afterthe date of transfer of the original asset; and (b) the income from such residential house, other thanthe one residential house owned on the date of transferof the original asset, is chargeable under the head‘‘Income from house property’’. 9. It is relevant to note herein that an amendment was madeto the above-said provision with regard to the word 'a' by thehttps://hcservices.ecourts.gov.in/hcservices/Finance (No.2) Act, 2014, which will come into effect from 01.04.2015. The said amendment reads as follows:"32a. Words “constructed , one residential house inIndia” shall be substituted for “constructed, aresidential house” by the Finance (No.2) Act, 2014, witheffect from 01.04.2015." 10. The above-said amendment to Section 54F of the Income TaxAct, which will come into effect only from 01.04.2015, makes itvery clear that the benefit of Section 54F of the Income Tax Actwill be applicable to constructed, one residential house in Indiaand that clarifies the situation in the present case, i.e, postamendment, viz., from 01.04.2015, the benefit of Section 54F willbe applicable to one residential house in India. Prior to the saidamendment, it is clear that a residential house would includemultiple flats/residential units as in the present case where theassessee has got five residential flats. We may also mention herethat all the Authorities below have clearly understood that theagreement signed by the assessee with M/s.Mount HousingInfrastructure Ltd., is that the assessee will receive 43.75% ofthe built-up area after development, which is construed as oneblock, which may be one or more flats. In that view of the matterwhat was before the Assessing Officer is only equivalent of 56.25%of land transferred, equivalent to 43.75% of built up area receivedby the assessee. This built up area got translated into fiveflats. Hence, we are of the opinion that the transaction in thiscase was not with regard to the number of flats but with regard tothe percentage of the built up area, vis-a-vis, the Undivided Shareof Land. 11. In similar circumstances, this Court, by order dated04.01.2012 in T.C.(A)No.656 of 2005 held as follows: "The above provision refers to a residential housemeaning thereby that even if there are four differentflats and if it is considered for the property assessedas one unit and one door number is given, it should beconstrued as a residential unit, namely, one unit. Inthat sense, the said provision is available to theassessee." 12. In the decision reported in (2012) 75 DTR 56 (Dr.(Smt.)P.K.Vasanthi Rangarajan, this Court, while dealing with the benefitof exemption under Section 54F, followed the above-said decision ofthis Court in T.C.(A)No.656 of 2005 and granted the benefit to theassessee under Section 54F of the Income Tax Act on the investmentmade in the four flats. 13. Hence, the above-said decisions of this Court make itclear that the property should be assessed as one unit, even thoughdifferent flats are available. Here also, as per the assessmentorder, all the flats have one door number, namely, Door No.29F,Race Course, Coimbatore. https://hcservices.ecourts.gov.in/hcservices/ 14. In the light of the above, we find no question of lawmuch less any substantial question of law arises for considerationin this Tax Case (Appeal). Accordingly, this Tax Case (Appeal)stands dismissed. No costs. Sd/-Asst. Registrar (CS-IV)//True Copy//Sub Asst. Registrar.slTo1. The Income Tax Appellate Tribunal 'D' Bench, Chennai2. The Commissioner of Income Tax (Appeals), I, Coimbatore.3. The Income Tax Officer, Ward - III (1), Coimbatore.1CC to Mr.T.R.Senthilkumar, Advocate, SR 37559Tax Case (Appeal) No.301 of 2014SJ PSI 01/09/2014