Ita/320/2011 Of Shri. Navin Jolly v. The Income-Tax Officer

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 18 DAY OF JUNE 2020. PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE M.NAGAPRASANNA_ LT.A. NO.320 OF JZO1L BETWEEN: SHRI.NAVIN JOLLY|C/O NAVIN ARCHITECT PRIVATE LIMITEDUNIT NO.112, G.F.NO.139OXFORD TOWERSOPP. LEELA PALACE HOTELAIRPORT ROAD|BANGALORE -—- 560 OO8 ... APPELLAN[. (By Sri.A.SHANKAR SR.ADV. |A/W SRI.M.LAVA, ADV.,). AND: THE INCOME-TAXK OFFICERWARD 11(1), R.P.BHAVAN|OPP TO RBI, NRUPATUNGA ROADBANGALORE O 560 OOL. .. RESPONDENT (By Sri.K.V.ARAVIND, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,196L ARISING OUT OF ORDER DATED 29.03.2011 PASSED IN ITA]NO.969(BANG)/2010 FOR THE ASSESSMENT YEAR 2006-07,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: (I) FORUMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN. (1) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO.THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY|THE TRIBUNAL IN ITA NO.969/BANG/2010 DAETD 29.03.2011, IN|THE INTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax|Act, 1961 (hereinafter referred to as the Act for short)Nas been preferred by the assessee. Tne subject matter of the appeal pertains to the Assessment year 2006-07. The appeal was admitted by a bench of this Court videorder dated 06.06.2012 on the following substantialquestions of law:| (I)Whether the tribunal is Justified in law|in confirming the denial of exemption|claimed by the appellant under Section|54F of the Income-Tax Act, 1961, on)the facts and circumstances of the.Case?|in confirming the denial of exemption|claimed by the appellant under Section|54F of the Income-Tax Act, 1961, on)the facts and circumstances of the.Case?| (iI)Whether the tribunal erred in law In.interpreting the meaning of the wordresidential house used in Section 54F(1) proviso (a) (i) of the Income Tax Act?|interpreting the meaning of the wordresidential house used in Section 54F(1) proviso (a) (i) of the Income Tax Act?| (iI)Whethertheauthoritiesbelowarejustified in law in holding that apropertyUSedfor.thecommercialpurpose, falls within the meaning ofresidential house as per the proviso (a) (i) to Section 54F(1) of the Act on the)facts and circumstances of the case?justified in law in holding that apropertyUSedfor.thecommercialpurpose, falls within the meaning ofresidential house as per the proviso (a) (i) to Section 54F(1) of the Act on the)facts and circumstances of the case? 2. Facts leading to filing of this appeal briefly|stated are that assessee Is an Individual and is Directorof M/s Aburge India Property Services Pvt. Ltd.,Bangalore. The assessee filed his return of income forAssessment year 2006-07 on 30.10.2006 declaringincome of Rs.53,06,473/-. The return filed by theassessee was selected for scrutiny and notice underSection 143(2) of the Act was issued. The assesseestated that he had sold shares in the company viz., M/s Corporate Leisure Resorts and Hotels Pvt. Ltd., duringfinancial year 2005-06 and derived long term capitalgain of Rs.1,55,47,315/-. The appellant further declaredthat he had constructed a residential property during the.year situate at 808/7 and 808/8 Kaikondananalli,Sarjapur, Bangalore. The appellant claimed exemptionUnder Section 54F of the Act to the extent of |Rs.1,55,47,315/-. Before the assessing officer, |adSummofRs.4,17,339/- for taxation. 3.)Tne.assessing officer|videorderdated31.17.7008 inter alia held that the assessee owns nine!residential flats in his name and that he is deriving theincome from the residential flats and declared the sameunder the head income from house property duringAssessment year 2006-07 and is therefore, not eligibleto claim exemption by invoking proviso (a)(i) and (b)toSection 54F (1). The assessing officer further recorded afinding that properties owned by the appellant are 3.)Tne.assessing officer|videorderdated31.17.7008 inter alia held that the assessee owns nine!residential flats in his name and that he is deriving theincome from the residential flats and declared the sameunder the head income from house property duringAssessment year 2006-07 and is therefore, not eligibleto claim exemption by invoking proviso (a)(i) and (b)toSection 54F (1). The assessing officer further recorded afinding that properties owned by the appellant are residential apartments. Accordingly, exemption underSection 54F of the Act was denied. | 4. Being aggrieved, the assessee filed an appeal.|The Commissioner of Income Tax (Appeals) by an orderdated 31.05.2010 inter alia held that by virtue of clauses(a)(i) and (b) of proviso to Section 54F(1), the assesseeis ineligible to claim exemption. It was further held that.from perusal of the record, it is evident that out of nineproperties two properties viz., Unit No.204 and 605 ofOxford Suites have got plan sanction of residential in.nature and therefore, the claim of the assessee that theproperties be not treated as residential houses cannotbe accepted. It was further held that on the date oftransfer of original asset the assessee was in possession.of atleast two residential houses and therefore, theappellant is not entitled to the benefit of exemptionunder Section 54F of the Act. It was also held that in.respect of six out of seven properties, from the recordsit is evident that they have been let out by the assessee to different companies and rental income is being shown.regularly in the returns as income from house propertyand even if the nature of plan sanction is commercial,the appellant cannot be allowed to take a different standand to contend that the properties are not residentialhouses. It was also noted that by explanatory circulardated 30.06.1982, the word ‘residential house’ includesnot only self occupied properties but also let outproperties. It was further held that the assessee is notentitled to benefit of deduction under Section 54F of theAct. Accordingly, the appeal was dismissed. 5. The assessee approached the Income Tax'Appellate Tribunal. The tribunal by an order dated29.03.7011 inter alia held that assessee should not havemore than one residential unit on the date of transfer ofthe original asset. It was further held that it isimmaterial as to how the assessee_ utilized theresidential units and whether these residential units areused for commercial purposes or residential purposes, so long as these units were recognized as residentialunits. Therefore, it was held that the assessee cannotclaim the benefit of exemption under Section 54F of theAct. The appeal preferred by the assessee wastherefore,|dismissed.In|theaforesaidfactualbackground, this appeal has been filed. 6. Learned Senior Counsel for the assessee.submitted that apartments No.204 and 605 viz., Oxfordsuites is a Duilding comprising units offered for servicedapartments and each floor consists of eight apartments.of 500 square feet floor area and the appellant had letout both the properties to be used as commercial /serviced apartments. Therefore, the aforesaid servicedapartments could not have been treated as residentialunits and in fact the same were commercial units andwere being used by serviced apartments by thecompanies to accommodate their guests. It is also urgedthat clause (a) (i) of proviso to Section 54F(1) are notattracted and clause (b) of proviso to Section 54F(1) are 6. Learned Senior Counsel for the assessee.submitted that apartments No.204 and 605 viz., Oxfordsuites is a Duilding comprising units offered for servicedapartments and each floor consists of eight apartments.of 500 square feet floor area and the appellant had letout both the properties to be used as commercial /serviced apartments. Therefore, the aforesaid servicedapartments could not have been treated as residentialunits and in fact the same were commercial units andwere being used by serviced apartments by thecompanies to accommodate their guests. It is also urgedthat clause (a) (i) of proviso to Section 54F(1) are notattracted and clause (b) of proviso to Section 54F(1) are also not attracted. It is further submitted that the!authorities erred in law in interpreting the meaning ofthe word ‘residential house’ used in proviso (a)(i) toSection 54F(1) of the Act and it is submitted that theexpression.‘residence’impliesSomesougnt|for.permanency and cannot be equated to the expression‘temporary stay’ as a lodger. It is also argued thatusage of property has to be taken into account whiledetermining whnetner the property is aé residentiaproperty or commercial property and the _ beneficiaprovisions of the Act have to be construed liberally inorder to achieve tne purpose for whicn it wereincorporated. Alternatively, it is submitted that even iftwo apartments are treated to be residential, then alsosince, tney are situate in the same Duilding, therefore,the apartments have to be treated as one residentialonly. In support of aforesaid submissions, reliance hasbeen placed on the following decisions °CIT OVVLIFTHIQAR ASHIQ’, (2016) 239 TAXMAN 443. (MADRAS), "FIRM GANGA RAM KISHORE CHANDVS. FIRM JAI RAM BHAGAT RAM’, AIR 1957PUNJAB 293, ‘GLOBE THEATRES LTD. VS. KHANSAHEB ABDUL GANI AND ANOTHER‘, 1956 MYSORE57 ((S) AIR V 43 C 25 DEC.), C.H.KESAVA RAO VS.CIT’, (1985) 156 ITR 369 (MADRAS), ‘CIT VS.OUSEPH|CHACKO”,2/1ITR|29(KERALA),‘SANJEEV PURI VS. DCIT’, (2016) 180 TTJ 649(DELHI-TRIB), P.N.SHUKLA VS. CIT’, (2005) 276ITR 642 (ALLAHABAD), ‘CIT VS. SMT.SHYAMADEVI DALMIA’, (1992) 194 ITR 114 (CALCUTTA), —ITO VS. SMT.ROHINI REDDY’, (2010) 122 ITD 1(HYDERABAD), ‘BAJAJ TEMPO LTD.|VS,CIT’,(1992)196|[TR18s)(SC),"CITYs,SRISAMBANDAM UDAYKUMAR’, (2012) 345 ITR389 (KARNATAKA),HGITA DUGGAL (2013) 357 ITR153 (DELHI)ana‘GITA DUGGAL (2015) 228TAXMAN 62 (SC).7. On the other hand learned counsel for the. revenue submitted that clause (a) to proviso to Section54F(1) does not apply but clause (Db) to proviso toSection 54F(1) applies to the fact situation of the case.It is submitted that the question whether the property isa residential or commercial property has to bedetermined on the basis of the sanction granted inrespect of the same and the nature of its use by theassessee is not the criteria. It is also argued that theclassification of the property either as residential orcommercial has to be taken into account for the purposeof taxation. It is nowever submitted tnat out of nine!flats, seven flats have been sanctioned for commercialpurposes and only two flats have been sanctioned asresidential units whicn are being used for commercialpurposes. It is also urged that requirement asprescribed in proviso to Section 54F(1) is of owning a.residential Nouse and not of its user. Our attention nasalso been invited to Section 32(1) of the Act and it hasbeen stated that the legislature in Section 32(1) of the Act has used the expression ‘owned’ and ‘used’simultaneously, whereas, the same has not been done inproviso to Section 54F(1) of the Act. It is argued thatlanguage of a taxing statute should ordinarily beunderstood in the sense in which it Is harmonious with.the object of statute to effectuate the legislativeanimation and taxing statute deserves to be strictlyconstrued. In support of aforesaid proposition, reliancehas been placed on decision of the supreme court in‘COMMISSIONEROF|INCOME-TAX-ITITVS,CALCUTTA KNITWEARS’, (2014) 43 TAXMANN.COM446 (SC). Act has used the expression ‘owned’ and ‘used’simultaneously, whereas, the same has not been done inproviso to Section 54F(1) of the Act. It is argued thatlanguage of a taxing statute should ordinarily beunderstood in the sense in which it Is harmonious with.the object of statute to effectuate the legislativeanimation and taxing statute deserves to be strictlyconstrued. In support of aforesaid proposition, reliancehas been placed on decision of the supreme court in‘COMMISSIONEROF|INCOME-TAX-ITITVS,CALCUTTA KNITWEARS’, (2014) 43 TAXMANN.COM446 (SC). 8. We have considered the submissions made on.both the sides and have perused the record. Beforeproceeding further, it is apposite to take note to Section54F(1) of the Act, which is reproduced below for thefacility of reference: 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 fromthe 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 nas, within a period of oneyear 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 nouse in.India (nereafter in tnis 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 thanthe net consideration in respect of the)original asset, the wnole of sucn capital gain|Shall not be charged under section 45;(Db) if the cost of the new asset is less than thenet 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 assetbears to the net consideration, snali not be|Charged under section 45: %,-./010that nothing contained in this sub-section shall apply where— (a) the assessee, —| (i) owns more than one residential house,other than the new asset, on the dateof transfer of the original asset; orother than the new asset, on the dateof transfer of the original asset; or (ii) purchases any residential house, otherthan the new asset, within a period ofone year after the date of transfer of.the original asset; orthan the new asset, within a period ofone year after the date of transfer of.the original asset; or (iii) constructs any residential house, otherthan the new asset, within a period ofthree years after the agate of transfer ofthe original asset; andthan the new asset, within a period ofthree years after the agate of transfer ofthe original asset; and (b) the income from such residential house,other than the one residential nouse ownedon the date of transfer of the original asset, is chargeable under the head “Income from|house property’.other than the one residential nouse ownedon the date of transfer of the original asset, is chargeable under the head “Income from|house property’. Explanation. —For the purposes of this section,—“netconsideration,In|relation.to.thetransfer of a capital asset, means tne full)value of the consideration received or'accruing as a result of the transfer of the|“netconsideration,In|relation.to.thetransfer of a capital asset, means tne 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. Explanation. —For the purposes of this section,—“netconsideration,In|relation.to.thetransfer of a capital asset, means tne full)value of the consideration received or'accruing as a result of the transfer of the|“netconsideration,In|relation.to.thetransfer of a capital asset, means tne 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. 9. From close scrutiny of Section 54F(1) of tne Act,|it is evident that in order to attract Section 54F(1) of theAct, the conditions stipulated in clauses (a) and (D) ofproviso to Section 54F(1) have to be complied with asthe legislature has used the expression ‘and’ at the endof clause (a) of proviso to Section 54F(1) of the Act. It ispertinent to note that under Section 22 of tne Act anyincome from any buildings irrespective of which the usewhicn has to be treated under tne nead ‘income from|nouse property. It is well settied legal proposition thata provision in a taxing statute providing incentive forpromoting growth and development has to be construedliberally so as to advance the object of the Section andnot to frustrate it. [SEE:’CIT VS. STRAWBOARD MFg.CO. LTD.', (1989) 177 ITR 431 (SC) AND BAJAJTEMPO LTD, SUPRA|. A bencn of this court in. SAMBANDAM UDAY KUMAR SUPRAwhile interpretingSection 54F of tne Act has held that provisions ofSection 54F is a beneficial provision for promotingconstruction of residential houses and has to beconstrued liberally. Kerala, Delhi, Allahabad, Calcuttaand Hyderabad High Courts nave taken a view thatusage of the property has to be considered indetermining whether it is a residential property or acommercialpropertyand|MadrasHighCourtIn|C.H.KESVA RAOsupra has held that expression|‘residence implies some sought of permanency andcannot be equated to the expression temporary stay’ asa lodger.| 10. In the backdrop of aforesaid well settled legalprinciples, the facts of the case in hand may beexamined. Learned counsel for the revenue Nave fairly|submitted that out of nine apartments, seven flats navebeen sanctioned for commercial purposes. T[nerefore, the dispute only survives in respect of two apartments,which nave been sanctioned for residential purposes andare being used for commercial purposes as servicedapartments. Ihe usage of the property has to be|considered for determining whether the property inquestion is a residential property or a commercialproperty. It is not in dispute that the aforesaid twoapartments are being put to commercial use andtherefore, the aforesaid apartments cannot be treated.as residential apartments. The contention of the revenuethat the apartments cannot be taxed on the Dasis of theusage does not deserve acceptance in view of decisionsof Kerala, Delhi, Allahabad, Calcutta and HyderabadHigh Courts with which we respectfully concur. 11. Alternatively, we hold that assessee even.otherwise is entitled to the benefit of exemption underSection 54F(1) of the Act as the assessee owns twoapartments of 500 square feet In same Duliding and therefore, it has to be treated as one residential unit. —The aforesaid fact cannot be permitted to act asimpediment to allowance of exemption under Section54F(1) of the Act. Similar view was taken by Delhi HighCourt in case of Geeta Duggal wherein the issuewhether a residential Nouse which consists of several]independent residential units would be entitled toexemption under Section 54F(1) of the Act was dealtwith and the same was answered in tne affirmative. Tneappeal against the aforesaid decision was dismissed bythe Supreme Court by an order reported in(2014) 52)taxmann.com 246 (SC). We agree witn the viewtaken by Delhi High Court. 17).For|theaforementionedFeaSONs, thesubstantial questions of law are answered in favour ofthe assessee and against the revenue. In the result, theorders of the assessing officer and Commissioner ofIncome Tax (Appeals) and Income Tax Appellate 17).For|theaforementionedFeaSONs, thesubstantial questions of law are answered in favour ofthe assessee and against the revenue. In the result, theorders of the assessing officer and Commissioner ofIncome Tax (Appeals) and Income Tax Appellate �*+?6725�+71;<2*�21�+:�34*:2+71�:;�847+25�;<�4>4=3:+;7�6784*��49:+;7�&E�(�,�;<�:04��9:�:;�:04�23345527:�+1�04*4?)�D621048���7�:04�*4165:!�233425�+1�255;A48�� ����������������������