The Commissioner Of Income Tax-Ii, Hyderabad v. $Syed Ali Adil

HONOURABLE SRI JUSTICE GODA RAGHURAM AND HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO %20.12.2012 I.T.T.A.No.410 of 2012 The Commissioner of Income Tax-II, Hyderabad. VERSUS ...APPELLANT $Syed Ali Adil ...RESPONDENT < GIST: > HEAD NOTE: !Standing Counsel for Appellant: Sri B.Narasimha Sarma ^ Counsel for Respondent: None appears ? Cases referred [1] 309 ITR 329 2 26 ITJ 491 (Bombay) 3 107 ITJ 351 (Chennai) 4 110 ITJ 440 (Delhi) 5 107 ITD 327 (Mumbai) 6 (2011) 331 ITR 211 (Karnataka) HONOURABLE SRI JUSTICE GODA RAGHURAM AND HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO I.T.T.A.No.410 of 2012 JUDGMENT (per Hon’ble Sri Justice M.S.Ramachandra Rao): This appeal is filed under Section 260-A of the Income TaxAct, 1961 (for short ‘the Act’) by the Revenue challenging theorder dated 09-09-2011 in I.T.A.No.284/Hyd/2011 of the Income Tax AppellateTribunal, Hyderabad Bench “B”, Hyderabad. 2.The respondent is an individual assessee. He filed hisreturn of income for the assessment year 2007-08 on 31-08-2007with the Assistant Commissioner of Income Tax, Circle-VI (1),Hyderabad admitting therein a net income of Rs.43,97,840/-. Thesaid return was processed under Section 143 (1) of the Act on 24-02-2009. Meanwhile, the case was taken up for scrutiny byissuing notice dt.25-08-2008 under Section 143 (2) of the Act. Anotice dt.15-06-2009 under Section 142 (1) was issued calling forvarious details. 3.Before the assessing officer, the assessee offered underthe head, long term capital gains, a sum of Rs.41.00 lakhscontending that he had inherited an ancestral house propertywhich was sold during the year under consideration and theresultant long term capital gains were offered from sale of the saidhouse; that he had taken the sale consideration ofRs.1,99,50,000/- for arriving at the capital gains even though thesale deed mentioned the sale consideration as Rs.2,66,00,000/-;that out of the sale consideration he had purchased two flats inMay Fair Apartment, Banjara Hills, Hyderabad and he is entitled toclaim deduction/exemption under Section 54 of the Act for anamount of Rs.93,80,192/- and that in view of the decision in CIT Vs. Ananda Basappa[[1]], even though Section 54 mentions thatthe proceeds should be invested in “a residential house”, it being abeneficial provision, it should be construed liberally and thededuction cannot be restricted to only one residential house and itshould be extended to the purchase of two adjacent residentialflats. 4.The assessing officer by order dt.25-08-2009 held that theassessee is not entitled to claim exemption in respect ofRs.93,80,192/- but only to the extent of Rs.45,52,860/- comprisingof consideration of Rs.42,36,000/- and a stamp duty ofRs.3,16,860/- utilized for investment on one of the flats by theassessee on the ground that the inspection report of the I.T.I.deputed by the assessing officer showed that what was purchasedwere two residential units separated by a strong wall; that theywere purchased from two different vendors under two separatesale deeds and as such the deduction under Section 54 has to berestricted to only one flat. 5.Aggrieved thereby, the assessee filed an appeal to the CIT(Appeals), Guntur. He allowed the appeal by order dt.13-10-2010holding that the assessing officer had acted too technically andhad erroneously denied the assessee the deduction to the extentof 50% and that since the assessee had purchased two flatshaving adjacent kitchens and toilets which have a commonmeeting point, he is entitled to 100% deduction under Section 54for both the flats purchased by him. 6.Challenging the same, the Revenue filedI.T.A.No.284/Hyd/2011 to the Income Tax Appellate Tribunal. Byorder dt.09-09-2011, the Tribunal dismissed the appeal of the 5.Aggrieved thereby, the assessee filed an appeal to the CIT(Appeals), Guntur. He allowed the appeal by order dt.13-10-2010holding that the assessing officer had acted too technically andhad erroneously denied the assessee the deduction to the extentof 50% and that since the assessee had purchased two flatshaving adjacent kitchens and toilets which have a commonmeeting point, he is entitled to 100% deduction under Section 54for both the flats purchased by him. 6.Challenging the same, the Revenue filedI.T.A.No.284/Hyd/2011 to the Income Tax Appellate Tribunal. Byorder dt.09-09-2011, the Tribunal dismissed the appeal of the Revenue on the ground that it had consistently taken the view thateven though flats are located at different floors, when they couldbe combined, it should be construed as a single residentialaccommodation only; that the said view is supported by thedecisions of the Tribunal reported in K.G.Vyas Vs. I.T.O.[[2]], I.T.O.Vs. P.C.Rama Krishna, HUF[[3]]and Prakash Bhutani Vs. A.C.I.T[[4]]. 7.Challenging the same, the Revenue has filed the presentappeal. 8.Heard Sri B.Narasimha Sarma, learned Standing Counselfor the Income Tax Department at the stage of admission. 9.He contended that the deduction under Section 54 of theAct is allowable only for one residential house and not for morethan one residential house and that the Tribunal erred in holdingthat the deduction under Section 54 of the Act is allowable for twoindependent residential flats in the same complex. He also placedreliance on the decision of the Special Bench of the Tribunal inI.T.O. Vs. Suseela M.Jhaveri[[5]]. 10.We see no force in the said contention. As held inD.Ananda Basappa’s case (1 supra) by the Karnataka HighCourt, the expression “a residential house” in Section 54 (1) of theAct has to be understood in a sense that the building should be ofresidential nature and “a” should not be understood to indicate asingular number and where an assessee had purchased tworesidential flats, he is entitled to exemption under Section 54 inrespect of capital gains on sale of its property on purchase of boththe flats, more so, when the flats are situated side by side and the builder has effected modification of the flats to make it as one unit,despite the fact that the flats were purchased by separate saledeeds. This decision was followed by the Karnataka High Court in CIT Vs. Smt. K.G.Rukminiamma[[6]]where a residential housewas transferred and four flats in a single residential complex werepurchased by the assessee, it was held that all four residentialflats constituted “a residential house” for the purpose of Section 54and that the four residential flats cannot be construed as fourresidential houses for the purpose of Section 54. Admittedly thetwo flats purchased by the assessee are adjacent to one anotherand have a common meeting point. In the impugned order, theTribunal has also relied upon the decisions in K.G.Vyas’s case (2supra), P.C.Ramakrishna, HUF’s case (3 supra) and PrakashBhutani’s case (4 supra) wherein it was held that exemptionunder Section 54 only requires that the property should be ofresidential nature and the fact that the residential house consistsof several independent units cannot be an impediment to grantrelief under Section 54 even if such independent units were ondifferent floors. The decision in Suseela M.Jhaveri’s case (5supra) holding that only one residential house should be given therelief under Section 54 does not appear to be correct and wedisapprove of it. We agree with the interpretation placed onSection 54 by the High Court of Karnataka in D.AnandaBasappa’s case (1 supra) and Smt. K.G.Rukminiamma’s case (6supra) and the decisions of the Mumbai, Chennai and DelhiBenches of the Tribunal in K.G.Vyas (2 supra), P.C.Ramakrishna,HUF (3 supra) and Prakash Bhutani (4 supra). We therefore holdthat the CIT (Appeals) was correct in setting aside the order of theassessing officer and the Tribunal rightly confirmed the decision ofthe CIT (Appeals). 11.We hold that no substantial question of law arises forconsideration in this appeal and the same is accordinglydismissed. No costs. ____________________________ JUSTICE GODA RAGHURAM Date:20-12-2012Note:Mark the L.R. Copy. B/o. Kvr __________________________________ JUSTICE M.S.RAMACHANDRA RAO [1]309 ITR 329[2]26 ITJ 491 (Bombay)[3]107 ITJ 351 (Chennai)[4]110 ITJ 440 (Delhi)[5]107 ITD 327 (Mumbai)[6](2011) 331 ITR 211 (Karnataka)