TMI Blog2022 (4) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... t letters, two residential houses with two separate entrances and Kitchens were purchased by the assessee respectively on 13.01.2015 and 24.01.2015 though were situated adjacent to each other. In our considered opinion, the assessee would only entitle to the benefit of section 54, 1) if the assessee invested the LTCG amount for buying one residential house or 2) if the assessee purchased one residential house which was made after merger of two residential units already amalgamated and were in existence as one residential unit . However the assessee is not entitled to benefit of LTCG invested in buying two residential units and thereafter converting the said two residential units as one. In the present case on facts, if we look into approved plans there are two separate flats with two separate kitchens and two separate entrances and therefore, at the time of purchased of the properties, they were two different residential houses and therefore, it cannot be accepted that the assessee had invested in one single residential house. Further, we may also refer the letter filed by the assessee, reproduced by the AO at page-6 of the assessment order issued by the Builder wherein it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the family members comprising 10 members. Accordingly, two adjacent flats of 3 bedroom each, which suited the requirements of the family of Your Appellants were decided to be acquired with the intention and pre - condition of being permitted to make and use the same as one residential unit. (iii) It is a recorded fact that as part of the composite transaction, a confirmation was received from the builder stating that the two adjacent flats are in fact one single residential unit. 2. During the AY under consideration, the assessee has sold the residential flat for ₹ 8.5 crores and had claimed exemption under section 54 of the Income Tax Act (for short the Act ) by investing in two residential properties at 3103 3104 in Tower T-4, Crescent Bay, Parel, Mumbai. The Assessing Officer (AO) has given the show-cause notice and asked the assessee why the benefit of section 54 be given to the assessee after the amendment 01.04.2015. The assessee filed the reply, after considering the reply of the assessee, the AO had denied the benefit of section 54(1) to the Assessee , as the AO was of the opinion that the assessee had purchased two flats and as per the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred the appeal before the CIT(A), CIT(A) had considered the submission made by the assessee, however, the same were rejected by the CIT(A) , in the order it was mentioned as under : 6.1 The assessee has entered into two separate Agreements for purchase of flat Mo. 3104 3103 at Crescent Bay, T-4, Parel, Mumbai. 6.2. The assesee s A.R. has stated that section 54 was amended w.e.f. A.Y.2015-16, that itself states that the assessee was aware of the amendment in the Act. .... 6.3.It is seen from the attachment enclosed vide letter dtd. 4/12/2017 that the assessee had received allotment letters on 24/01/2015 and on 13th January, 2015 in respect of flat bearing No. 3103 3104 in Tower T-4 in Crescent Bay, Parel, Mumbai i.e. after section 54(1) was substituted by the Finance (No. 2) Act, 2014. W.e.f. 01.04.2015. 6.4. As per the Approved plan, the flats are having two separate kitchen and two separate entrance. The assessee was well aware of this fact while entering in to the agreement. 6.5. During the assessment proceedings the assessee furnished a copy of minutes of meeting wherein it is mentioned that the handing over of the flats to the purchase parties will start i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsolutely leave no doubt as to the clear intention of the legislature. The same is extracted below: Extract of memorandum explaining amendment to sec.54(1) Capital gains exemption in case o investment in a residential house property. The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid subsection (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India. It is further proposed to amend the aforesaid sub-section (1) of section 54F so as to provide that the exemption is available, if the investment is made in one residential house situated in India. 5.8. It is also pertinent to note that it is a trite law that wherever the intention of the legislature is clear and unambiguous, then in such a case the RULE OF LITERAL CONSTRUCTION, has to be applied which states that the expressions used in a statute have to be given their ordinary meaning. In the instant case after the amendment to sec. 54(1), it is clear that the legislature had intended the benefit to the given in respect of one r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led. Moreover, it is also pertinent to note that it is a trite law that each judicial decision is rendered in the very peculiar and factual matrix of that case and therefore it is not either judicially expedient or prudent to superimpose the facts of the various case laws cited. In this sense, each case is undisputedly unique and stands on different pedestal. 5.12 Further, it would be pertinent to note that where the language is clear the intention of the Legislature is to be gathered from the language used. A construction which requires, for its support, addition or substitution of words or which results in rejection of words, has to be avoided, unless it is covered by the rule of exception, including that of necessity (see Gwallor Rayon Silk Mfg. (Wug.) Co. Ltd. v. Custodian of Vested Forests, Palghat A /R 1990 SC 1747 ; Smt. Shyam Kishori Devi v. Patna Municipal Corporation AIR 1966 SC 1678 ; A.R. Antulay v. Ramdas Sriniwas Nayak [1984] 2 SCR 914). Indeed the Court cannot reframe the legislation as it has no power to legislate (State of Kerala v. Mathai Verghese [1987] 1 SCR 317; Union of India v. Deoki Nandan Aggarwal AIR 1992 SC 96). When words used are not ambig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislative function under the disguise of interpretation (D.R. Venkatachalam v. Deputy Transport Commissioner 1977 SC 842);. 5.15. In view of the above factual and legal matrix, I find that the action of the AO in making the impugned disallowance cannot be faulted and as such the restriction of the deduction u/s.54(1) to only one residential house is upheld. Consequently, the ground nos. 1,2 3 stand DISMSISED . 8. Now filling aggrieved by the order passed by the CIT(A), the assessee is in appeal before us for the grounds mentioned herein above 9. At the time of hearing, the ld. AR for the assessee has submitted that the issue is covered in favour of the assessee by virtue of the decision of the Hon ble Bombay High Court in the matter of CIT Vs. Devdas Naik in ITA No. 2483/2011 wherein our attention was drawn to para-4 of the assessment order to the following effect: 4. We are unable to agree. We found that the evidence based on which the claim was granted by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal has been noted by the Tribunal in paragraph 4 of its order. Prior thereto, the factual position has also been noticed that the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tentions of both the parties and perused the materials available on records. There is no dispute to the facts of the case as discussed above. Therefore, we are not inclined to repeat the same for the sake of brevity. The issue in the present case relates whether the assessee is eligible for exemption under section 54F of the Act against the long-term capital gain for the investment made in the two properties which are adjacent to each other and used as one residential unit. Indeed, the provision of law requires that the exemption will be available to the assessee under section 54F of the Act for the investment in one residential unit. 7.1. Admittedly, there are 2 units bearing separate numbers which were purchased by the assessee out of the long-term capital gain income. Both the units are adjacent to each other and the same are used single residential unit. Thus the question arises, exemption provided under section 54F of the Act can be denied to the assessee merely on the ground that there were two registries of the properties. In our considered view, the answer stands in favour of the assessee in the present facts and circumstances. Under the provisions of the Act i.e. 54F of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 54 of the Income-tax Act, lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gains tax, when he invests the capital gain in purchase of additional residential building. 7.4. In view of the above and after considering the facts in totality, we are of the view that the assessee is entitled for the exemption provided under section 54F of the Act in the present facts of circumstances. Hence, we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Thus, the ground of appeal of the assessee is allowed. 11. It was submitted by the ld. AR that the assessee though had purchased two adjacent units, however, later on he had converted the said two adjacent units into one unit for the purposes of making the space available to the large family of the assessee . At this point of time, the Bench had directed the ld. AR to file the following three documents: (i) The sanctioned plan, if any approved by the local municipal authority permitting the assessee to merge the two residential units into one. (ii) The current layout plan of the residential unit. (iii) The af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amended provision reads as under: 54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head Income from house property (hereafter in this section referred to as the original asset), and the assessee has within a period of one year 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 3 constructed, one residential house in India, ........ A perusal of the above, would clearly reveal that the amendment has been only substitution of the words a residential house' by the words 'one residential house' Now, reverting back to facts, as stated earlier, the assesse has purchased two adjacent units viz. 3103 3104 and converted the same into one residential house. In other words, the assesse purchased one residential house consisting of two units and therefore, the requirements of the provisions of section were sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Honorable High Court of Delhi held that finding of the Tribunal that execution of different sale deeds in respect of different portions of the property did not affect materially the nature of the property acquired by the assessee since it was being used by assessee for residential purposes and therefore, deduction u/s. 54 was allowable, being a finding of fact, did not give rise to a substantial of law. 6 CIT v. Syed Ali Adil(AP) (HC) (2013) 260 CTR 219 The Honorable High Court of Andhra Pradesh held that he is entitled to exemption u/s. 54 in respect of capital gains on sale of its property on purchase of both 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 sale deeds. 7 Commissioner of Income Tax vs. Devdas Naik (2014) 366 ITR 0012 (BOM) The Honorable Bombay High Court held that Deduction u/s. 54 can be allowed if flats are a single unit and a house for purpose of residence even if acquisition of flats where done independently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four 1 bed room units in 2nd, 3rd 4th floors. The A.O. took the view that the assessee has constructed more than one residential house and hence he would be entitled for deduction u/s 54F of the Act for one residential unit only by adopting proportionate cost of construction of one residential house at one of one residential house at ₹ 27.10 lakhs and proportionate cost of land at ₹ 5.94 lakhs. It was held that - Accordingly, we are unable to agree with the view taken by the tax authorities that each floor of the individual house/each portion in a floor is separate house property. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and hold that the house property received by the assessee is one residential house only within the meaning of sec.54F of the Act. Accordingly, we are of the view that the reasoning given by the AO to reject the claim for deduction u/s 54F is not justified. 3 Bhatkal Ramarao Prakash Vs. ITO (ITA No. 2692/Bang/2018 In respect of purchase of two properties under an Agreement, the Honorable ITAT allowing the appeal held that The entire property constitutes single house ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nit or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. 14. The reading of section 54 made it abundantly clear that the benefit of section 54 would be given to assessee, if the assessee within a period of one year before or two years after the date on which the transfer took place purchased or within a period of three years thereafter had constructed one residential house in India. 15. In the present case, admittedly, the assessee had sold a residential flat for a sum of ₹ 8.5 crores and thereafter the appellant had invested the amount in purchasing two flats. The allotment letter for two houses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order issued by the Builder wherein it is categorically mentioned that the said flats are two different units as per the plans sanctioned by the concerned authorities, however, you may combine the said units as a single one flats to be used as single residential house by removing the common wall between the said units which structurally position of such to obtain a requisite approvals from the concerned authorities . 16.2 The Bench had directed the assessee to produce the approval/permission from the concerned municipal authorities sanctioning the amalgamation of two flats. However, no such sanctions have been produced by the ld. AR despite the time granted by the Bench. However, an affidavit dated 06.12.2021 was filed by the assessee. In para-4 of the said affidavit, it was mentioned that the developer expressed their inability to provide/allot one single larger unit of a particular area as the sanctioned/approved plans did not permit such larger unit. 16.3 In the said affidavit, it was mentioned that the assessee converted two units namely 3103 3104 to be into one residential house by removing the common wall. 16.4 As the assessee failed to file any approval/san ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made at the bar, we deem it appropriate to reproduce Section 54(1) of the Act, which read, prior to its amendment by Finance (No.2) Act, 2014, as under: 54(1) Subject to the provisions of sub-Section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head Income from house property (hereafter in this section referred to as the original asset), and the assessee has within a period of one year 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, a residential house, then, instead of the capital gain being charged to income-tax as income of the Previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section. 11. From close scrutiny of the aforesaid provision, it is axiomatic that property sold is referred to as original asset and the original asset is prescribed as buildings and lands appurtena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord 'a residential house' with the word 'one residential house' . The aforesaid amendment came into force with effect from 1-4-2015. The relevant extracts of Explanatory note to provisions of Finance (No. 2) Act, 2014 reads as under: 20.3 Certain courts had interpreted that the exemption is also available if investment is made in more than one residential house. The benefit was intended for investment in one residential house within India. Accordingly, sub-Section (1) of Section 54 of the Income-Tax Act has been amended to provide that the rollover relief under the said Section is available if the investment is made in one residential house situated in India. 20.5 Applicability:- These amendments take effect from 1st April, 2015 and will accordingly apply in relation to Assessment year 2015-16 and subsequent Assessment years. Thus it is axiomatic that the aforesaid amendment was specifically applied only prospectively with effect from Assessment year 2015-16. ( emphasis supplied by us ) 14. The subsequent amendment of Section 54(1) also fortifies the fact that the legislature felt the need of amending the provisions of the Act with a view to give a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned authorities. No such permission was granted by the concerned authority for merging of two flats to the assessee after investing in two flats, thereby making two flats as one single residential house. Moreover, the section 54 triggers at the time of investment in buying the residential house and not subsequent thereto. Hence this decision is not applicable to the facts of the present case. 21.1 The another decision relied upon by the ld. AR was in respect of Mohammadanif Sultanali Pradhan Vs. DCIT in ITA No. 1797/Ahd/2018 dated 06.01.2020, this decision is also not applicable as the said decision was on its own facts and had not laid down any law . Admittedly, there were two kitchens and further no permission for merging of two flats into one was from obtained from the concerned authorities. In view of the above, the said decision is also not applicable to the facts of the case. 21.2 Along with the written submission, the ld. AR had filed the decision in the case of Shri Ramaiah Harish in ITA No. 789/Bang/2019, in our view the said decision is not applicable to the facts of the present case, as the said case was construction of house consisting of ground floor and fou ..... 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