2010 (10) TMI 351 - AT - Income Tax

Exemption u/s 54 - assessee has shown long term capital gain of Rs. 106, 66, 162 on sale of residential flats on which exemption u/s 54 amounting to Rs. 70, 30, 600/was claimed being investment in four new residential flats to be used as one single unit - The assessee was asked to show cause as to why the excess exemption u/s 54 claimed in respect of additional three houses should not be disallowed and added to his total income as Income From Capital Gain - Held that - exemption u/s 54F of the Act would be allowable in respect of one residential unit only. In the case where more than one units are purchased which are adjacent to each other and are converted into one unit for the purposes of residential unit by having common passage common kitchen and intended to be used as a single house for residence of the family then the investment in such more than one contiguous unit is eligible for exemption. In the case in hand there is no ambiguity or doubt that these four flats were full-fledged residential unit having separate kitchen and separate entrance and located at different floor. Therefore these four flats cannot be said to be contiguous units converted into one residential house. - Benefit of exempted u/s 54 not available to assessee.

Issues Involved:
1. Whether the CIT(A) was justified in confirming the disallowance of exemption under Section 54 of the Income Tax Act claimed by the assessee for investment in four new residential flats.
2. Whether the additional ground raised by the assessee regarding the sale of multiple residential units was admissible.

Issue-wise Detailed Analysis:

1. Disallowance of Exemption under Section 54:

The primary issue in this appeal was whether the CIT(A) was justified in confirming the disallowance of exemption under Section 54 of the Income Tax Act, 1961, claimed by the assessee for investment in four new residential flats. The assessee had shown long-term capital gain on the sale of residential flats and claimed exemption under Section 54 for investing in four new residential flats, which were intended to be used as a single unit. The Assessing Officer (AO) noted that the flats were on different floors and held that the exemption under Section 54 is allowable for investment in one residential house only. Consequently, the AO allowed the exemption for the flat with the highest purchase consideration and disallowed the rest.

On appeal, the assessee contended that the four flats were adjacent and used as a single residential unit with a common kitchen. However, the CIT(A) did not accept this contention, noting that a Special Bench in the case of ITO vs. Sushila N Jhaveri had been constituted to address similar issues.

The Tribunal considered the rival contentions and the relevant record, noting the Special Bench's decision in Sushila N Jhaveri, which held that exemption under Section 54 is allowable for one residential house only. If multiple units are adjacent and converted into one residential house with common facilities, the exemption is permissible. However, in this case, the four flats were separate residential units with individual kitchens and entrances, located on different floors. Therefore, they could not be considered a single residential house, and the exemption was rightly disallowed for the additional flats.

2. Admissibility of Additional Ground:

The assessee raised an additional ground, claiming that the capital gain arose from the sale of three separate structures, each constituting a residential unit. The assessee argued that the gains from each unit should be eligible for exemption under Section 54 on reinvestment in new residential properties. The assessee provided additional evidence, including property tax assessment certificates, to support this claim.

The Tribunal noted that this additional ground and evidence were not presented before the lower authorities. The new factual claim altered the case's complexion, requiring verification of whether the sold property was a single or multiple residential units. The Tribunal highlighted that the expression "a residential house" in Section 54 includes buildings or lands appurtenant thereto, suggesting that multiple structures connected and used as one residential house could qualify for exemption. However, the Tribunal declined to admit the additional ground, citing that it was raised for the first time at this appellate stage and could not be decided based on the existing record. Additionally, the Tribunal found no merit in the additional ground, as the property sold by the assessee, even if consisting of multiple buildings, did not constitute more than one residential house for the purposes of Section 54.

Conclusion:

The Tribunal dismissed the appeal, upholding the disallowance of exemption under Section 54 for the additional flats and rejecting the additional ground raised by the assessee.

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