9911796707🚨 Important Update for Our Users
We are transitioning to our new and improved portal - www.taxtmi.com - for a better experience.
Follow us:
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (3) TMI 101 - HC - Income TaxDeduction u/s 54/54F disallowed - as per AO house/units in the first and second floors holding that they were separate and independent residential units having separate entrances and cannot be considered as one unit to enable the assessee to claim the deduction - ITAT allowed assessee s claim of deduction u/s 54 - Held that - Section 54/54F uses the expression a residential house . The expression used is not a residential unit . This is a new concept introduced by the AO into the section. There is nothing in Sections 54/54F which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner income tax authorities cannot insist upon that requirement. A person may construct a house according to his plans and requirements. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house.There may be several such considerations for a person while constructing a residential house.Therefore unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical should come in the way of considering the building as a residential house. The residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F - Tribunal took the correct view. No substantial question of law arises for consideration - in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether the addition of Rs. 98,20,722/- under Section 54F was justified by treating multiple floors as separate residential properties Relevant legal framework and precedents: Section 54F of the Income Tax Act provides exemption from capital gains tax if the capital gains are invested in a residential house. The Assessing Officer treated the basement, ground floor, first floor, and second floor as separate residential units and allowed exemption only on one unit, adding back the balance capital gains to income. The Karnataka High Court judgment in CIT v. B. Ananda Basappa was relied upon by the assessee, which held that the expression "a residential house" should not be construed as a singular unit but can include multiple units or floors. Court's interpretation and reasoning: The Court noted that the Assessing Officer's approach introduced the concept of "residential unit" which is not found in the statute. The expression used in Sections 54 and 54F is "a residential house" and not "a residential unit." The Court held that the physical structuring of the house into multiple floors or units with independent entrances does not preclude the entire building from being considered a single residential house. Key evidence and findings: The assessee owned a property comprising basement, ground floor, first floor, and second floor. The collaboration agreement with the developer resulted in the developer constructing additional floors, with the assessee entitled to two floors having independent entrances. The Assessing Officer apportioned construction cost and treated units separately, disallowing exemption on some floors. Application of law to facts: The Court applied the principle from the Karnataka High Court that the indefinite article "a" in "a residential house" does not mean singular only but can include plural by virtue of Section 13(2) of the General Clauses Act. Therefore, the entire building, irrespective of internal division into floors or units, qualifies as "a residential house." Treatment of competing arguments: The revenue argued that the exemption should apply only to one residential unit since the units were independent and had separate entrances. The Court rejected this, emphasizing that the statute does not restrict the form or internal configuration of the residential house. The revenue's interpretation was held to be an impermissible reading into the statute. Conclusions: The addition under Section 54F was not justified by treating the floors as separate units. The entire building is to be treated as a single residential house for exemption purposes. Issue 2: Whether the assessee was entitled to deduction under Section 54 for the cost of construction incurred by the developer on multiple floors Relevant legal framework and precedents: Section 54 provides exemption from capital gains tax if the capital gains are invested in the purchase or construction of a residential house. The Karnataka High Court's decision in CIT v. K.G. Rukminiamma, following the earlier Ananda Basappa judgment, held that the exemption applies to a residential house and not limited to a single unit. Court's interpretation and reasoning: The Court emphasized that the cost of construction incurred by the developer, which formed part of the consideration, should be treated as investment in the residential house. Since the assessee received two floors (with independent entrances) as part of the consideration, the entire cost of construction on those floors qualifies for exemption under Section 54. Key evidence and findings: The collaboration agreement and related documents showed the assessee's entitlement to two floors, and the construction cost borne by the developer was substantial. The Assessing Officer's rejection of exemption for some floors was based on the view that they were independent units, which the Court found to be an incorrect interpretation of the statute. Application of law to facts: The Court applied the principle that the residential house need not be a single unit and that the cost of construction of multiple floors forming part of the residential house is eligible for exemption. The Court also noted that the assessee's acquisition satisfied the statutory requirement of investing capital gains in a residential house. Treatment of competing arguments: The revenue's argument that the exemption should be denied for floors treated as separate units was rejected. The Court held that the statute does not impose a requirement that the residential house be constructed in a particular manner or be a single unit without independent access. Conclusions: The assessee was entitled to deduction under Section 54 for the cost of construction incurred on multiple floors forming the residential house. Issue 3: Interpretation of the phrase "a residential house" under Sections 54 and 54F Relevant legal framework and precedents: The phrase "a residential house" appears in Sections 54 and 54F. Section 13(2) of the General Clauses Act provides that singular includes plural unless a contrary intention appears. The Karnataka High Court judgments in CIT v. B. Ananda Basappa and CIT v. K.G. Rukminiamma interpreted this phrase in the context of capital gains exemption. Court's interpretation and reasoning: The Court held that the indefinite article "a" should not be strictly construed as singular. The phrase "a residential house" includes plural buildings or lands appurtenant thereto. The Court reasoned that the legislative intent was not to restrict exemption to a single unit or floor but to any residential building or buildings forming the asset. Key evidence and findings: The Court relied on the legislative language and the General Clauses Act, as well as the consistent judicial interpretation by the Karnataka High Court, which had attained finality. Application of law to facts: Since the assessee's property comprised multiple floors forming a residential house, the phrase "a residential house" was satisfied. The Court rejected the revenue's argument that the exemption should be limited to a single residential unit. Treatment of competing arguments: The revenue contended that "a residential house" means one singular house and that multiple independent units should not qualify. The Court rejected this, noting that the statute does not require the residential house to be constructed in a particular manner or prohibit multiple independent units within the same building. Conclusions: The phrase "a residential house" under Sections 54 and 54F includes multiple floors or units forming a single residential building, and the exemption applies accordingly. 3. SIGNIFICANT HOLDINGS "The words 'a residential house' appearing in Section 54/54F of the Act cannot be construed to mean a single residential house since under Section 13(2) of the General Clauses Act, a singular includes plural." "The expression 'a residential house' should be understood in a sense that the building should be of residential nature and 'a' should not be understood to indicate a singular number." "The physical structuring of the new residential house, whether lateral or vertical, should not come in the way of considering the building as a residential house." "There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for residential use and not for commercial use." "The income tax authorities cannot insist upon a requirement that the residential house be a single unit without independent entrances." "No substantial question of law arises for consideration as the Tribunal took the correct view in allowing exemption under Sections 54 and 54F in respect of the entire residential house comprising multiple floors." Final determinations:
|
