TMI Blog2012 (7) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... enied if the other conditions of section 54 are fulfilled - No rulings have been brought on record by the ld. DR to show that the capital gain arising from sale of more than one residential houses cannot be invested in one residential house - The only requirement of section 54 is that income should be chargeable to tax under the head "house property income" and it is not necessary that income should have been actually charged - direct the AO to allow the capital gain exemption u/s 54 after verifying that the new residential house had been constructed within prescribed time limit - partly in favour of revenue. - IT APPEAL NO. 7443 (MUM.) OF 2002 - - - Dated:- 22-6-2012 - B.R. MITTAL, RAJENDRA SINGH, JJ. ORDER Rajendra Singh, Accountant Member This appeal by the Revenue is directed against the order dated 7.10.2002 of CIT(A) for the assessment year 1998-99. 2. The dispute raised by the Revenue in this appeal relates to claim of deduction u/s 54 of the Income Tax Act, 1961 (the Act) in respect of investment of capital gain in the new residential property. 3. The facts in brief as borne out from the records are that the assessee along with his three brothers had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not contiguous, both had been used as one residential house and, therefore, it was submitted that the same should be treated as one house in view of judgment of the Hon'ble Allahabad High Court in the case of Shiv Narain Chaudhari v. CWT (108 ITR 104). The AO, however, did not accept the contentions raised. It was observed by him that the flat in Vishnu Villa Co-operative Hsg. Soc. Ltd. was located at 7B, Worli Seaface, Mumbai, whereas the flat No. 201, located at Ramkrishna Sadan, was at plot No. 63, Sir Pochkanwala Road, Worli, Mumbai - 400018. These flats were located in different buildings and were situated at different roads and these had also been acquired in different years. The flat at Ramkrishna Sadan, had been purchased on 9-1-1984 whereas the flat at Vishnu Villa had been acquired in the earlier year. The AO, therefore, did not accept the claim of the assessee that both flats constituted one residential house. The AO also observed that section 54 allowed exemption in respect of one residential house, the income from which was chargeable under the head "income from house property". In this case, the assessee owned two residential houses and exemption from house pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in appeal before the Tribunal in which the decision of the CIT(A) treating the two flats as a single residential house and allowing exemption u/s 54 subject to verification of conditions and not treating one of the flats as being used for business, have been contested. 6. Before us, the Ld. DR appearing for the Revenue assailed the order of the CIT(A). It was submitted that the two flats which were located in two different buildings on different roads having no common approach road could not be considered as one residential house. It was pointed out that the judgment of the Hon'ble High Court of Allahabad in the case of Shiv Narain Chaudhari v. CWT ( supra ), was distinguishable and not applicable to the facts of the present case. He also referred to the judgment of Hon'ble Bombay high Court in the case of K.C. Kaushik v. P.B. Rane (185 ITR 499) and the judgment of the Hon'ble Punjab and Haryana High Court in the case of Pawan Arya v. CIT (237 CTR 210) in support of the case of the Revenue. 7. On the other hand, the ld. Counsel for the assessee submitted that though the two flats were located in different buildings on different roads but were within walking dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n arising from the sale of a residential house income from which is chargeable under the head "income from house property" if one year before or two years after the date of transfer, the assessee has purchased a new residential house or within a period of three years from the date of transfer, has constructed a new residential house. Further, in case, the investment in new residential house is less than the capital gain arising from the transfer of residential house; the excess of capital gain over the investment is chargeable to tax. In the present case, the assessee along with his three brothers had purchased flat No. 201 in Ramkrishna Sadan, Plot No.63, Sir Pochkanwala Road, Worli, Mumbai-400018 on 9.1.1984 and another flat in Vishnu Villa Co-operative Hsg. Soc. Ltd. located at 7B, Worli seaface, Mumbai had been purchased in earlier year. The assessee had 25% interests in both the flats. The flat at Ramkrishna Sadan was sold on 4.10.1996 for a consideration of Rs. 1,77,00,000/- in the assessment year 1997-98 and the flat in Vishnu Villa Co-op.Hsg. Soc. had been sold on 8.10.1997 i.e. assessment year 1998-99 for a total consideration of Rs. 3,30,00,000/-. 8.1 The assessee com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Allahabad High Court in the case of Shiv Narain Chaudhari v. CWT ( supra ) is distinguishable and not applicable to the facts of the present case. In the said case, the Hon'ble Allahabad High Court had clearly held that two separate buildings situated in two different locality cannot be regarded as one unit even if the members of the HUF were using both the houses exclusively for residential purposes. The Hon'ble High Court, however, held that self-contained dwelling units which are contiguous and situated in the same compound and within a common boundary and having unity of structure could be regarded as one house. In the present case the two flats were located in two different buildings not situated in the same compound and within common boundary. Secondly, the flats being located in two different buildings on different roads, there could not be unity of structure of the two flats. Therefore, in our view, the CIT(A) has wrongly placed reliance on the judgment of the Hon'ble High Court of Allahabad ( supra ) which is not applicable to the facts of the present case. 9. The ld. AR for the assessee has also argued that in case of one of the brothers viz. Shri Mahe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouses if other conditions are fulfilled. The ld. DR appearing for the Revenue has placed reliance on the judgment of the Hon'ble High Court of Punjab and Haryana in the case of Pawan Arya v. CIT (237 CTR 210) ( supra ) to argue that the claim of exemption is not available in respect of sale of more than one residential house. On careful perusal of the said judgment, we find that no such proposition has been laid down in that case. The Hon'ble High Court in the said case, have only held that the capital gain arising from the transfer of a residential house is not admissible against the investment in second house. Thus, the only restriction is that the capital gain arising from the sale of one residential house must be invested in one residential house and not in two residential houses. 11. Another important aspect which needs to be examined is whether the exemption u/s 54 will be available, in case, capital gain arising from sale of more than one residential house, is invested in one residential house. The ld. counsel appearing for the assessee argued that there was no restriction under section 54 that capital gain arising from two residential houses cannot be invested in on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the finding given by the AO and we agree with the view taken by CIT(A). The assessee had shown no income from Vishnu Vila flat because the assessee had treated both the flats as one residential house which had been used as a self acquired property. Therefore, only on the ground that the assessee had not shown any income from the Vishnu Vila property, it cannot be concluded that the flat had been used for the purposes of business when there is no material to support the said conclusion. Even at the time of hearing before the Tribunal, the Ld. DR did not produce any material to show that the Vishnu Vila flat had been used for the purposes of business. Therefore, the flat in Vishnu Vila had to be treated as residential house, the income from which is chargeable to tax under the head "income from house property". The only requirement of section 54 is that income should be chargeable to tax under the head "house property income" and it is not necessary that income should have been actually charged. Therefore, capital gain arising from the sale of the Vishnu Villa flat would be eligible for exemption u/s 54 subject to fulfilment of other conditions. 13. In view of the foregoing d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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