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TMI Blog2012 (7) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee had invested the capital gain arising from the sale of two flats in construction of a residential house. The assessee purchased a plot admeasuring 2015 sq.ft on 25.4.1996 at Bangalore from M/s Adarsh Builders and vide another agreement, the assessee had engaged the said builder for a construction of house on the said land. The assessee had treated both the flats sold by him as one residential house. The assessee computed the long term capital gain in respect of the two flats treating the same as one property after deducting the indexed cost of acquisition and other expenses. The long term capital gain was computed at Rs. 4,87,65,778/- in which the 25% share of the assessee came to Rs. 1,21,91,445/- of which Rs. 42,43,197/- related to the assessment year 1997-98 in which the Ramkrishna Society flat was sold and a sum of Rs. 79,48,248/- related to the assessment year 1998-99 in which Vishnu Villa Co-operative Hsg. Soc. Ltd. property was sold. The assessee had invested total sum of Rs. 88,73,548/- in construction of new residential house at Bangalore. The assessee, therefore, claimed the capital gain arising from the sale of two flats exempt u/s 54 of the Act to the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee had treated the flat as being used for the purpose of business because only in such a case, the income from the property is not chargeable. The AO, therefore, held that since the flat at Vishnu Villa had been used for the purpose of business, income from which was not chargeable to tax under the head "income from house property" and hence the exemption u/s 54 was not available. He, therefore, held that the assessee was not entitled to exemption u/s 54 in the assessment year 1998-99. 5. The assessee disputed the decision of the AO and submitted before the CIT(A) that both the flats constituted one residential house and had been treated as one residential unit in the Wealth-tax return of earlier years and for the purpose of computation of income from house property. Since both the flats constituted one unit and were used for the purpose of residence, there was no question of the other flat being treated as being used for the purpose of business. It was therefore pleaded that the claim of exemption u/s 54 should be allowed. The CIT(A) after considering the submissions of the assessee observed that though the flats in question were not contiguous, these were part of one and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad been used as one residential house. The sale proceeds of the two flats had been invested in construction of a new residential house. The assessee had constructed the new residential house with total investment of Rs. 88,73,548/- and therefore the assessee was entitled for exemption u/s 54 of the Act to the extent of investment made. The Ld. Counsel also submitted that the AO had no material to show that the flat at Vishnu Villa had been used by the assessee for the purpose of business. Alternatively, it was argued that even if the two flats are treated as separate residential houses, the assessee was entitled for exemption u/s 54 in respect of capital gain arising from each flat as the capital gain had been invested in acquisition of a residential house within the prescribed time limit provided u/s 54. It was pointed out that there was no restriction that sale proceeds of two residential houses could not be invested in one residential house. It was also submitted that exemption u/s 54 was available in respect of sale of more than one residential houses provided that the capital gain was invested in a residential house within the prescribed time limit. In this regard, the Ld. Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is that it invested a sum of Rs. 88,73,548/- in the construction of new residential house. As both the flats were used by four brothers and their family members for their own residential purpose, the assessee treated the two flats as one residential property which was used as self occupied property. The assessee claimed the capital gain of Rs. 42,43,197/- as exempt in the assessment year 1997-98 which had been allowed. In the assessment year 1998-99, out of the capital gain of Rs. 79,48,248/-, the assessee claimed exemption u/s 54 of the Act to the extent of Rs. 46,30,351/- being balance amount of investment in the new residential house property. 8.2 The AO has not accepted the claim of the assessee that the two flats at Mumbai which were located in two different buildings and on two different roads constituted one residential house. The CIT(A) has however accepted the claim of the assessee on the ground that in the earlier assessment years both in the Income Tax as well as in the Wealth Tax returns, the two flats had been treated as one residential property. The CIT(A) has also derived support from the judgment of the Hon'ble Allahabad High Court in the case of Shiv Narai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one residential house, this could not be considered a precedent for the issue whether two flats constituted one unit because no such ground had been raised before the Tribunal. Further, merely on the ground that, in earlier years, the two flats had been treated as one residential house cannot be the basis to accept the claim of the assessee in this year as there is no res judicata in the income tax proceedings and each assessment year is independent and distinct. In the present year, we are concerned with the claim of exemption u/s 54 of the Act and, for this purpose, it is required to be ascertained whether the assessee had sold one residential flat or two residential flats. A clear finding is required on this aspect. As we have held earlier, the two flats were different and independent residential properties and could not be considered as one residential house. The order of the CIT(A) treating the two flats as one residential property is, therefore, set aside. 10. Having held that the two flats were two different residential houses, it is required to be examined whether the assessee is entitled for exemption u/s 54 of the Act in respect of the sale of more than one residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residential house is invested in a new residential house within the prescribed time limit. Thus there is an inbuilt restriction that capital gain arising from the sale of one residential house cannot be invested in more than one residential house. However, there is no restriction that capital gain arising from sale of more than one residential houses cannot be invested in one residential house. In case, capital gain arising from sale of more than one residential houses is invested in one residential house, the condition that capital gain from sale of a residential house should be invested in a new residential house gets fulfilled in each case individually because the capital gain arising from sale of each residential house has been invested in a residential house. Therefore, even if two flats are sold in two different years, and the capital gain of both the flats is invested in one residential house, exemption u/s 54 will be available in case of sale of each flat provided the time limit of construction or purchase of the new residential house is fulfilled in case of each flat sold. 12. In relation to flat in Vishnu Villa, the AO has given a finding that the flat had been used for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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