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TMI Blog2014 (1) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty within the stipulated period. (2) Without prejudice to the above ground and on the fact and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the two flats received by the assessee are two distinct and separate flats therefore the same cannot be considered as a single residential house envisaged u/s. 54(1) of the Act and hence are not eligible for deduction u/s. 54(1) of the Act. (3) On the fact and in the circumstances of the case and in law the Ld. CIT(A) failed to appreciate the fact that clause (b) of Section 2(42A) is only for determining the period held by the assessee for the purpose of treating the asset as a long term capital asset and Explanation (iii) to Section 48 clearly states that the Cost Inflation Index shall be from the first year in which the asset was held by the assessee. (4) The decision of the Special Bench of the ITAT in the case of Manjula J. Shah, ITA No. 7315/Mum/2007 dated 16-06-2009 has not been accepted by the Department. (5) The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO be restored. (6) The appellant craves leave to amend or alter any ground o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6-02-2001 determining the total income at Rs. 33,61,280/-. The assessee had referred an appeal before the CIT(A)-XIX, Mumbai. Vide his order dt. 16-10-2002 he had allowed the appeal. The Department had filed Second Appeal before the ITAT, Mumbai on 31- 12-2002. The 'I' Bench of ITAT, Mumbai vide its order in ITA No. 7478/M/2002 dt. 14-08-2007 has set aside the issue to the file of the AO. Consequent upon the order of the Tribunal, a notice u/s. 142(1) dt. 13-08-2008 has been issued and served on the assessee. Initially the return filed by the assessee was processed u/s.143(1) of the Act. Later on proceedings u/s. 147 of the Act were initiated as the AO was of the opinion that there were reason to believe that taxable income has escaped assessment. Order u/s. 143(3) r.w.s. 254 of the Act was passed by the AO on 24-12-2008 determining the total income of the assessee at Rs. 63.18 Lakhs. 3. Brief Facts and Background of the case: Appellant and three other co-owners owned a building of his uncle 'Wagh House'. This property was sold to Nirmit Developers for a monetary consideration of Rs. One Crore plus the builder was to provide to the owners free of cost 6 flats measuring 617 sq. ft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, and after taking into consideration the decision of the Special Bench of the Tribunal in the case of Sushila Jhaveri (supra). As per the direction of the ITAT, a notice was served on the assessee and an order was passed by the AO u/s. 143(3) r.w.s. 254 on 24-12-2008. In the order passed, the AO determined the income of the appellant at Rs. 63,18,613/- which included Long Term Capital Gain (LTCG) of Rs. 62,97,244/-. In the said order, no benefit of exemption for re-investment of LTCG, as per Section 54 was given to the appellant. AO allowed the benefit of indexation, as per Section 48(iii) of the Act, w.e.f. 07-08- 1986 i.e., from the date on which the appellant became the owner of the property on the date of the death of the deceased and not w.e.f. 01-04-1981. Besides the claim of the appellant that he was 1/6th owner, and not 1/4th owner, was rejected. 5. Assessee again preferred an appeal before the FAA. After considering the ratio decidendi of the decision of Sushila Jhaveri [292 ITR (AT)1(Mumbai)(SB)], he held that exemption u/s. 54 should be allowed to the appellant for one house only since the appellant alongwith 3 other co-owners had acquired by investing in 6 new hou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. This was disapproved by the CIT(Appeals) on the basis of the judgment of the Karnataka high Court (supra) and his decision was approved by the Tribunal. The Tribunal expresses the view that the words 'a residential house' appearing in Section 54/54F of the Act cannot be construed to mean a single residential house since u/s. 13(2) of the General Clauses Act, a singular includes plural. 8. It is the correctness of the above view that is questioned by the revenue and it is contended that the interpretation placed by the Tribunal gives rise to a substantial question of law. The assessee strongly relies upon the judgment of the Karnataka High Court (supra) which, it is stated, has become final, the special leave petition filed by the revenue against the said decision having been dismissed by the Supreme Court as reported in the annual digest of Taxman publication. The judgment of the Karnataka High Court supports the contention of the assessee. An identical contention raised by the revenue before that Court was rejected in the following terms: "A plain reading of the provision of Section 54(1) of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a house according to his plans and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. For instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residentce and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post- retirement. 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 even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. 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. We are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or verti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re held by the assessee not from the date form which asset was acquired by the original order. 11. Assessee preferred an appeal before the AO. He held that the case of the appellant was covered by the decision of the ITAT, Mumbai Special Bench in the case of Manjula J. Shah (ITA No. 7315/Mum/2007 dt. 16-10-2009), that the said issue was settled and was never a part of appeal as whatever was shown in the return of income, was duly accepted by the AO in his Order passed u/s. 143(3) r.w.s. 147 dt. 26-02-2011. He directed the AO, to adopt cost inflation index of acquisition of the capital asset with reference to the year in which the previous owner first held the asset. He directed the AO re re-compute the Capital Gain of the appellant accordingly by taking Cost Inflation Index as on 01-04-1981 and not 1989-90. As a result, appeal filed by the assessee was allowed by the FAA. 12. Before us, DR relied upon the orders of the AO. AR submitted that issue was covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court delivered in the case of Manjula J. Shah. He relied upon the case of Manjula J. Shah (249 CTR 270). After hearing the rival submission, we find th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ...... It is true that the words of a statute are to be understood in their natural and ordinary sense unless the object of the statute suggests to the contrary. Thus, in construing the words 'asset was held by the assessee' in cl. (iii) of Expln. to s. 48, one has to see the object with which the said words are used in the statute. If one reads Expln. 1(i)(b) to s. 2(42A) together with ss. 48 and 49, it becomes absolutely clear that the object of the statute is not merely to tax the capital gains arising on transfer of a capital asset acquired by an assessee by incurring the cost of acquisition, but also to tax the gains arising on transfer of a capital asset inter alia acquired by an assessee under a gift or will as provided under s. 49 where the assessee is deemed to have incurred the cost of acquisition. Therefore, if the object of the legislature is to tax the gains arising on transfer of a capital asset acquired under a gift or will by including the period for which the said asset was held by the previous owner in determining the period for which the said asset was held by the assessee, then that object cannot be defeated by excluding the period for which the said asset was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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