TMI Blog2002 (1) TMI 1296X X X X Extracts X X X X X X X X Extracts X X X X ..... a habitable condition was not includible in the cost of new flat and thereby disallowing the amount of ₹ 14,94,357. (4)The CIT(A) erred in passing an order of enhancement under section 251(2) of the Act rejecting the valuation report of a government approved valuer for fair market value as on 1-4-1981 of the flat sold by the assessee. The registered valuer had worked out the fair market value at ₹ 1,22,12,644 and the CIT(A) has applied his own method by adopting the same to be at ₹ 26,17,542. 2. Briefly stated the facts are that the assessee was owner of a flat at 7/B, Sunita, B.G. Kher Marg, Malabar Hill, Mumbai. The same was sold by the assessee for a consideration of ₹ 13,25,00,000 vide sale deed dated 29-11-1995. The assessee filed return of income disclosing the capital gain thereon based on the following working : Rs. Net consideration on sale of flat 12,84,11,500 (Details as per separate statement attached) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer also noticed that an amount of ₹ 30,32,551 spent on the flat during the period 1-4-1996 to 31-8-1996 was also included in the claim of exemption under section 54. According to the Assessing Officer, the exemption under section 54 was available only for one house. The assessee had made excess claim of deduction under section 54, reasons to this effect were recorded and the Assessing Officer reopened the assessment by issuing notice under section 148. The assessee objected to reopening as being bad in law which was not accepted. 3. During the course of assessment the assessee was asked to explain the circumstances under which exemption under section 54 was claimed in respect of two separate flats and other aspects to which the assessee replied as under : In the statement containing details of taxable long term capital gain on sale of residential flat, exemption has been claimed in respect of investments in residential flats. In this respect, a query was raised as to whether the exemption claimed under section 54 is in accordance with the provisions of the Act particularly when the investment relates to two residential flats in the same building. As explained her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in the same building for the purpose of his own residence and were being used by him for the said purpose only. The ITAT had clearly pointed out that a house may consist of more than one self-contained dwelling unit and, therefore, all the four flats in question was regarded as a house of the assessee and not as separate houses. In giving this decision, the ITAT strongly relied upon the following judgment of the courts. (1)CIT v. Kodandas Chanchlomal ( 155 ITR 373) : Wherein it is held that house property for the purpose of section 54 has the same meaning as the concept of house property under sections 22 to 27 of the Act and that it takes into account all residential units particulars in these days when multistoried flats are becoming the order of the day. (2)Shivnarain Chowdhury ( 108 ITR 104) : Wherein it has been held that several self contained dwelling units which are contagious and situate in the same compound and within common boundaries and having unity of structure could be regarded as one house for the purpose of granting exemption under section 5(1)(iv) of the Wealth-tax Act. The following text of clarification issued by the CBDT would furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of another flat in the same building. 4. Aggrieved, the assessee preferred first appeal where the assessee objected to the validity of the reopening of assessment under section 147. This ground of the assessee was dismissed and the validity of reopening of the assessment was upheld. 5. On merits, the CIT(A), in principle, accepted the action of the Assessing Officer in granting exemption under section 54 in respect of the first flat, i.e. flat No. 8D, Land';s End, and the rest of the disallowance as done by the Assessing Officer was confirmed. 6. In addition to the above, the CIT(A) proposed to enhance the assessment on the following issues : (1)While claiming deduction under section 54, the assessee included repairs and renovation expenses to the tune of ₹ 17,26,908 in the cost of new asset i.e. Flat No. 8D, Land';s End out of which the Assessing Officer allowed an amount of ₹ 14,94,357 while working out capital gains. The same was enhanced. (2)The Fair Market Value as at 1-4-1981 in respect of the flat sold in Sunita Building was determined by registered valuer at ₹ 1,22,12,644. The same was considered as seriously defective and mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not include plural or vice versa as the same in the instant case will be repugnant to the subject. The assessee had represented to the Land';s End Co-operative Housing Society that the present premises in occupation consisted of only two bed rooms and was not sufficient to accommodate the family, therefore, a desire existed to acquire any additional premises preferably in the same block of building, if available. The assessee had stated of her family consisting of herself, husband, three married daughters and grand children. The CIT(A) was of the view that the daughters were married and were part of their husband';s family and at the most, they may be making occasional visit to their parents. The CIT(A) further observed that the first flat purchased was sufficient for the requirement of the assessee';s family is indicated by the fact that the second flat was acquired after a gap of one year. Besides, the assessee let out the flat at 8D, to M/s. Toman Corpn. of Japan w.e.f. 1-8-1998 for a monthly compensation of ₹ 65,000 which conclusively proved that the assessee did not require both the flats for residential purposes. The assessee';s another argument was that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 148 was issued. Reliance was placed on Allahabad High Court judgment in the case of Pradeepkumar Har Saran Lal v. Assessing Officer (1998) 229 ITR 46. 10. The learned counsel for the assessee, in the rejoinder, contended that section 143(1)(a) is an intimation and not an order or assessment. Since there was no assessment in the case, provisions of section 147 is not applicable in this case. Reliance was placed on 75 ITR 180(sic) (SC), CIT v. S. Raman Chettiar (1965) 55 ITR 630(SC). 11. We have heard the rival submissions and perused the material available on record. We find merit in the argument of the learned departmental representative that the issuance of notice under section 143(2) as agitated by the assessee can be issued only within a period of 12 months from the end of the month in which the return was filed. In the instant case, by the time the escapement was noticed, the time limit so prescribed was elapsed. Therefore, in any case, the income to this respect had escaped assessment. Since intimation under section 143(1)(a) was issued, there was no pending return as the rights of the assessee vis-a-vis return filed were settled by provisions of section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee required the purchase of second flat. The learned counsel then took us through section 54(1) of the Act, which reads as under : 54(1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or land appurtenant thereto, and being a residential house, the income of which is chargeable under the head Income from house property (hereafter in this section referred to as the original asset), and the assessee has within a period of (one year before or two years after the date on which the transfer took place purchased), or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section that is to say, - (i)if the amount of the capital gain (is greater than the cost of the residential house) so purchased or constructed (hereafter in this section referred to as the new asset), the differ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d period. Both the flats combinedly fit into the wordings of section 54 and they can be called any residential house. 15. The learned counsel contended that the matter has to be looked into from the realities of Bombay where availability of a flat of your choice is not certain and there are instances where one has to buy one small flat on a particular floor and the other on the other floor or in some cases buy one flat in one building and the other in the adjoining building. The learned counsel contended that this plea finds support from section 5(1)(iv) of the Wealth-tax Act, section 33(1) of the Estate Duty Act, section 23(3) of the Income-tax Act, General Clauses Act, CBDT Circular, dictionary meaning and legislative intention and the Scheme. The learned counsel further contended that though the assessee has let out the flat on the 8th floor in August, 1998, still, the same does not alter the legal position as the assessee is complying with the substantive provisions of section 54(1) of the Act. Reliance was placed on the decision of the Mumbai Bench of the Tribunal in the case of KG Vyas (supra) wherein number of flats were considered to be one house. Further reliance was pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssuming that ordinary parlance and grammatical meaning is to be given, a residential house means a unit and more so in Mumbai a flat is a unit by itself. 17. Coming to the arguments of the assessee that the earlier flat was bigger in space and the assessee';s family could not be accommodated in flat at 8D, Land';s End Building, the learned departmental representative contended that the plea of the assessee is full of inconsistencies. First of all three married daughters do not constitute part of assessee';s family. All of them are living abroad and are not resident in India. At the most, they come to visit their parents. Therefore, the plea of the assessee that the family is an extended family consisting of three married daughters and grand children is not substantiated by the assessee. The inconsistency in the stand of the assessee is further proved from the fact that the one flat has been given on rent after the second was purchased goes to show that the same was not required for the residential use of the assessee. Assuming the additional utility test is to be applied, the reasons given by the assessee herself contradict the conduct of the assessee. The whole exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;;s two units were a residential house. Therefore, the same is entitled to exemption. 20. We have heard the rival submissions and perused the material available on record. The provisions of section 54(1) are reproduced above. Our first endeavour is to ascertain whether the provisions are capable of giving meaning by a plain reading. In section 54(1)(i), the words used in connection with purchasing or constructing are a residential house . In section 54(1)(i), the words used are if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed.... . If we take up the plea of the learned counsel for the assessee, the revenue is emphasising that a residential house means a residential house thereby one residential house. We find that it is not the emphasis of the revenue but it is the wordings of the provision itself. We are dealing with a situation where the Legislature wants to confer some benefit to the assessee under certain conditions. If we take the ordinary and grammatical connotations, then a residential house means a dwelling unit. In Bombay one flat will mean one residential house. The assessee';s requirements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot prevail over the plain meaning of the statute. The question of giving benefit of doubt to the subject also arise when there is some ambiguity, but where the provisions, as we have already described, are plain and unambiguous, we find ourselves helpless to interpret the section in such a way with a view to avoid the contemplated hardships. The case laws cited by the learned counsel for the assessee pertain to interpretations of provisions prior to 1-4-1983. They could have been helpful have we found some difficulty with the meaning of the provisions. Since the meaning of the provisions is plain, simple and unambiguous, these external aids of interpretation and drawing analogies from case laws do not benefit the cause of the assessee. The revenue has demonstrated that in assessee';s case, the so-called family requirements also do not existed in the sense that three daughters were married and living abroad. They occasionally visit their parents and are non-residents. Consequently, the size of the family as being projected, cannot be considered on the common parlance connotations. Besides, the residential need of the assessee could not be established for the second flat as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred repairs and renovation expenditure to the tune of ₹ 17,26,908 and included the same in the cost of the new asset. Out of this amount, the Assessing Officer allowed ₹ 14,94,357. The CIT(A) was of the view that the said amount was not allowable. Consequently notice under section 251(2) proposing enhancement was issued, pointing out to the assessee that in terms of section 48(ii), cost of improvement is allowable as a deduction while computing the cost of the original asset sold but there is no such provision allowing subsequent renovations/repairs as part of the cost of new asset. The assessee replied that the flat No. 8D at the time of purchase was not in a habitable condition. The expenditure was incurred to make the same habitable. The same were essential and not luxury expenditure. The word used in section 54 are cost of the new residential house . Architects certificate was produced to show that the flat was in a state of general disrepair and inhabitable. The CIT(A) observed that the kind of defects which were pointed out were minor and do not require such heavy expenditure. Huge expenditure was incurred on marbles and other luxury items. No details were furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of section 54(1)(i) vis-a-vis the cost of purchase of the new asset, the learned counsel contended that the words used are cost of new asset in contradistinction to price of new asset, the Legislature has used the words consciously. The finding of the CIT(A) is to the effect that once the price of residential house is paid, there cannot be further addition to this figure which is not the plain meaning of the words cost of new asset which will include not only the purchase price, legal expenses in this behalf, but also the necessary expenditure carried out to make it a habitable residential house and therefore, the word cost is used. The CIT(A) has wrongly interpreted the time frame. The Legislature has given the time for direct expenditure up to the date of filing of the return and beyond that to invest the capital gain in a bank account under the Capital Gain Deposit Scheme. Consequently, the word cost being inclusive of necessary repairs is further strengthened by this time frame provided by the Legislature to the assessee to go for a proper residential house. Consequently, the repair subsequently carried out by the assessee to make the house habitable are within the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the controversy in this behalf is that for the purposes of working out capital gains the indexed cost of acquisition is determined by adopting Fair Market Value (FMV) as on 1-4-1981 and thereafter the same is adjusted by inflation index. The assessee submitted a valuation report from an approved valuer determining the same at ₹ 1,22,12,644 and worked out the capital gains accordingly by suitably adding the inflation index. The Assessing Officer accepted the same. The CIT(A), however, was of the view that the valuation report submitted by the assessee contains serious deficiencies/defects in the form of - (i)The land value has been wrongly calculated. (ii)Depreciation has not been allowed while determining fair market value. (iii)A fallacious method of multiplying factors has been adopted. The CIT(A) has given elaborate observations on these points and held that the same should be adopted as on 1-4-1981 at ₹ 26,17,542. 29. The learned counsel for the assessee contended that the valuation report submitted by the assessee adopts land and building method for valuation in view of the six characteristic points of Sunita Building which is supposed to be one of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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