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2017 (3) TMI 394 - MADRAS HIGH COURT

2017 (3) TMI 394 - MADRAS HIGH COURT - TMI - Benefit under Section 54-F - qualify as 'a residential house' occurring in Section 54-F - Held that:- No hesitation in holding that in the instant case the assessee having got 15 flats along with his two sons will not disentitle him from getting the benefit under Section 54-F of the IT Act only on the ground that all the 15 flats are not in the same Block, particularly in the light of the admitted factual position that all the 15 flats are located at .....

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the same location/address, the question of whether it is in the same block or in different blocks does not arise for consideration. To our mind, as long as all the flats are in the same address/location even if they are located in separate blocks or towers it does not alter the position. In the instant case, after all, all the flats are a product of one development agreement of the same piece of land being said land. Therefore, we make it abundantly clear that even if flats/apartments are in dif .....

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dress and all flats are by products of one development agreement with the same builder. - The logic behind our view is that the assessee, irrespective of whether it is one flat or many flats, gets proportionate undivided share in land only for the same piece of land. Therefore, assessee does not buy more than one property in that sense of the matter. Flats, apartments are completely based on co-ownership. Thus we conclude that the assessee is entitled to the benefit of Section 54-F of IT Act .....

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Income Tax Appellate Tribunal ''C'' Bench Chennai [hereinafter referred to as 'ITAT' for the sake of brevity] in ITA.No.414/MDS/2016. 3.It is necessary to set out the factual matrix in a nutshell for better appreciation of our order. 4.Factual Matrix : (i) In the instant case the assessee is an individual. (ii) Assessee filed his return of income on 01.07.2013 for Assessment year 2012-13 declaring a total income of ₹ 2,49,980/- (iii) The case was selected for scruti .....

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e assessee along with his two sons entered into a Joint Development Agreement dated 15.07.2010 with a builder to develop the said land by constructing 16 flats therein with a total built up area of 56,945 square feet. Assessee and his two sons on one hand and the builder on the other hand agreed to share in an 70:30 ratio between them. (vii) The said land was developed. 16 Flats with separate kitchens and 37 car parks were put up. (viii) There is no dispute that the entire said land and the supe .....

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COND(II) 3355 6 B THIRD (III) 1122 7 C THIRD(III) 3360 8 B FOURTH (IV) 1120 9 C FOURTH (IV) 3355 TOTAL 9 FLTS 27012 The assessee Son received the following flats : DEEPAM JAIN S.No. Block No. Floor Area Square Feet 1 B THIRD (III) 1122 2 A FOUTH (IV) 3855 3 B FOURTH (IV) 1120 S.No. Block No. Floor Area Square Feet TOTAL 3 FLATS 6097 The assessee Son received the following flats : VARUN JAIN S.No. Block No. Floor Area Square Feet 1 A THIRD (III) 3910 2 B THIRD (III) 1122 3 B FOURTH (IV) 1120 TOTA .....

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assessee preferred a statutory appeal to the Commissioner of Income-Tax (Appeals)-12, Chennai [hereinafter referred to as 'CIT' for brevity] under Section 250(6) of the IT Act. (xiii) CIT in and by order dated 18.12.2015, allowed the appeal of the assessee. This order of CIT also turned primarily on interpretation of Section 54-F of IT Act. CIT relied on a Division Bench Judgement of our High Court in V.R.Karpagam's case [2015 373 ITR 127], which had interpreted the phrase 'a res .....

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R.Karpagam's case [our Division Bench Judgement reported in [2015] 373 ITR 127]. 5. DISCUSSION: (i) As would be evident from the facts set out under the caption factual matrix supra, the entire matter turns on a very narrow and short compass. (ii) The narrow and short compass is, interpretation of the phrase 'a residential house' occurring in Section 54-F of the IT Act. (iii) Mr.Swaminathan, learned Standing counsel for Revenue would primarily contend that the 15 Flats [9 for the ass .....

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located in the same block. In an attempt to buttress his submission he would state and contend that if the flats were located in the same block, assessee will get the benefit of the ratio in V.R.Karpagam's case supra, qua 'a residential house' occurring in Section 54-F of the IT Act. (v) Besides V.R.Karpagam's case, learned counsel for Revenue would also fairly draw our attention to a judgement of a Division Bench of the Karnataka High Court in Commissioner of Income Tax, Bangalo .....

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as Rukminiamma's case. (vi) However, learned counsel for Revenue would pitch his case on a Division Bench judgement of the Panjab and Harayana High Court [Pawan Arya -Vs- Commissioner of Income Tax] reported in [2011] 11 Taxmann.com. 312 and say that the assessee in the instant case is not entitled to the benefits of Section 54-F of the IT Act. (vii) Per contra, learned counsel for the respondent assessee contended that the order of ITAT in the instant case is correct and there is no infirmi .....

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ment reported in [2016] 74 Taxmann.com 227 (Madras) [August 29, 2016]. (ii) As all the four judgements deal with capital gains and turn an interpretation of the phrase 'a residential house' occurring in Sections 54 and 54-F of the IT Act, we do not deem it necessary to set out the facts in the above said citations in detail. (iiii) In K.G.Rukminiamma's case [Karnataka High Court Division Bench] the relevant paragraphs are paragraphs 8 to 13 and the same reads as follows: 8. For a pro .....

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hargeable 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 .....

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that asset was used as a residential house, which may consist of buildings or lands appurtenant thereto, the income derived from the sale of such a residential house is chargeable under the head income from house property. If 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 .....

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Acts and Regulations, unless there is anything repugnant in the subject or context (1) words importing the masculine gender shall be taken to include females; and (2) words in the singular shall include the plural, and vide versa . 10.The context in which the expression a residential house is used in Section 54 makes it clear that, it was not the intention of the legislation to convey the meaning that it refers to a single residential house. If that was the intention, they would have used the w .....

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ith the other words buildings and lands and, therefore, the singular a residential house also permits use of plural by virtue of Section 13(2) of the General Clauses Act. This is the view which is taken by this Court in the aforesaid Anand Basappa's Case in I.T.A. No. 113/2004, disposed of on 20.9.2008. 11. We, therefore, do not see any merit in the submission of the Learned Counsel for the revenue. 12. In the instant case, the facts are not in dispute. On a site measuring 30' W 110' .....

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esidential flats constitute a residential house for the purpose of Section 54. Profit on sale of property is used for residence. The four residential flats cannot be construed as four residential houses for the purpose of Section 54. It has to be construed only as a residential house and the assessee is entitled to the benefit accordingly. 13. In that view of the matter, the Tribunal as well as the appellate authority were justified in holding that there is no liability to pay capital gain tax a .....

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e. In the judgment of Karnataka High Court in CIT v. D. Ananda Basappa [2009] 309 ITR 329 (Kar), referred to in the impugned order, exemption against purchase of two flats was allowed having regard to the finding that both the flats could be treated to be one house as both had been combined to make one residential unit. The said judgement, thus, proceeds on a different fact situation. (v) In V.R.Karpagam's case [ Division Bench of Madras High Court] the relevant paragraphs are paragraphs 8 t .....

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use.- (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before 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 .....

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bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this sub-section shall apply where (a) the assessee, (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original .....

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, which will come into effect from 01.04.2015. The said amendment reads as follows: 32a. Words constructed, one residential house in India shall be substituted for constructed, a residential house by the Finance (No. 2) Act, 2014, with effect from 01.04.2015. 10. The above-said amendment to Section 54F of the Income Tax Act, which will come into effect only from 01.04.2015, makes it very clear that the benefit of Section 54F of the Income Tax Act will be applicable to constructed, one residentia .....

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ssee with M/s. Mount Housing Infrastructure Ltd., is that the assessee will receive 43.75% of the built-up area after development, which is construed as one block, which may be one or more flats. In that view of the matter what was before the Assessing Officer is only equivalent of 56.25% of land transferred, equivalent to 43.75% of built up area received by the assessee. This built up area got translated into five flats. Hence, we are of the opinion that the transaction in this case was not wit .....

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unit. In that sense, the said provision is available to the assessee. 12. In the decision reported in (2012) 75 DTR 56 (Dr. (Smt.) P.K. Vasanthi Rangarajan, this Court, while dealing with the benefit of exemption under Section 54F, followed the above-said decision of this Court in T.C. (A) No. 656 of 2005 and granted the benefit to the assessee under Section 54F of the Income Tax Act on the investment made in the four flats. 13. Hence, the above-said decisions of this Court make it clear that t .....

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Saroja(supra), it is to be pointed out that the expression 'a residential house' used in Section 54, should not be taken to convey the meaning that it refers to a 'single residential house and if that was the intention of the legislature, the framers of the statute would have used the-word one instead of a . In fact, the facts of the case in Smt. V.R.Karpagam (supra), is more or less identical to that of the case on hand, which also pertained to a development of a property, originall .....

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rt in V.R.Karpagam's case directly and squarely covers the facts of the instant case and the legal issue herein. In V.R.Karpagam's case, a Division Bench of this Court has interpreted the phrase 'a residential house' occurring in Section 54-F as covering more than one flat/apartment as long as the same is in the same location/address. It is not in dispute before us that the Revenue has not carried this matter [V.R.Karpagam's case] to the Supreme Court. Therefore, V.R.Karpagam .....

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d certainly apply to a case under Section 54-F also because a bare reading of Sections 54 and 54-F of the IT Act would reveal that the two provisions are in pari materia with regard to those aspects of provisions of law which we are concerned with in the instant case. While Section 54 deals with capital gain arising out of transfer of buildings or lands appurtenant thereto and being residential house, 54-F deals with capital gain arising out of transfer of any long term capital asset not being a .....

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V.R.Karpagam's case would apply to the facts of the instant case. (ix) As set out in the discussion supra, learned counsel for Revenue, relied heavily on Pawan Arya's case which was decided by a Division Bench of the Punjab and Harayana High Court. Pawan Arya's case arises under Section 54 of IT Act. We have already opined that Section 54 and 54-F of IT Act are in pari materia. Therefore, there is no difficulty on this count, but Pawan Arya's case is clearly distinguishable on f .....

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gam's case. Punjab and Haryana High Court in Pawan Arya's case held that another judgement of Karnataka High Court which was cited before them being CIT -Vs- D.Ananda Basappa [2009] 309 ITR 329 is not applicable as in Ananda Basappa's case two flats were purchased in the same location and the two flats were merged into one by breaking the separating wall. On this basis, the Punjab and Harayana High Court held that Ananda Basappa's case did not apply to the case before it particul .....

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the instant case. (xi) In G.Chinnadurai's case, the matter arises under Section 54-F of IT Act. In this case also, the assessee had entered into a joint development agreement with the builder and had got more than one flat towards his share in the same location/address. Learned Single Judge of this Court had applied the principles in V.R.Karpagam's case and held in favour of the assessee. (xii) As mentioned supra, it was submitted before us that V.R.Karpagam's case was not carried to .....

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been carried by Revenue to the Supreme Court and therefore is holding the field as on today. (xiv) We are informed that there is no intra court appeal in G.Chinnadurai's case also. In other words Revenue has accepted G.Chinnadurai's case is what we are given to understand. (xv) To make our discussion on case law as complete and as comprehensive as possible, we deem it relevant to also mention that the all too important phrase 'a residential house' occurring in Section 54-F was am .....

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e other coordinate Division Bench of this Court has also noticed this amendment in V.R.Karpagam's case and thereafter laid down the principles/ratio. 7. CONCLUSION: (i) We therefore have no hesitation in holding that in the instant case the assessee having got 15 flats along with his two sons will not disentitle him from getting the benefit under Section 54-F of the IT Act only on the ground that all the 15 flats are not in the same Block, particularly in the light of the admitted factual po .....

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o infirmity in the said order, does not call for any interference and we are of the view that the said order deserves to be confirmed. (iv) We also noticed that in all the judgements, irrespective of whether it is under Section 54 or 54-F of IT Act, which we have discussed supra, the judgements have proceeded only on the basis that the flats [being more than one flat] are in the same location/address. Therefore, once it is in the same location/address, the question of whether it is in the same b .....

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