DALPATRAI T. KHUBCHANDANI, MUMBAI V. ITO 19(3)(1), MUMBAI

ITA 238/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84453 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 17-10-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 10-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJEEV JAIN
• Assessee Lawyers: PRAKASH JOTWANI
• Keywords: Question of law
• Section: 54; 54F

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND VIVEK VARMA, (JM) . . , , ./I.T.A. NO.238/MUM/2011 ( / ASSESSMENT YEAR : 2006-07) SHRI NARENDER KHUBCHANDANI LEGAL HEIR OF LATE SHRI DALPAT KHUBCHANDANI, 602, GRACE RESIDENCY, 21 ST ROAD, BEHIND HOTEL EX.BANDRA, MUMBAI-400050 / VS. INCOME TAX OFFICER 19(2)(1), PIRAMAL CHAMBERS, 3 RD FLOOR, PAREL, MUMBAI-400012. ( / APPELLANT) .. ( ! / RESPONDENT) ./ '# ./PAN/GIR NO. :AAWPK11648 $ / APPELLANT BY SHRI PRAKASH JOTWANI ! % $ /RESPONDENT BY SHRI SANJEEV JAIN & ' % () / DATE OF HEARING : 17.10.2014 *+ % () /DATE OF PRONOUNCEMENT :17.12.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 29.11.2010 PASSED BY LD CIT(A)-30, MUMBAI AND IT RE LATES TO THE ASSESSMENT YEAR 2006-07. FOLLOWING ISSUES ARE AGIT ATED IN THIS APPEAL:- (A) REJECTION OF CLAIM FOR DEDUCTION U/S 54 OF THE ACT IN RESPECT OF SECOND HOUSE PROPERTY. (B) ASSESSMENT OF SALE VALUE OF GARAGE ON NOTIONAL BASIS. 2. THE FACTS RELATING TO THE ABOVE SAID ISSUES A RE STATED IN BRIEF. THE ASSESSEE SOLD A RESIDENTIAL PROPERTY LOCATED AT NO. 10, NEW GAUTAM, DR. ITA NO.238/M/2011 2 AMBEDKAR ROAD, KHAR, MUMBAK FOR A CONSIDERATION OF RS.1.52 CRORES. HE INVESTED THE CAPITAL GAINS ON ACQUISITION OF FOLLOW ING TWO RESIDENTIAL PROPERTIES:- (A) FLAT AT PARADISE BUILDING, KHAR, MUMBAI JOINTL Y WITH SHRI S.D.KHUBCHANDANI FOR RS.45.00 LAKHS (B) FLAT NO.602, GRACE RESIDENCY, BANDRA (W), MUMB AI JOINTLY WITH MRS. PUSHPA D KHUBCHANDANI FOR RS.80 LAKHS. THE ASSESSEE CLAIMED DEDUCTION U/S 54 OF THE ACT IN RESPECT OF VALUE OF BOTH THE FLATS STATED ABOVE. THE AO, HOWEVER, RESTRICTED TH E CLAIM IN RESPECT OF ONE PROPERTY, HAVING HIGHER VALUE. IN THIS REGARD, THE AO PLACED RELIANCE ON THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN THE CASE O F SUSHILA M JHAVERI (107 ITD 327)(SB). 2.1 THE PROPERTY SOLD THE BY THE ASSESSEE HAD CO NSISTED OF TWO GARAGES. HOWEVER, THE SALE AGREEMENT DID NOT REFER TO ANY OF THE GARAGES. SINCE THE ASSESSEE HAD GIVEN THE PROPERTY FOR DEVELOPMENT, TH E AO TOOK THE VIEW THAT THE ASSESSEE WOULD HAVE SOLD THE GARAGES ALSO AND MUST HAVE GOT APPROPRIATE CONSIDERATION. ACCORDINGLY, THE AO ESTIMATED THE S ALE CONSIDERATION OF GARAGES AT RS.7,14,915/- AND ASSESSED THE SAME AS LONG TERM CAPITAL GAIN. IN THE ALTERNATIVE, THE AO SAID THAT THE COST OF GARAGES H AS TO BE EXCLUDED, IF IT IS CONTENDED THAT THE GARAGES HAVE NOT BEEN SOLD. 3. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BY FILING APPEAL BEFORE LD CIT(A), BUT DID NOT GET FAVOURABLE ORDER ON BOTH TH E ISSUES CITED ABOVE. HENCE, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 4. THE LD A.R SUBMITTED THAT THE ASSESSEE HAD PUR CHASED TWO SMALL RESIDENTIAL FLATS, INSTEAD OF BUYING ONE BIG RESIDE NTIAL HOUSE, IN ORDER TO ACCOMMODATE THE NEEDS OF HIS FAMILY. HE SUBMITTED THAT THE ASSESSEE HAD TWO SONS AND HENCE, IN THE BETTER INTEREST OF HIS FAMIL Y UNITY AND PEACEFUL ENJOYMENT, HE WAS CONSTRAINED TO BUY TWO RESIDENTIAL FLATS. H E FURTHER SUBMITTED THAT THE OBJECT OF GIVING DEDUCTION U/S 54 OF THE ACT IS TO INDUCE THE PEOPLE TO BUY/CONSTRUCT A NEW RESIDENTIAL HOUSE, WHEN THEY SE LL THEIR EXISTING RESIDENTIAL ITA NO.238/M/2011 3 HOUSE. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS COMPLIED WITH THE PROVISIONS OF SEC. 54 BY ACQUIRING TWO RESIDENTIAL FLATS, SINCE IT HAD SUITED HIS FAMILY REQUIREMENTS. HE SUBMITTED THAT THE PROVISI ONS OF SEC. 54 USE THE EXPRESSION A RESIDENTIAL HOUSE. THE MEANING OF T HE WORD A WAS ANALYZED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. KHOOBCHAND M MAKHIJA (2014)(223 TAXMAN 189) AND ALSO IN THE CASE OF CIT VS. K.G.RUKMINIAMMA (2011)(331 ITR 211) AND THE HONBLE KARNATAKA HIGH COURT HAS EXPRESSED THE VIEW THAT THE EXPRESSION A RESIDENTIAL HOUSE SHOU LD NOT BE CONSTRUED AS ONE RESIDENTIAL HOUSE. THE ASSESSEE BEFORE THE HONBL E KARANATAKA HIGH COURT IN THE CASE OF KHOOBCHAND M MAKHIJA (SUPRA) HAD PURCHA SED TWO RESIDENTIAL HOUSES. THE KARNATAKA HIGH COURT NOTICED THAT SEC. 54 USES THE EXPRESSION BUILDINGS OR LANDS APPURTENANT THERETO, I.E., IN PLURAL FORM AND FURTHER SEC. 13 GENERAL CLAUSES ACT PROVIDES THAT THE WORDS IN SIN GULAR SHALL INCLUDE THE PLURAL AND VICE VERSA. CONSIDERING THESE TWO DISTINCT FEA TURES, THE HONBLE KARNATAKA HIGH COURT HELD THAT THE COST OF BOTH THE HOUSES PU RCHASED BY THE ASSESSEE BEFORE IT IS ALLOWABLE AS DEDUCTION U/S 54 OF THE A CT. THE FOLLOWING OBSERVATIONS MADE BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF KHOONCHAND M MAKHIJA (SUPRA) WERE BROUGHT TO OUR NOTICE BY LD A.R:- 16. IN THE INSTANT CASE, ONE RESIDENTIAL HOUSE I S SOLD. OUT OF THE SALE CONSIDERATION, IT WAS OPEN TO THE ASSESSEE TO PURCH ASE A BIG RESIDENTIAL HOUSE SO AS TO ACCOMMODATE BOTH HIS SONS, IN WHICH EVENT IN TERMS OF SECTION 54(1), HE WOULD HAVE BEEN ENTITLED TO THE B ENEFIT OF THE SAID SECTION. HOWEVER, INSTEAD OF PURCHASING ONE BIG HOU SE, HAVING REGARD TO THE FACT BOTH HIS SONS ARE GROWN UP, HAVE FAMILIES AND IN ORDER TO SEE THAT IN FUTURE THERE WONT BE ANY LITIGATION OR DISHARMO NY, HE CHOSE TO PURCHASE TWO SMALL RESIDENTIAL HOUSES TO ACCOMMODATE BOTH HI S SONS. 17. IT IS CLEAR THAT THE ASSESSEE WAS NOT ATTEMPTI NG TO EVADE TAX. IN FACT, AFTER PURCHASING TWO RESIDENTIAL HOUSES, STILL THER E REMAINED UNUTILIZED CAPITAL GAIN, WHICH HE HAS OFFERED FOR TAX. THEREF ORE, AS HELD IN THE AFORESAID RUKMINIAMMAS CASE, THE CONTEXT IN WHICH THE EXPRESSION A RESIDENTIAL HOUSE IS USED IN SECTION 54 MAKES IT C LEAR THAT IT WAS NOT THE INTENTION OF THE LEGISLATURE TO CONVEY THE MEANING THAT IT REFERS TO A SINGLE RESIDENTIAL HOUSE. THE LETTER A IN THE CONTEXT, WHICH IS USED, SHOULD NOT BE CONSTRUED AS MEANING SINGULAR, BUT BEING A INDEF INITE ARTICLE, THE SAID EXPRESSION SHOULD BE READ IN CONSONANCE WITH THE OT HER WORDS BUILDINGS AND LANDS AND THEREFORE, THE SINGULAR A RESIDENTI AL HOUSE ALSO PERMITS USE OF PLURAL BY VIRTUE OF SECTION 13(2) OF THE GEN ERAL CLAUSES ACT. 18. THEREFORE, WE ARE OF THE VIEW, IN THE FACTS AND CIRCUMSTANCES OF THIS CASE, THE ACQUISITION OF TWO RESIDENTIAL HOUSES BY THE ASSESSEE OUT OF THE CAPITAL GAINS FALLS WITHIN THE PHRASE RESIDENTIAL HOUSE AND ACCORDINGLY , ITA NO.238/M/2011 4 THE ASSESSEE IS ENTITLED TO THE BENEFIT CONFERRED U NDER SECTION 54(1) OF THE ACT. HOWEVER, WE MAKE IT CLEAR THAT WHILE INTERPRE TING THIS WORD, THE COURT OR THE TRIBUNAL OR THE AUTHORITIES HAVE TO KEEP IN MIND THE FACTS OF THE PARTICULAR CASE. WHEN WE HAVE HELD A CANNOT BE R EAD AS SINGULAR, IT ALSO CANNOT BE READ AS MULTIPLES AND SO AS TO AVOID PAYI NG TAX UNDER SECTION 45 OF THE ACT. THEREFORE, IN THE FACTS AND CIRCUMS TANCES OF THIS CASE, WE ANSWER THE FIRST SUBSTANTIAL QUESTION OF LAW RAISED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 5. THE LD A.R SUBMITTED THAT THE FACTS PREVAILING IN THE INSTANT CASE ARE ALSO IDENTICAL WITH THE FACTS PREVAILING IN THE CASE OF KHOOBCHAND M MAKHIJA (SUPRA). TO SUBSTANTIAL THIS SUBMISSION, THE LD A.R INVITED OUR ATTENTION TO THE LETTER DATED 26.11.2010 FILED BY THE ASSESSEE BEFORE LD CIT(A), WHEREIN THE ASSESSEE HAD SUBMITTED ABOUT THE FAMILY EXIGENCIES IN PURCHASING TWO FLATS. 6. THE LD A.R SUBMITTED THAT THE FINANCE (NO.2) AC T, 2014 HAS MADE AMENDMENTS IN SEC. 54 AND 54F OF THE ACT, WHEREBY T HE WORDS CONSTRUCTED, ONE RESIDENTIAL HOUSE IN INDIA WERE SUBSTITUTED FOR C ONSTRUCTED, A RESIDENTIAL HOUSE. THE EFFECT OF THE ABOVE SAID AMENDMENT WAS CONSIDER ED BY HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SMT. V.R.KARPAGAM (TAX CASE (APPEAL) NO. 301 OF 2014 DATED 18.08.2014) AND THE HONBLE HIGH COURT HAS EXPRESSED THE FOLLOWING VIEW IN THIS MATTER:- 10. THE ABOVE SAID AMENDMENT TO SECTION 54F OF TH E INCOME TAX ACT, WHICH WILL COME INTO EFFECT ONLY FROM 01.04.2015, M AKES IT VERY CLEAR THAT THE BENEFIT OF SECTION 54F OF THE INCOME TAX ACT WI LL BE APPLICABLE TO CONSTRUCTED, ONE RESIDENTIAL HOUSE IN INDIA AND THA T CLARIFIES THE SITUATION IN THE PRESENT CASE, I.E., POST AMENDMENT, VIZ., FR OM 01.04.2015, THE BENEFIT OF SECTION 54F WILL BE APPLICABLE TO ONE RE SIDENTIAL HOUSE IN INDIA. PRIOR TO THE SAID AMENDMENT, IT IS CLEAR THAT A RES IDENTIAL HOUSE WOULD INCLUDE MULTIPLE FLATS/RESIDENTIAL UNITS AS IN THE PRESENT CASE WHERE THE ASSESSEE HAS GOT FIVE RESIDENTIAL FLATS ACCORDINGLY, THE LD A.R SUBMITTED THAT THE AMENDMEN T BROUGHT IN BY THE FINANCE (NO.2) ACT, 2014 MAKES IT CLEAR THAT THE RESIDENTIA L HOUSE WOULD INCLUDE MULTIPLE FLATS/RESIDENTIAL UNITS PRIOR TO THE SAID AMENDMENT . ACCORDINGLY, THE LD A.R SUBMITTED THAT THE ASSESSEE SHOULD BE GIVEN BENEFIT OF SEC.54 OF THE ACT IN RESPECT OF BOTH THE FLATS PURCHASED BY HIM. ITA NO.238/M/2011 5 7. ON THE CONTRARY, THE LD D.R SUBMITTED THAT THE ASSESSEE SHALL BE ENTITLED TO GET BENEFIT OF DEDUCTION U/S 54 OF THE ACT IN RE SPECT OF ONE RESIDENTIAL FLAT ONLY. IN THIS REGARD, HE PLACED RELIANCE ON THE FOLLOWING CASE LAW:- (A) PAWAN ARYA VS. CIT (2011)(200 TAXMAN 66)(P & H) (B) SMT. MYTRE DSOUZA VS. ITO (2012)(24 TAXMANN. COM 261)(MUM ITAT) HE FURTHER SUBMITTED THAT THE SPECIAL BENCH OF TRIB UNAL IN THE CASE OF SUSHILA M.JHAVERI (SUPRA) HAS EXTENSIVELY CONSIDERED THE ME ANING OF A RESIDENTIAL HOUSE AS APPEARING IN SEC. 54 OF THE ACT AND HAS T AKEN THE VIEW THAT THE SAID EXPRESSION REFERS TO ONE RESIDENTIAL HOUSE ONLY. HE SUBMITTED THAT THE DECISION RENDERED BY THE SPECIAL BENCH IN THE ABOVE CITED CA SE HAS SINCE BEEN APPROVED BY THE JURISDICTIONAL HIGH COURT. HE FURTHER SUBMI TTED THAT CONTIGUOUS FLATS JOINED TOGETHER WITH A COMMON KITCHEN ARE CONSIDERED AS A RESIDENTIAL HOUSE FOR THE PURPOSE OF SEC. 54 OF THE ACT. 7.1 THE LD D.R FURTHER SUBMITTED THAT, IN ALL T HE CASE LAWS, ON WHICH THE ASSESSEE HAD PLACED RELIANCE, THE MULTIPLE FLATS WE RE LOCATED IN THE SAME APARTMENT COMPLEX AND HENCE THE DEDUCTION U/S 54 OF THE ACT WAS ALLOWED BY THE HONBLE HIGH COURTS UNDER THE REASONING THAT THEY C ONSTITUTE DIFFERENT RESIDENTIAL UNITS WITHIN SAME RESIDENTIAL HOUSE. THE LD D.R SU BMITTED THAT THE ASSESSEE, IN THE INSTANT CASE, HAS PURCHASED TWO FLATS AT DIFFER ENT LOCATIONS AND HENCE THE ASSESSEE COULD NOT TAKE SUPPORT OF ANY OF THE CASE LAWS. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. ADMITTEDLY, THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SU SHILA M JHAVERI (SUPRA) HAS EXAMINED THE ISSUE - WHETHER AN ASSESSEE IS ENTITL ED TO CLAIM DEDUCTION U/S 54, OR 54F OF THE ACT IN RESPECT OF MORE THAN ONE RESI DENTIAL HOUSE ACQUIRED BY HIM. THE SPECIAL BENCH HELD THAT THE ASSESSEE COULD AVAI L EXEMPTION ONLY IN RESPECT OF ONE OF THE PROPERTIES. IT IS PERTINENT TO NOTE THAT THE SAID DECISION OF SPECIAL BENCH OF THE TRIBUNAL HAS SINCE BEEN APPROVED BY TH E JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V/S RAMAN KUMAR SURI (INCOME TA X APPEAL NO.6962 OF 2010, DECIDED ON 27.11. 2012). THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT AGAIN CONSIDERED THE IDENTICAL ISSUE IN THE CASE OF CIT V S. DEVDAS NAIK (INCOME TAX APPEAL NO.2483 OF 2011, ORDER DATED 10T H JUNE 2014). IN THE SAID CASE, THE HONBLE JURISDICTIONAL HIGH COURT HAS HEL D THAT EXEMPTION U/S 54F WILL ITA NO.238/M/2011 6 BE AVAILABLE ONLY WHEN THE HOUSE PURCHASED IS A SIN GLE UNIT. IN THE CASE OF DEVDAS NAIK (SUPRA), THE ASSESSEE HAD PURCHASED TW O RESIDENTIAL FLATS UNDER TWO DIFFERENT AGREEMENT FROM DIFFERENT SELLER. THE FLATS WERE HAVING DOOR NUMBERS103 AND 104 I..E THEY WERE CONTIGUOUS TO EAC H OTHER. FURTHER THEY WERE COMBINED INTO ONE UNIT HAVING COMMON KITCHEN. UNDER THESE SET OF FACTS, THE HONBLE HIGH COURT HAS HELD THAT BOTH THE UNITS SH OULD BE CONSIDERED AS ONE UNIT AND HENCE THE ASSESSEE WAS ENTITLED FOR DEDUCTION U /S 54 OF THE ACT. THE RATIO OF THESE DECISIONS SHOWS THAT THE HONBLE JURISDICTION AL HIGH COURT HAS EXPRESSED THE VIEW THAT THE DEDUCTION U/S 54 / 54F SHALL BE A VAILABLE ONLY IN RESPECT OF ONE RESIDENTIAL HOUSE ONLY. IF TWO DIFFERENT CONTIGUOU S FLATS ARE COMBINED TOGETHER INTO A SINGLE UNIT, THEN THE DEDUCTION U/S 54 AND 5 4F SHALL BE AVAILABLE IN RESPECT OF THE COST OF BOTH THE FLATS COMBINED TOGETHER. 9. THERE IS NO DOUBT THAT THE DECISION RENDERED BY THE JURISDICTIONAL HIGH COURT IS BINDING ON ALL AUTHORITIES AND ASSESSEES FALLING UNDER THE PURVIEW OF THAT HIGH COURT. IN THE INSTANT CASE, THE FLATS PURCHASED BY THE ASSESSEE WERE LOCATED AT TWO DIFFERENT PLACES. IT WAS NOT A CASE OF COMBINI NG OF TWO CONTIGUOUS FLATS. HENCE, WE ARE UNABLE TO FOLLOW THE DECISIONS RENDER ED BY THE HONBLE KARNATAKA HIGH COURT, WHICH WAS RELIED UPON BY THE ASSESSEE, SINCE THE SAID DECISIONS ARE CONTRARY TO THE DECISION RENDERED BY THE HONBLE JU RISDICTIONAL BOMBAY HIGH COURT. ACCORDINGLY WE UPHOLD THE ORDER OF THE LD. CIT(A) ON THIS ISSUE, SINCE IT IS IN ACCORDANCE WITH THE DECISION RENDERED BY THE HON BLE BOMBAY HIGH COURT . ACCORDINGLY, WE HOLD THAT THE ASSESSEE SHALL BE ENT ITLED FOR DEDUCTION U/S 54 OF THE ACT ONLY IN RESPECT OF ONE RESIDENTIAL FLAT 10. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF VAL UE OF TWO GARAGES FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS. WE NOTICE FROM THE ASSESSMENT ORDER THAT THE AO HAS COMPUTED THE SALE CONSIDERATION REL ATING TO GARAGES PURELY ON SURMISES AND CONJUNCTURE WITHOUT BRINGING ANY MATER IAL ON RECORD TO SHOW THAT THE ASSESSEE HAD RECEIVED ANY MONEY SEPARATELY FOR GARAGES OVER AND ABOVE THE AMOUNT DECLARED IN THE AGREEMENT. HENCE, WE AR E OF THE VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ASSESSME NT OF VALUE OF THE GARAGES, WHICH WAS ASSESSED PURELY ON PRESUMPTIVE BASIS. T HE ALTERNATIVE VIEW TAKEN BY THE AO THAT THE COST PERTAINING TO THE GARAGES HAS TO EXCLUDED FROM THE COST AS ITA NO.238/M/2011 7 ON 1.4.1981 IS ALSO BASED ON SURMISES AND CONJECTU RE AND HENCE WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFI RMING THE ALTERNATIVE VIEW OF THE AO ALSO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD . CIT(A) ON THIS ISSUE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 17TH DEC , 2014. *+ & , -. 17TH DEC, 2014 + % 4' 5 SD SD ( / VIVEK VARMA) ( . . / B.R. BASKARAN) / JUDICIAL MEMBER / ACCOUNTANT MEMBER & ' MUMBAI: 17TH DEC,2014. . . ./ SRL , SR. PS !'#$% &%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT. 3. & 6( ( ) / THE CIT(A)- CONCERNED 4. & 6( / CIT CONCERNED 5. 74 (8 , ) 8 , & ' / DR, ITAT, MUMBAI CONCERNED 6. 4 9' / GUARD FILE. : & / BY ORDER, TRUE COPY ; ' (ASSTT. REGISTRAR) ) 8 , & ' /ITAT, MUMBAI