DIPTI NALIN PARIKH, MUMBAI V. ITO WARD - 17(1)(4), MUMBAI

ITA 3274/MUM/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 6669 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2015-2016
• Appeal Filed On: 14-05-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Assessee Lawyers: SUBRAMANIAN
• Keywords: Capital asset; Question of law; Benefit of exemption; Set aside; Capital Gains
• Section: 54; 54F; 13; 153; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D”, MUMBAI BEFORE SHRI LALIET KUMAR, JUDICIAL MEMBER & SHRI M S BALAGANSH , ACCOUNTANT MEMBER ITA NO.3274/MUM/2019 (A.Y.2015-16) Dipti Nalin Parikh, Crescent Bay T4 Apt. 3103-3104, Near, Parel Bhoiwada, Opp. Cancer Society, Jeerabai Wadai Road, Parel (E), Mumbai-400012 PAN: AABPP5053F ............ Appellant Vs. ITO-17(1)(4), 115, 1 st Floor, Aayakar Bhavan, Mumbai-400020 ............ Respondent Appellant by : Sh. Subramanian, AR Respondent by : Sh. Sonia Kumar, Sr.DR Date of hearing : 02/12/2021 Date of pronouncement : 09/12/2021 ORDER PER LALIET KUMAR, J.M: This appeal has been filed by assessee challenging the order passed by the Commissioner of Income Tax (Appeals)-28, Mumbai [hereinafter referred to as ‘the CIT(A)’] vide order dated 01.03.2019 on the ground mentioned in the present appeal. 1. The Honorable Commissioner of Income Tax (Appeals) - 28, based on the amendments made vide Finance Act, 2014 in Section 54 of the Income Tax Act, 1961 and rule of Literal Construction, erred on facts and in law, in holding that the benefit of exemption to the appellant cannot be given to one complete residential unit, having been bought under two agreements, 2 ITA No. 3274 Mum 2019-Dipti Nalin Parikh 2. The Hon’ble Commissioner of Income Tax has erred in not appreciating the facts that : (i) The joint family of Your Appellants comprised 10 members, for the use of who, the said residence was being purchased. (ii) The largest available flat under one agreement in terms of area was a maximum of a four bedroom flat, which alone was insufficient for the family members comprising 10 members. Accordingly, two adjacent flats of 3 bedroom each, which suited the requirements of the family of Your Appellants were decided to be acquired with the intention and pre - condition of being permitted to make and use the same as one residential unit. (iii) It is a recorded fact that as part of the composite transaction, a confirmation was received from the builder stating that the two adjacent flats are in fact one single residential unit. 2. During the AY under consideration, the assessee has sold the residential flat for Rs. 8.5 crores and had claimed exemption under section 54 of the Income Tax Act (for short ‘the Act’) by investing in two residential properties at 3103 & 3104 in Tower T-4, Crescent Bay, Parel, Mumbai. The Assessing Officer (AO) has given the show-cause notice and asked the assessee why the benefit of section 54 be given to the assessee after the amendment 01.04.2015. The assessee filed the reply, after considering the reply of the assessee, the AO had denied the benefit of section 54(1) to the Assessee , as the AO was of the opinion that the assessee had purchased two flats and as per the provisions of section 54 as applicable to the AY under consideration, if the assessee invested in two houses, then the benefit of section 54 are not available to the assessee. 3. The AO has also succinctly narrated the facts in para-6.1 to 6.5 of his order which are to the following effect: 3 ITA No. 3274 Mum 2019-Dipti Nalin Parikh “6.1 The assessee has entered into two separate Agreements for purchase of flat No. 3104 & 3103 at Crescent Bay, T-4, Parel, Mumbai. 6.2. The assesee’s A.R. has stated that section 54 was amended w.e.f. AY. 2015-16, that itself states that the assessee was aware of the amendment in the Act. 6.3. It is seen from the attachment enclosed vide letter dtd. 4/12/2017 that the assessee had received allotment letters on 24/01/2015 and on 13th January, 2015 in respect of flat bearing No. 3103 & 3104 in Tower T-4 in Crescent Bay, Parel, Mumbai i.e. after section 54(1) was substituted by the Finance (No. 2) Act, 2014. W.e.f.01.04.2015. 6.4 As per the Approved plan, the flats are having two separate kitchen and two separate entrance. The assessee was well aware of this fact while entering in to the agreement. 6.5 During the assessment proceedings the assessee furnished a copy of minutes of meeting wherein it is mentioned that the handing over of the flats to the purchase parties will start in December. However, till date, the assessee has not received the possession of the property and the properties are 2 separate flats.” 4. The AO had also reproduced the letter dated 04.12.2017 received by the assessee from L & T Parel Project LLP and in the said letter (Page No. 6 of the AO), it is mentioned “As it is agreed that two (2) separate agreement as per our standard agreement for sale shall be executed by us in respect of the sale of the said units wherein the buyer will be M/s Dipti Nalin Parikh & Mr. Dharval Parikh jointly. The said two flats are two different units as per plan sanctioned by concerned authorities, however, you may combine the said unit as a single one flat to be used as a single residential house for removing the common walls between the said units which is structural possible such to obtaining the requisite approval/permission from the concerned authorities. ” 4 ITA No. 3274 Mum 2019-Dipti Nalin Parikh 5. However, despite the above-said, the AO has not granted any benefit to the assessee under section 54 of the Act. 6. Feeling aggrieved by the assessment order passed by the AO, the assessee preferred the appeal before the CIT(A), CIT(A) had considered the submission made by the assessee, however, the same were rejected by the CIT(A) , in the order it was mentioned as under : “6.1 The assessee has entered into two separate Agreements for purchase of flat Mo. 3104 & 3103 at Crescent Bay, T-4, Parel, Mumbai. 6.2. The assesee’s A.R. has stated that section 54 was amended w.e.f. A.Y.2015-16, that itself states that the assessee was aware of the amendment in the Act. .... 6.3.It is seen from the attachment enclosed vide letter dtd. 4/12/2017 that the assessee had received allotment letters on 24/01/2015 and on 13th January, 2015 in respect of flat bearing No. 3103 & 3104 in Tower T-4 in Crescent Bay, Parel, Mumbai i.e. after section 54(1) was substituted by the Finance (No. 2) Act, 2014. W.e.f. 01.04.2015. 6.4. As per the Approved plan, the flats are having two separate kitchen and two separate entrance. The assessee was well aware of this fact while entering in to the agreement. 6.5. During the assessment proceedings the assessee furnished a copy of minutes of meeting wherein it is mentioned that the handing over of the flats to the purchase parties will start in December. However, till date, the assessee has not received the possession of the property and the properties are 2 separate flats. 6.6. The assessee has relied upon many judgments but the same is not applicable to the assessee as Section 54(1) was Substituted for “constructed, a residential house" by the Finance (No. 2) Act, 2014, w.e.f. 1-4-2015 to “constructed, one residential house in India”, Section 54 is reproduced as under: “54 69/(7// 70(71 [Subject to the provisions of sub-section (2), where, in the case of an assessee72 being an individual ora Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset 73/***], 5 ITA No. 3274 Mum 2019-Dipti Nalin Parikh being buildings or 74 lands appurtenant thereto, and being a residential house74, 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 75[one year before or two years after the date on which the transfer took place purchased76], or has within a period of three years after that date 77/constructed, one residential house in India], 76theny, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer look place, it shall be dealt with in accordance with the following provisions of this section, that is to say, (ij if the amount of the capital gain 7s[is greater than the cost of 79[the residential house] so purchased or constructed (hereafter in this section , referred to as the new asset)], the difference between the amount of the capital gain .and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil;” 7. Further ld. CIT(A), thereafter discussed the judicial precedent and rejected the appeal of the assessee, the findings of the appeal are mentioned in para-5.7 to 5.15 to the following effect: “ 5.7. Further it is also pertinent to note one aspect that will totally clinch the issue in appeal before me. The same is in the form of the Explanatory Memorandum explaining the amendment to sec. 54(1) by Finance Act, 2014 w.e.f. 01.04.2015. A bare reading of the memorandum will absolutely leave no doubt as to the clear intention of the legislature. The same is extracted below: Extract of memorandum explaining amendment to sec.54(1) “Capital gains exemption in case o investment in a residential house property. The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid subsection (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India. 6 ITA No. 3274 Mum 2019-Dipti Nalin Parikh It is further proposed to amend the aforesaid sub-section (1) of section 54F so as to provide that the exemption is available, if the investment is made in one residential house situated in India. 5.8. It is also pertinent to note that it is a trite law that wherever the intention of the legislature is clear and unambiguous, then in such a case the RULE OF LITERAL CONSTRUCTION, has to be applied which states that the expressions used in a statute have to be given their ordinary meaning. In the instant case after the amendment to sec. 54(1), it is clear that the legislature had intended the benefit to the given in respect of one residential house alone. 5.9. I also note that the appellant has given detailed submissions and cited several case laws in order to buttress it’s case in furtherance of the appeal. The main thrust of the argument is that although it is a case of two flats having been acquired the intention was always to use the same as a single residential unit and hence, it is argued, that in effect there is only one residential house. In this regard, it is difficult to agree with the above for as mentioned in detail, the intention of the legislature is to allow the deduction in respect of only one house. 5.10. It is of paramount importance to note that recently, a Constitution Bench (Bench of Five Judges) of Hon'ble Supreme Court of India in a Landmark judgement in the case of Commissioner of Customs (Import) Mumbai Vs. Ms Dilip Kumar and Company and Ors has overruled the Three-Judge judgment in the case of Sun Export Corporation, Bombay Vs. Collector of Customs, Bombay [2002-TIOL-118-SC-CX-LB] (“Sun Export case”) to firmly hold that: — “In-case of ambiguity in a charging provision, benefit must necessarily go in favour of assessee but the same is not true for an exemption notification. When there is ambiguity in exception notification which is subject to strict interpretation the benefit of such ambiguity cannot be claimed by the subject/ assessee and it must be interpreted in favour of the revenue.” It shall be very clear that the above ratio of the Hon’ble Apex Court decision squarely applies to the appellant, since, as discussed above when the amended sec. 54(1) is to be interpreted, the important aspect is to give it the literal meaning i.e. that deduction u/s.54(1) is restricted to one residential house only. In the above noted case the Hon’ble Apex Court has overruled the test of liberal interpretation when it comes to exemption/deduction provisions. 5.11 The appellant has contended that the actual intention of the appellant was to use two residences as a single unit and hence, a liberal view may be taken. Many judicial precedents were also cited. However, the Apex Court 7 ITA No. 3274 Mum 2019-Dipti Nalin Parikh decision in case of M/s Dilip Kumar and Company and Ors (cited supra) makes it amply clear that the provisions of any deduction section have be to construed strictly and that the earlier law relating to the liberal interpretation of the provisions now stands overruled. Moreover, it is also pertinent to note that it is a trite law that each judicial decision is rendered in the very peculiar and factual matrix of that case and therefore it is not either judicially expedient or prudent to superimpose the facts of the various case laws cited. In this sense, each case is undisputedly unique and stands on different pedestal. 5.12 Further, it would be pertinent to note that where the language is clear the intention of the Legislature is to be gathered from the language used. A construction which requires, for ‘its support, addition or substitution of words or which results in rejection of words, has to be avoided, unless it is covered by the rule of exception, including that of necessity (see Gwallor Rayon Silk Mfg. (Wug.) Co. Ltd. v. Custodian of Vested Forests, Palghat A/R 1990 SC 1747; Smt. Shyam Kishori Devi v. Patna Municipal Corporation AIR 1966 SC 1678; A.R. Antulay v. Ramdas Sriniwas Nayak [1984] 2 SCR 914). Indeed the Court cannot reframe the legislation as it has no power to legislate (State of Kerala v. Mathai Verghese[1987] 1 SCR 317; Union of India v. Deoki Nandan Aggarwal AIR 1992 SC 96). When words used are not ambiguous, literal meaning has to be applied (Dental Council of India v. Hari Prakash [2001] 8 SCC 61). There is no question of interpretation if the words of the statute are clear. Grammatical construction has been accepted as the golden rule (Raghunandan Saran Ashok Saran v. Pearey Lal Workshop (P) Lid. AIR 1986 SC 1682). The hon'ble Supreme Court observed as follows in SP. Gupta v. President of India AIR 1982 SC 149: “But there is one principle on which there is complete unanimity of all the courts in the world and this is that where words or the language used in a statute are clear and cloudless, plain, simple and explicit unclouded, intelligible and pointed so as to admit no ambiguity no room for deriving support from external aids. In such cases, the statute should be interpreted on the face of the language or itself without adding, subtracting or omitting words therefrom, It is crystal clear that in the present case, the intention of the legislature to restrict the deduction to only one residential house cannot be ignored. 5.13 Further, the following is noted: The first and primary rule of construction is that the intention of the Legislature must be found in the words used by the Legislature itself. The question is not what may be supposed and has been intended but what has been said. "Statutes should be construed not as theorems of Euclid". Judge 8 ITA No. 3274 Mum 2019-Dipti Nalin Parikh Hand said, “but words must be construed with some imagination of the purposes which lie behind them" (see Lenigh Valley Coal Co. v. Yensavage 218 FR 547). This view was reiterated in (Union of India v. Filip Tiago De Gama of Vedem Vasco Dee Gama AIR 1990 SC 981); Literal rule is the principal rule for determining the legislative intent. 5.14 There is only one principle of construction, namely, to ascertain what Parliament meant by using the language of the statute. All other principles of construction are no more than guides assist the task of interpretation (Lord Hoffman in Macniven H.M. Inspector of Taxes v. Westmoreland Investments Ltd. [2001] 2 WLR 337 (HL); [2002] 255 ITR 612). It is further of particular importance to note that the courts must avoid the danger of a priori determination of the meaning of a provision based on their pre-determined notions of ideological structure or scheme into which the provision to be interpreted is somewhat fitted; they are not entitled to usurp legislative function under the disguise of interpretation (D.R. Venkatachalam v. Deputy Transport Commissioner 1977 SC 842);. 5.15. In view of the above factual and legal matrix, I find that the action of the AO in making the impugned disallowance cannot be faulted and as such the restriction of the deduction u/s.54(1) to only one residential house is upheld. Consequently, the ground nos. 1,2 & 3 stand DISMSISED.” 8. Now filling aggrieved by the order passed by the CIT(A), the assessee is in appeal before us for the grounds mentioned herein above 9. At the time of hearing, the ld. AR for the assessee has submitted that the issue is covered in favour of the assessee by virtue of the decision of the Hon’ble Bombay High Court in the matter of CIT Vs. Devdas Naik in ITA No. 2483/2011 wherein our attention was drawn to para-4 of the assessment order to the following effect: “4. We are unable to agree. We found that the evidence based on which the claim was granted by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal has been noted by the Tribunal in paragraph 4 of its order. Prior thereto, the factual position has also been noticed that the Assessee alongwith his wife jointly owned bungalow. The bungalow was sold at Rs.3/crores. With this sum, they bought three flats, one in the Assessee's name, another in the name of Assessee and his wife and third in the name of 9 ITA No. 3274 Mum 2019-Dipti Nalin Parikh the wife. The Assessee claimed deduction under section 54 on purchase of two flats in which he is either a sole owner or a joint owner. Though these flats were acquired under two distinct agreements and from different sellers, what has been noted by the Tribunal as also the Commissioner of Income Tax (Appeals) is that the map of the general layout plan as well as internal layout plan in regard to flat Nos.103 and 104 indicate that there is only one common kitchen for both the flats. The flats were constructed in such a way that adjacent units or flats can be combined into one. However, admitted fact is that the flats were converted into one unit and for the purpose of residence of the Assessee. It is in these circumstances, the Commissioner held that the acquisition of the flats may have been done independently but eventually they are a single unit and house for the purpose of residence. This factual finding could have been made the basis for recording a conclusion in favour of the Assessee. We do not find that such a conclusion can be termed as perverse. Reliance placed by the Tribunal on the order passed by it in the case of Ms Sushila M. Jhaveri and which reasoning found favour with this Court is not erroneous or misplaced. The language of the section has been noted in both the decisions and it has been held that so long as there is a residential unit or house, then the benefit or deduction cannot be denied. In the present case, the unit was a single one. The flats were constructed in such a way that they could be combined into one unit. Once there is a single kitchen then, the plans can be relied upon. We do not think that the conclusion is in any way impossible or improbable so as to entertain this Appeal. In this peculiar factual backdrop, this Appeal does not raise any substantial question of law. The Appeal is devoid of any merit and is dismissed. No order as to costs. 10. Similarly he has also drawn our attention to the decision of the Tribunal for the AY 2015-16 in ITA No. 1797/Ahd/2018 wherein the identical issue was adjudicated by the Tribunal in para-7 to 7.4 were held as under: “7. We have heard the rival contentions of both the parties and perused the materials available on records. There is no dispute to the facts of the case as discussed above. Therefore, we are not inclined to repeat the same for the sake of brevity. The issue in the present case relates whether the assessee is eligible for exemption under section 54F of the Act against the long-term capital gain for the investment made in the two properties which are adjacent to each other and used as one residential unit. Indeed, the provision of law requires that the exemption will be available to the assessee under section 54F of the Act for the investment in one residential unit. 10 ITA No. 3274 Mum 2019-Dipti Nalin Parikh 7.1. Admittedly, there are 2 units bearing separate numbers which were purchased by the assessee out of the long-term capital gain income. Both the units are adjacent to each other and the same are used single residential unit. Thus the question arises, exemption provided under section 54F of the Act can be denied to the assessee merely on the ground that there were two registries of the properties. In our considered view, the answer stands in favour of the assessee in the present facts and circumstances. Under the provisions of the Act i.e. 54F of the Act, there is no definition/clarification provided about the area of the residential property. It means, one assessee can buy huge bungalow/property say thousand square meters and can claim the deduction subject to the conditions. Similarly, the other assessee on the other hand acquired two different residential properties adjacent to each other but both the properties put together has only two hundred square meters but he will be extended the benefit of the exemption with respect to one unit only because of the reason that there are two different properties based on registry documents. 7.2. There can be a situation that the family of the assessee is quite large, comprising of several members in the family and therefore he needs two properties adjacent to each other to accommodate his family members. So from the point of view of the assessee, it is single property but he got two different properties registered as per the requirement of the builder. Thus in our considered view, the assessee cannot be deprived of the benefit conferred under the statute merely on the reasoning that there were two different registries of the buildings/properties. It is also not a case of the revenue/assessee that both the properties purchased by the assessee were located in different graphical area. In such a situation the law amended under section 54F of the Act appears to be applicable where the assessee buys two properties in two different areas. 7.3. Moreover, the principles laid down by the courts cannot be just brushed aside on the aspect of defining the one residential unit. In this regard we find support and guidance from the judgment of Hon’ble High Court of Karnataka in the case of CIT Vs. Shri D. Ananda Basappa reported in 180 Taxman 4 wherein it was held as under: “6. The contention of the revenue is that the phrase "a" residential house would mean one residential house and it does not appear to the correct understanding. The expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should not be understood to indicate a singular number. The combined reading of sections 54(1) and 54F of the Income-tax Act discloses that, a non- 11 ITA No. 3274 Mum 2019-Dipti Nalin Parikh residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to section 54 of the Income-tax Act, lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gains tax, when he invests the capital gain in purchase of additional residential building.” 7.4. In view of the above and after considering the facts in totality, we are of the view that the assessee is entitled for the exemption provided under section 54F of the Act in the present facts of circumstances. Hence, we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Thus, the ground of appeal of the assessee is allowed.” 11. It was submitted by the ld. AR that the assessee though had purchased two adjacent units, however, later on he had converted the said two adjacent units into one unit for the purposes of making the space available to the large family of the assessee . At this point of time, the Bench had directed the ld. AR to file the following three documents: (i) The sanctioned plan, if any approved by the local municipal authority permitting the assessee to merge the two residential units into one. (ii) The current layout plan of the residential unit. (iii) The affidavit in support of above-said two documents. (iv) and documents indicating the size of family and number of kitchens in the two houses. 12. On the other hand, the ld. Departmental Representative (DR) for the Revenue had relied upon the decision of the ld. CIT(A) and she had submitted that after the amendment in the statute w.e.f 01.04.2015, no benefit can be granted in favour of the assessee, as the assessee had purchased two residential houses and requirement of law as per the section 54 of the Act is that the LTCG should be invested in buying one residential house situated in India. 12 ITA No. 3274 Mum 2019-Dipti Nalin Parikh 12.1 The ld Ar for the assessee had filed the written submission in support of the case of the assessee and in the written submission it was submitted as under:- “This is an appeal for A.Y. 2015-16 and the only effective ground of appeal is regarding the disallowance of the claim made u/s 54 of the act. The relevant and undisputed facts are that during the year under consideration, the appellant sold a residential flat and purchased two adjoining flats bearing nos. 3103 & 3104, Crescent Bay, Parel, Mumbai and claimed exemption u/s 54 of the act. The purchase was made before the construction of the building commenced with clear intention and objective of acquiring one single Mat. However, the developers expressed their inability to allot a flat of the required area as the approved plan was only for flats of smaller area. However, they agreed to allot two adjacent flats which could be converted into one flat by removing the common wall between the two units which is structurally possible. This would be clear from the correspondence & communications such as e-mails exchanged and confirmation letter signed in furtherance to the issue of standardized allotment letters. A copy of some them are attached herewith. Annexure-1. Thus, the assessee had to purchase two adjacent flats, since the same were as per the sanctioned plans of the concerned authorities and converted the same into one residential house to suit the requirements of the assessee. Based on the above factual matrix, the learned AO allowed the claim made u/s 54 of the act only in part mainly on the ground that the law has been amended. The order was appealed against to the learned CIT(A), who in turn confirmed the AO's order and dismissed the appeal mainly on the ground that law has been amended. The amended provision 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 lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property (hereafter in this 13 ITA No. 3274 Mum 2019-Dipti Nalin Parikh 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 3 constructed, one residential house in India, ........ A perusal of the above, would clearly reveal that the amendment has been only substitution of the words ‘a residential house' by the words 'one residential house' Now, reverting back to facts, as stated earlier, the assesse has purchased two adjacent units viz. 3103 & 3104 and converted the same into one residential house. In other words, the assesse purchased one residential house consisting of two units and therefore, the requirements of the provisions of section were satisfied and is entitled to full benefits of S.54 of the act even after the amendment. In this connection, the Hon’ble Tribunal's attention is invited to the following decisions: S.No. Citation Gist of the decision 1 Abhijit Bhandari v Principle Commissioner of Income Tax (2017) 82 Taxmann.com 457 The Hon’ble Madras High Court held that "where, as per survey report, two adjacent flats purchased by the assessee formed a single residential unit, mere fact that subject flats were purchased by two separate sale deeds and had separate electricity meter connections, would not necessarily lead to conclusion that there were two separate residential units and thus assessee's claim for deduction us 54F could not be rejected on said basis." 2 ACIT v. Deepak S. Bheda (2012) 52 SOT 327 (Mum.) The Honorable ITAT, Mumbai held that “where more than one units are purchased which are adjacent to each other and are 14 ITA No. 3274 Mum 2019-Dipti Nalin Parikh (Trib.) converted into one house for the purpose of residence by having common passage, common kitchen etc., then it would be a case of investment in one residential house and consequently the assessee would be entitled to exemption u/s 54F.” 3 ITO v. Ms. Shushila M. Jhaveri (2007) 107 ITD 327 (Mum. Trib.) (SB) The Honorable ITAT, Mumbai held that "However, where more than one unit are purchased which are adjacent to each other and are converted into one house for the purpose of residence by having common passage, common kitchen, etc., then, it would be case of investment in one residential house and consequently, the assessee would be entitled to exemption.” 4 ACIT v. Leela P. Nanda (2006) 286 ITR (AT) 113 (Mum.) The Honorable ITAT, Mumbai while dealing with the issue that "whether the adjoining flats which are contiguous and converted into a single residence should be treated as one residential house or two separate houses held that in our view two contiguous flats converted into a single residential premise should be treated as a residential house for the purpose of section 54." 5 CIT v. Smt. Sunita Aggarwal (2006) 284 ITR 20 (Delhi) The Honorable High Court of Delhi held that “finding of the Tribunal that execution of different sale deeds in respect of different 15 ITA No. 3274 Mum 2019-Dipti Nalin Parikh portions of the property did not affect materially the nature of the property acquired by the assessee since it was being used by assessee for residential purposes and therefore, deduction u/s. 54 was allowable, being a finding of fact, did not give rise to a substantial of law." 6 CIT v. Syed Ali Adil(AP) (HC) (2013) 260 CTR 219 The Honorable High Court of Andhra Pradesh held that "he is entitled to exemption u/s. 54 in respect of capital gains on sale of its property on purchase of both flats, more so, when the flats are situated side by side and the builder has effected modification of the flats to make it as one unit, despite the fact that the flats were purchased by separate sale deeds.” 7 Commissioner of Income Tax vs. Devdas Naik (2014) 366 ITR 0012 (BOM) The Honorable Bombay High Court held that “Deduction u/s. 54 can be allowed if flats are a single unit and a house for purpose of residence even if acquisition of flats where done independently.” 8 Joseph J Mudaliar Vs. Assistant commissioner of Income Tax, Central Circle 21 Mumbai (2014) 47 The Honorable Mumbai Tribunal held that “claim us 54/54F may be allowable in case of purchase of more than one new flats when said flats constitute one residential house.” 16 ITA No. 3274 Mum 2019-Dipti Nalin Parikh Taxmann.com 169 In all the above cases, it has been held that two adjacent 1lats convertible into one house should be considered as one residential house only even if it has more than one residential unit. In addition to the above, the Hon’ble Tribunal may also consider the decision of the Hon ble High Court of Delhi rendered in the case of CIT V. Gita Duggal 357 ITR 153 (Del), wherein, it has been clearly held that the fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of deduction u/s 54/54F of the act. This decision has affirmed by the Hon 'ble Supreme Court in CIT V. Gita Duggal 228 Taxman 62 (SC). Copy of the decision is enclosed for Your Honor's immediate reference. Annexure-2 Though all the above decisions pertain to assessment years prior to amendment, still in principle it holds good as has been held in the following decisions, which have been rendered after considering the amended provisions. S.No. Citation Gist of the decision 1 Mohammad Anif Sultanali Pradhan Vs. The DCIT, Circle- 6, Ahmedabad- 380006 (ITA No. 1797/Ahd/2018) In respect of Assessment Year 2015-16, the assessee chimed exemption under section 54F of the Act for having made investment in 2 bungalows which are adjacent to each other bearing No. 18 and 19 by treating both the bungalows as one unit for the residential purposes. It was held that "after considering the facts in totality, we are of the view that the assessee is entitled for the exemption provided under section 54F of the Act in the present facts of circumstances. 17 ITA No. 3274 Mum 2019-Dipti Nalin Parikh 2 Sri Ramaiah Harish Vs. ITO Ward- 7(2)(4), Bangalore. (ITA No.789/Bang/2019 The A.O. noticed that the house property constructed by the assessee consisted of ground floor and 4 floors above it. The ground floor had parking facility, one house (2 bedrooms house) in first floor and four 1 bed room units in 2nd, 3rd & 4th floors. The A.O. took the view that the assessee has constructed more than one residential house and hence he would be entitled for deduction u/s 54F of the Act for one residential unit only by adopting proportionate cost of construction of one residential house at one of one residential house at Rs.27.10 lakhs and proportionate cost of land at Rs.5.94 lakhs. It was held that - "Accordingly, we are unable to agree with the view taken by the tax authorities that each floor of the individual house/each portion in a floor is separate house property. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and hold that the house property received by the assessee is "one residential house" only within the meaning of sec.54F of the Act. Accordingly, we are of the view that the reasoning given by the AO to reject the claim for deduction u/s 54F is not justified." 3 Bhatkal Ramarao Prakash Vs. ITO (ITA No. 2692/Bang/2018 In respect of purchase of two properties under an Agreement, the Honorable ITAT allowing the appeal held that "The entire property constitutes single house but was bifurcated with two door numbers for the 18 ITA No. 3274 Mum 2019-Dipti Nalin Parikh ground and first floor with common entrance in the ground floor only to earmark the share of each beneficiaries. The property otherwise constitutes a single property, though they have two different door nos. In such circumstances, the assessee has purchased only one property and not two properties. In this regard, the decisions cited by the Id Counsel for the assessee before us supports the plea of the assessee viz., the decision of the Delhi High Court in the case of CIT Vs. Gita Duggal (2013 30 taxmann.com 230 (Delhi)." Copies of the aforesaid decisions are enclosed for Your Honor's immediate reference. Annexure - 3, 4 & 5. All the above 3 cases pertain to that of A.Y. 2015-16. A perusal of the above, decisions, it would be clear that one residential house may consist of several independent units and that cannot be a factor to disallow the claim made u/s 54 or 54F.” 13. We have heard the rival contentions of the parties and perused the material available on record. The section 54 of the Act as applicable to the AY 2015-16 provides as under: Profit on sale of property used for residence. [(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 lands 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 hag 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 19 ITA No. 3274 Mum 2019-Dipti Nalin Parikh “[constructed, one residential house in India], “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 difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nit or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. 14. The reading of section 54 made it abundantly clear that the benefit of section 54 would be given to assessee, if the assessee within a period of one year before or two years after the date on which the transfer took place purchased or within a period of three years thereafter had constructed one residential house in India. 15. In the present case, admittedly, the assessee had sold a residential flat for a sum of Rs. 8.5 crores and thereafter the appellant had invested the amount in purchasing two flats. The allotment letter for two houses were received by the assessee on 13.01.2015 & 24.01.2015 in respect to flat no. 3104 & 3103 in Tower T-4, Crescent Bay, Parel, Mumbai, in the name of the assessee and her husband. Thus, it is clear that the assessee has invested in two residential flats within one year of the sale of the property. As per the requirement of section 54, the Long Term Capital Gain (LTCG) arising on account of transfer of Long Term Capital Assets is not chargeable to the income, if the assessee purchases one residential house in India. Importantly and relevant date for the purpose 20 ITA No. 3274 Mum 2019-Dipti Nalin Parikh of section 54 is the date of investment in residential house. To put in other words it is the duty of revenue to find out whether the assessee had invested in one house or many houses after earning the LTCG . If on enquiry or otherwise it came to the notice of the revenue that investment was made by the assessee in the two residential house than the benefit of 54 cannot be extended to whole amount invested in both the houses and is required to be restricted to one house alone. The subsequent conversion of two houses or amalgamation of two residential houses into one residential house is immaterial. In the present case, admittedly, as clear from the allotment letters, two residential houses with two separate entrances and Kitchens were purchased by the assessee respectively on 13.01.2015 and 24.01.2015 though were situated adjacent to each other. 16. In our considered opinion, the assessee would only entitle to the benefit of section 54, 1) if the assessee invested the LTCG amount for buying one residential house or 2) if the assessee purchased one residential house which was made after merger of two residential units already amalgamated and were in existence as one residential unit . However the assessee is not entitled to benefit of LTCG invested in buying two residential units and thereafter converting the said two residential units as one. 16.1 In the present case on facts, if we look into approved plans there are two separate flats with two separate kitchens and two separate entrances and therefore, at the time of purchased of the properties, they were two different residential houses and therefore, it cannot be accepted that the assessee had invested in one single residential house. Further, we may also refer the letter filed by the assessee, reproduced by the AO at page-6 of the 21 ITA No. 3274 Mum 2019-Dipti Nalin Parikh assessment order issued by the Builder wherein it is categorically mentioned “that the said flats are two different units as per the plans sanctioned by the concerned authorities, however, you may combine the said units as a single one flats to be used as single residential house by removing the common wall between the said units which structurally position of such to obtain a requisite approvals from the concerned authorities”. 16.2 The Bench had directed the assessee to produce the approval/permission from the concerned municipal authorities sanctioning the amalgamation of two flats. However, no such sanctions have been produced by the ld. AR despite the time granted by the Bench. However, an affidavit dated 06.12.2021 was filed by the assessee. In para-4 of the said affidavit, it was mentioned that the developer expressed their inability to provide/allot one single larger unit of a particular area as the sanctioned/approved plans did not permit such larger unit. 16.3 In the said affidavit, it was mentioned that the assessee converted two units namely 3103 & 3104 to be into one residential house by removing the common wall. 16.4 As the assessee failed to file any approval/sanctioned plan from the local municipal authority, it cannot be said that the assessee had purchased one single unit at the time of purchasing the property. Further, the letter placed on record clearly shows that the permission to convert in one single unit was given subject to obtaining the requisite approval/permission from the concerned authorities. 22 ITA No. 3274 Mum 2019-Dipti Nalin Parikh 16.5 In the absence of any supporting documents authorizing amalgamation of two flats, the adverse inference is required to be drawn against the assessee. 17. In view of the above, we are of the view that there was no sanction or approval/permission from the concerned authorities to amalgamate by removing the any wall. Assuming the permission is there to remove wall, then also there exists two separate kitchens. In view of the above, we are of the opinion that the assessee have not invested in one house and has invested in two different houses. In the affidavit also it is not submitted by the assessee that there is only one kitchen in the flat. There is no mentioned by the assessee in paragraph-5 of the affidavit that the kitchen in one of the flat has been removed and there exist only one kitchen. 18. The ld. CIT(A) had elaborately discussed the explanation to the Finance Bill by virtue of which the amendment was brought into the Act. In para-5.7, 5.8, 9, 10 & 11 which are reproduced herein above: 19. In our view, “when the Statute is plain, unambiguous and clear then the literal interpretation is required to be given to the Statute and the Tribunal cannot read into Statute any meaning, which has not been provided by the Statute. Admittedly, “one residential house” used in section 54 is not ambiguous and is not subjected to different interpretation; therefore, the literal interpretation is required to be given to the word “one residential house” . The law is clearly settled, if the Statute is clearly unambiguous and is not subjected to different interpretation then the Tribunal should are refrain from giving any other interpretation which is neither literal nor intended nor provided by the Statute. We may rely upon the decision of the Karnataka High 23 ITA No. 3274 Mum 2019-Dipti Nalin Parikh Court, in the matter of Arun K. Thiagarajan [2020] 117 taxmann.com 270 (Karnataka) wherein it was held as under:- 10. We have considered the submissions made on both the sides and have perused the record. In order to appreciate the rival submissions made at the bar, we deem it appropriate to reproduce Section 54(1) of the Act, which read, prior to its amendment by Finance (No.2) Act, 2014, 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 lands 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. 11. From close scrutiny of the aforesaid provision, it is axiomatic that property sold is referred to as original asset and the original asset is prescribed as buildings and lands appurtenant thereto and being a residential house. The expression 'a residential house' therefore, includes building or lands appurtenant thereto. It cannot be construed as one residential house. 12. A Bench of this court in case of Smt. KG Rukminiamma (supra) dealt with the meaning of expression 'a residential house' used in Section 54(1) of the Act while taking into account Section 13(2) of the General Clauses Act, 1897 held that unless there is anything repugnant in the subject or context, the words in singular shall include the plural and vice versa. It was further held that context in which the expression 'a residential house' is used in Section 54 makes it evident that it is not the intention of the legislature to convey the meaning that it refers to a single residential house. It was also held that an asset newly acquired after sale of original asset can also be buildings or lands appurtenant thereto, which also should be residential house, therefore, the letter 'a' in the context it is used should not be construed as meaning singular, but the expression should be read in consonance with other words viz., buildings and lands. Accordingly, the contention raised by the revenue was rejected. Similar view was taken by a bench of this court in Khoobchand M. Makhijasupra, B. Srinivassupra and in the case of Smt. Jyothi K Mehtasupra. The Madras High Court while dealing with Section 54 of the Act as it stood prior to amendment by Finance Act No. 2/2014 in the case of Tilokchand & Sons supra took the similar view and held that the word 'a' would normally mean one but in some circumstances it may include within its ambit and scope some plural numbers also. The Delhi High Court also took the similar view in case of Gita Duggal supra. 13. It is well settled in law that an Amending Act may be purely clarificatory in nature intended to clear a meaning of a provision of the principal Act, which was already implicit. [See: Decision of The Supreme Court In CIT v. Ram Kishan Das [2019] 103 taxmann.com 414/263 Taxman 657/413 ITR 337. In view of aforesaid enunciation of law by different High Courts including this court and with a view to give definite meaning to the expression 'a residential house', the provisions of Section 54(1) were amended with an object to restrict the plurality to mean singularity by substituting the word 'a residential house' with the word 'one residential house'. The aforesaid amendment came into force with effect from 1-4-2015. The relevant extracts of Explanatory note to provisions of Finance (No. 2) Act, 2014 reads as under: 24 ITA No. 3274 Mum 2019-Dipti Nalin Parikh 20.3 Certain courts had interpreted that the exemption is also available if investment is made in more than one residential house. The benefit was intended for investment in one residential house within India. Accordingly, sub-Section (1) of Section 54 of the Income-Tax Act has been amended to provide that the rollover relief under the said Section is available if the investment is made in one residential house situated in India. 20.5 Applicability:- These amendments take effect from 1st April, 2015 and will accordingly apply in relation to Assessment year 2015-16 and subsequent Assessment years. Thus it is axiomatic that the aforesaid amendment was specifically applied only prospectively with effect from Assessment year 2015-16. ( emphasis supplied by us ) 14. The subsequent amendment of Section 54(1) also fortifies the fact that the legislature felt the need of amending the provisions of the Act with a view to give a definite meaning to the expression 'a residential house', which was interpreted as plural by various courts by taking into account the context in which the aforesaid expression was used. The subsequent amendment of the Act also fortifies the view taken by this court as well as Madras High Court and Delhi High Court. It is trite law that the principle underlying the decision would be binding as precedent in a case. In Halsbury Laws of England, Volume 22, Para 1682, Page 796, the relevant extract reads as under: The enunciation of the reasons or principle on which a question before a court has been decided is alone binding as a precedent. This underlying principle is often termed the ratio decided, that is to say, the general reasons given for the decision or the general grounds on which it is based, detached or abstracted from the specific peculiarities of the particular case which gives rise to the decision. [Also see: 'State of Haryana v. Ranbir @ Rana', [2006] 5 SCC 167 & 'Girnar Traders v. State of Maharashtra', [2007] 7 SCC 555]. 15. This Court as well as Madras and Delhi High Court have interpreted the expression 'a residential house' and have held that the aforesaid expression includes plural. The ratio of the decisions rendered by coordinate bench of this court are binding on us and we respectively agree with the view taken by this court while interpreting the expression 'a residential house'. Therefore, the contention of the revenue that the assessee is not entitled to benefit of exemption under Section 54(1) of the Act in the facts of the case does not deserve acceptance. 20. In the light of the above, we do not find any merit in the appeal of the assessee, as the assessee has invested in more than one houses, and therefore, the appeal is bereft of any merit and accordingly, the same is liable to be dismissed. 21. The ld. AR had relied upon the decision of the Hon’ble Bombay High Court in the matter of CIT Vs. Devdas Naik (supra). In our respectfully understanding firstly the said decision dealing with the statute as prevailing prior to the amendment of section 54 i.e 1/4/2015 Secondly facts of said 25 ITA No. 3274 Mum 2019-Dipti Nalin Parikh Judgment were entirely different than the facts of present case. In the present case merging of two flats, was granted by the Builder, after the sale of flats subject to approval/permission by the concerned authorities. No such permission was granted by the concerned authority for merging of two flats to the assessee after investing in two flats, thereby making two flats as one single residential house. Moreover, the section 54 triggers at the time of investment in buying the residential house and not subsequent thereto. Hence this decision is not applicable to the facts of the present case. 21.1 The another decision relied upon by the ld. AR was in respect of Mohammadanif Sultanali Pradhan Vs. DCIT in ITA No. 1797/Ahd/2018 dated 06.01.2020, this decision is also not applicable as the said decision was on its own facts and had not laid down any law . Admittedly, there were two kitchens and further no permission for merging of two flats into one was from obtained from the concerned authorities. In view of the above, the said decision is also not applicable to the facts of the case. 21.2 Along with the written submission, the ld. AR had filed the decision in the case of Shri Ramaiah Harish in ITA No. 789/Bang/2019, in our view the said decision is not applicable to the facts of the present case, as the said case was construction of house consisting of ground floor and four other floors. The AO observed that the assessee has constructed more than one residential house, hence not entitled to section 54 of the Act. In our considered opinion, the said judgement is of no use to the assessee as the that the amendment is prospective in nature and with a view to give a quietus to “a residential house” the legislature has amended the provision and provided “one residential house” as against “a residential house”. This had been so held by the High Court in Arun K. Thiagarajan (supra). Similarly the other decision 26 ITA No. 3274 Mum 2019-Dipti Nalin Parikh relied upon by the assessee Bhatkal Ramarao Prakash is also not applicable to the facts and circumstances of the case ,as the said decision was on different fact and further the Karnatka high court had held that the amendment is prospective and applicable w.e.f AY 2015. In the light of the above, we do not find any merit in the appeal of the assessee and accordingly, the same is dismissed. In the result, appeal of assessee is dismissed. Order pronounced in the court on 09.12.2021. Sd/- Sd/- (M.S BALAGANESH) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई/Mumbai, Dated: 09.12.2021 SK, PS Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ/The Appellant , 2. Ůितवादी/ The Respondent. 3. आयकर आयुƅ(अ)/ The CIT(A)- 4. आयकर आयुƅ CIT 5. िवभागीय Ůितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 6. गाडŊ फाइल/Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai