Shri B. Srinivas V. The Income Tax Officer Ward 3(3), Bangalore

ITA/1134/2008

AI Insights

The case involves an appeal by the assessee, Shri B. Srinivas, against the decision of the Income Tax Appellate Tribunal (ITAT), which denied him the benefit of Section 54(1) of the Income Tax Act, 1961. This section provides exemption on capital gains if the proceeds from the sale of a residential property are reinvested in another residential property. The assessee had sold a property and purchased two others subsequently, claiming exemptions for both under Section 54. The ITAT initially denied the exemption for the second property on the grounds that the properties were not in the same vicinity and thus did not qualify as a single residential unit. However, the lower appellate authority overturned this decision, leading to the revenue's appeal to the Tribunal, which was then challenged in the High Court.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 794160 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 04-07-2014
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX VS. KHOOBCHAND M. MAKHIJA
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: CHYTHANYA
• Keywords: Capital Gains; Exemption; Income Tax; Investment; Residential property
• Section: 54(1); 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE Dated this the 4th day of July, 2014 PRESENT THE HON’BLE MR. JUSTICE N KUMAR AND THE HON’BLE MR. JUSTICE B MANOHAR ITA No. 1134/2008 BETWEEN: Shri B. Srinivas No.14, Mount Joy Extension, 1st Cross, Hanumanthanagar, Bangalore 560 079. (Represented by his power of attorney holder Sri M. Bette Gowda Aged about 78 years S/o. Mote Gowda) …Appellant (By Sri Chythanya, Adv.) AND: The Income Tax Officer Ward 3(3), Bangalore …Respondent (By Sri K.V. Aravind, Adv.) 2 This ITA filed under Section 260-A of I.T. Act, 1961 arising out of order dated 08.08.2008 passed in ITA No.1039/Bang/2007, for the Assessment year 2004-2005, praying to (i) formulate the substantial questions of law stated therein; (ii) allow the appeal and set aside the order passed by the ITAT, Bangalore in ITA No.1039/Bang/2007, dated 08.08.2008. This ITA coming on for hearing this day, N. KUMAR J delivered the following: J U D G M E N T This appeal is by the assessee challenging the order passed by the Authorities declining to grant the benefit of Section 54(1) of the Income Tax Act, 1961 (for short ‘the Act’) in respect of the second residential property purchased by him. 2. The assessee was the owner of property bearing No.27, Bull Temple Road, Basavanagudi, Bangalore. He sold the said property on 08.03.2004 under a registered sale deed for a consideration of Rs.1,44,50,000/-. Out of the sale consideration, he purchased a property bearing No.11/94, Model House Street, Basavanagudi, Bangalore, under a registered sale deed dated 26.05.2004 for a consideration of Rs.65,88,330/-. Out of the 3 balance sale consideration, he invested a sum of Rs.24,01,000/- on 30.07.2004 in Capital Gains Scheme Account No.3/2004 with Canara Bank, Hanumanthanagar Branch, Bangalore, for the purpose of renovation/construction. He also purchased RECC bonds of Rs.5,00,000/- on 30.07.2004. The assessee claimed exemption under Section 54 of the Act in respect of investment in house property, investment in Capital Gains Scheme and deduction under Section 54EC respect of RECC bonds. The net capital gain of Rs.138/- was declared. 3. The case of the assessee was selected for scrutiny. It was pointed out to him that as the assessee has already invested the capital gains in the purchase of residential property, then, for the purpose of renovation, investment in Capital Gains Scheme cannot be made. In reply, the assessee clarified that he had made investment in Capital Gains Scheme with the intention of utilizing the said amount for the purpose of renovating the property purchased and also had the intention of purchasing/constructing one more residential property. Thereafter, the assessee produced a purchase deed dated 01.06.2005 wherein he along with his wife Dr. Meena Rao Bette and his father Sri M. Bettegowda has 4 purchased a property No.54/69, H.B.Samaja Road, Basavanagudi, Bangalore, for a sum of Rs.1,06,00,000/- by withdrawing the amount from Capital Gains Scheme Account. Therefore, he claimed complete exemption under Section 54(1) of the Act. 4. The case of the assessee was rejected on the ground that the assessee has not purchased two residential flats or two houses simultaneously with the intention of converting into single residential unit. The properties are situated at two different locations and therefore, the assessee is not entitled to the benefit of Section 54(1) of the Act in respect of the second residential property which was purchased. Aggrieved by the said order, the assessee preferred an appeal before the Commissioner of Income Tax. The appellate Authority after referring to the earlier judgments of the Tribunal held, there is no bar in claiming deduction under Section 54 in respect of investment made in more than one house. Although the assessee’s intention of investing in the Capital Gains Scheme initially was to renovate and construction, he decided to withdraw and invest the same in another residential house. It makes no difference as far as deduction under Section 54 is concerned and therefore, he allowed 5 the appeal by setting aside the order of the assessing authority. Aggrieved by the same, the revenue preferred an appeal to the Tribunal. 5. The Tribunal after referring to some of the judgments of the Tribunal held, the intention of the legislation to allow exemption in respect of investment in more than one asset by using the word “any” was considered by the Special Bench, which clearly indicated that only one residential house property would entitle the assessee to claim exemption from the Capital Gains so computed. Therefore, the legislature used the word “a” where it intended investment in one residential house only and used the word “any” where it intended investment in more than one or more assets and therefore, the Tribunal was of the view the assessee is not entitled to the benefit of Section 54 of the Act insofar as the second house is concerned on the ground that the second house is not anywhere in the vicinity of the first house. Aggrieved by the said order, the assessee is in appeal. 6. This appeal was admitted on 30.01.2009 to consider the following substantial questions of law: 6 (i) “Whether on the facts and in the circumstances of the case, the Hon’ble Tribunal was right in law in disallowing the deduction under section 54 in respect of the amount invested in Capital Gains Scheme, which was ultimately invested in the purchase of a second house? (ii) Whether on the facts and in the circumstances of the case, the Hon’ble Tribunal was right in law in holding that the purchase of “a residential house’ as mentioned in Section 54(1) means ‘one residential house’ only?” 7. This Court had an occasion to consider the word, “a residential house” used in Section 54 in the case of COMMISSIONER OF INCOME TAX VS. KHOOBCHAND M. MAKHIJA reported in (2014) 43 Taxmann.com 143 (Karnataka), where after referring to the meaning of the word “a” in the dictionaries and referring to the provisions of the General Clauses Act and also Section 54 of the Act held, the letter “a” in the context, which is used, should not be construed as meaning singular, the singular “a residential house” also permits use of plural by virtue of the General Clauses Act. In that case it was 7 held that acquisition of two residential houses by the assessee out of the capital gains falls within the meaning of “residential house” and accordingly, the assessee is entitled to the benefit conferred under section 54(1) of the Act. It was also made clear that while interpreting this word, the Court or the Tribunal or the Authorities have to keep in mind the facts of the particular case, as it is held in the case “a” cannot be read as singular, it also cannot be read as multiples so as to avoid paying tax under Section 45 of the Act. Therefore, it is necessary to look into the facts of each case and then find out in the circumstances of the said case, where the word “a” has to be read singularly or plurally. 8. In the facts of this case, it is clear the assessee was owning a residential premises in Bull Temple Road in Basavanagudi, he sold the said property on 08.03.2004. He has purchased one residential premises in Model House Street which is part of Basavanagudi on 26.05.2004. He has purchased the second residential premises again in Basavanagudi, which is adjoining to Model House Street on 01.06.2005 along with his wife and father. From the facts it is clear that having sold the property in Basavanagudi, probably, as the assessee could not secure a 8 proper residential house sufficiently big to invest the entire sale consideration derived from the sale of residential house, he has chosen to purchase two properties nearby. In fact to purchase a second property, the balance consideration was not sufficient. Therefore, in the sale deed in respect of the second residential house, the name of his wife who is a doctor by profession as well as his father’s name are included who might have contributed the balance sale consideration. So it is not a case where the assessee is attempting to evade tax. He had made a bonafide attempt to invest the sale consideration from the sale of residential premises in purchasing two residential premises in the very same locality situated nearby. Therefore, the approach of the Tribunal is contrary to the law and cannot be sustained. 9. The substantial questions of law are answered in favour of the assessee and against the revenue. Accordingly, we pass the following: 9 ORDER The appeal is allowed. Impugned order passed by the Tribunal is hereby set aside and the order of the lower appellate authority is restored. Parties to bear their own costs. SD/- JUDGE SD/- JUDGE VP "