Income Tax Appellate Tribunal - Mumbai
Mr.Hemant Doshi, Mumbai vs Ito - 32(1)(5), Mumbai on 23 May, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL "H"
BENCH, MUMBAI BEFORE HON'BLE SH. SANDEEP GOSAIN, JM & HON'BLE SH. RAJESH KUMAR, AM आयकरअपीलसं./ I.T.A. No. 2949/Mum/2018 (निर्धारणवर्ा / Assessment Year: 2013-14) In the matter of:
Mr. Hemant Doshi ITO-32(1)(5)
404/405, Adarsh Pratyakshakar Bhavan,
बिधम/ BKC, Bandra(E),
Apartment, 51, TPS Road,
Vs.
Off Factory Lane, Borivali Mumbai 400 051
(W), Mumbai-400 092
स्थायीलेखासं ./ जीआइआरसं ./ PAN No. AFLPD7923B (अपीलाथी/Appellant) : (प्रत्यथी / Respondent) अपीलाथीकीओरसे/ Appellant by : Shri Vimal Punamiya, AR प्रत्यथीकीओरसे/Respondentby : Shri Manoj Kumar Singh DR सुनवाईकीतारीख/ : 09.05.2019 Date of Hearing घोषणाकीतारीख / : 23.05.2019 Date of Pronouncement 2 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi आदे श / O R D E R Sandeep Gosain, Judicial Member:
The present Appeal filed by the assessee is against the order of Ld. CIT (Appeal) -44, Mumbai dated 29.03.17 for AY 2013-14 on the grounds mentioned herein below:-
1. The Appellant is an individual, sold residential flat during the year amounting to Rs. 1,75,00,000/-( Sec SOC value Rs. 1,96,26,500/-)and purchased ( under construction, raw flats even no kitchen was ready and only pipelines were passing from outside), two residential adjacent flats i.e. Flat No. 905 & 906 in Satra Park, Borivali (West) total amounting to Rs.
1,55,00,000/-, claimed deduction u/s 54 of Rs. 1,76,89,650/-and offered capital gain of Rs. 11,48,207/-. In the assessment u/s 143(3) of the Act, the Ld AO disallowed the claim of the Appellant and made addition of Rs. 86,34,475/- thereby computing total income at Rs. 1,00,03,540/- and the same is also Confirmed By The Ld CIT(A).
2. The Ld AO is erred in thrusting upon the Appellant that" the bigger flats i.e. 3BHK flats were available in the building, if the assessee's requirement was of larger area then he may invest in the single flat of the larger area"
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3. The Ld CIT(A) is erred in confirming addition of Rs. 86,34,475/- as capital gains on the reason that two adjacent flats purchased by the Appellant in claiming exemption u/s 54 did not fulfill the conditions laid in that section.
4. The Ld CIT(A) is also erred in Confirming that the Inspector of the concerned charge had reported stating that the flat no. 905 & 906 have separate kitchens, whereas the flat was raw and only pipelines were passing from outside and no possession is given even as on today also, except for fit out.
5. The Appellant prays to delete the addition made on this account and allow the deduction claimed by the Appellant u/s 54 of the Act.
6. The appellant craves leave to add, alter, amend or delete the above grounds of appeal.
2. The brief facts of the case are that the assessee is an individual engaged in the business of broker. The return of income was filed on 30.07.13 declaring total income of Rs. 13,69,070/-. During the course of assessment proceedings, it was noticed by the assessing officer that the assessee had sold a 4 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi residential property for a total consideration of Rs.1,75,00,000. The capital gain arising on the sale of property had been claimed as exempt because the assessee had invested in purchase of two flats bearing number 905 and 906 in a building named Satra ParK Boorivali Mumbai. The AO restricted the claim of deduction to the value of investment in one flat by stating that for claiming exemption under section 54 of the Act the assessee had to invest in one residential property only. Consequently, the AO recomputed the long-term capital gain taxable in the hands of the assessee and made an addition of Rs.86,34,475/- to the total income of the assessee.
Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties, dismissed the appeal of the assessee.
Now before us, the assessee has preferred the present appeal by raising the above grounds.
Ground No. 1 to 5.
3. These grounds raised by the assessee are inter connected and inter related and relates to challenging the order of Ld. 5 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi CIT(A) in upholding the order of AO, thereby denying the deduction claimed by the assessee u/s 54 of the Act, therefore we thought it fit to dispose of the same by this common order.
4. Ld. AR appearing on behalf of the assessee reiterated the same arguments as were raised by him before Ld. CIT(A) and also submitted written submissions. The written submissions filed by the assessee before Ld. CIT(A) are contained in 3.2 of its order and the same are reproduced below:-
"During the year under consideration appellant sold residential house property for the consideration of Rs.1,75,00,0001- (Sec. 50c value Ps. 1,96,26,500) and claimed the deduction U/s 54 by investing sum of 54 amounting to Rs. 86,34,4751- of one residential flat stating that assessee is not eligible for for deduction for two units.
But your honor we would like to state that for claiming deduction under Section 54 of the Income tax Act section reproduce as under: -
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 6 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi 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 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..."
The section itself does not provide any dispute regarding one unit or two units. In the case of CIT& ANR vs D. Anandas Basappa (High court Karnataka) (2008) CCH 119 Kar HC, it was clearly mentioned by the High Court that, "the expression "a" residential house should not be understood to indicate a singular number. When an HUF'S residential house is sold, the capital gain should be invested for the purchase of only one residential house in an incorrect proposition." In the case of Prem Prakash Btiutani vs ACIT (2007) 110 IT] Delhi 440 it was mentioned by Tribunal that "The fact that the residential house consist of several independent units should not be an impediment to the allowance of the exemption under section 54. That is 7 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi neither expressly no by necessary implication prohibited."
In the case of K. G. Vyas Vs ITO(1 986) 26TTJ(Bom)491 (1986)16 1TD195(Bom) it was held by Bombay Bench of Tribunal that "the assessee sold his flat and acquired four flats in the same building- two in the first floor and one each in the second and third floors. The assessee was living in these flats with his family with a common kitchen and a common ration card. It was held that the exemption under section 5 was available to the assessee since the condition that the assessee should have invested the sale proceeds in the purchase of a house for his own residence. It was observed that the fact that a future date the assessee might divide the properties among the members of his family was of no relevance. It was noted that the family consisted of ten members and therefore the acquisition of four flats in the same building was commensurate with the requirements of the assessee. The tribunal noticed the objection of the Revenue that the flats were on different floors and were 'self-contained residential units" but overruled the same on the ground that all of them were purchased in the assessee's name." In the case of Shiv Narain Chaudhari vs Commissioner of Wealth-Tax 108 ITR 104(All) (1997) it was held by Allahabad High Court "that a house may consist of 8 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi more than one self-contained dwelling unit and that if there is unity of structure, the mere fact that such self- contained dwelling units are occupied by different persons will not make that house into several houses. In the case of Mrs. Seetha Subramanian vs ACIT(1996)59 LTD 94(MAD) it had relied upon the decision in the case of Bajaj Tempo Ltd. And contended that "the provisions has to be constructed liberally and for achieving the purpose for which it was incorporated in the statue' Moreover, the finance (No.2) Act, 2014 made amendments in section 54 w.e.f. 01.04.2015 and substituted 'constructed one residential house in India', in place of constructed a residential house'. Word one in introduced w.e.f. 01.04.2015, so obviously before 01.04.2015 it meant more than one. If the amendment was clarificatory in nature, the law would have been amended retrospectively (As mentioned by Supreme Court in the case of CIT vs Vatika Township P. Ltd) "Legislations which modified accrued right or imposed disabilities were to be treated as prospective in nature unless they were accounting for an obvious mission or explaining a former legislation.
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I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi The Ld. AO rely on ITO 19(3)(4) Mumbai vs Ms. Sushi/a M jhaveri (ITAT Mumbai bench -1, Special Bench) (2007) 107 lTD 327 (Mum.). This case is not applicable to our case as in given case law assessee i.e. Shushila Jhaveri purchased two house with different place and different building i.e one at Varun Apart, Versova and another at Erlyn Apartment, Bandra. But in our case appellant purchcise two residential adjacent flats in same building, same wing with the intention to convert in one unit. Copy of the floor plan is enclosed herewith for your reference. The Ld. AO also relied on K.C.Kaushik vs P.B.Rane, FIFTH Income Tax Officer, High Court of Bombay (1990). Aforesaid case also not applicable to appellant as in given case assessee Mr. K.C. Kaushik purchased two flat at two different places and in two different years.
So the appellant is rightfully entitled to deduction u/s 54 for investment in two adjoining units converted into one resident house.
It was thus submitted that deduction claimed by the assessee u/s 54 of the Act may be allowed. 10
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5. On the other hand, Ld. DR relied upon the orders passed by the revenue authorities.
6. We have heard the counsels for both the parties and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by revenue authorities.
7. As per the facts of the present case, the only dispute which arising the present case is as to whether the deduction claimed by the assessee u/s 54 of the Act is allowable or not. The revenue authorities had concluded that the assessee had purchased two separate flats vide separate agreements and both these properties had been registered separately, therefore assessee is not entitled for deduction. On the other hand, the case of the assessee is that even though there are two registration, but the residential property in question is just one unit having common entrance and kitchen.
8. Ld. CIT(A) after considering the case of both the parties, had admitted that section 54 of the Act is a beneficial provision of law and should be interpreted liberally. It is for this very reason that the courts have held that even when two flats have 11 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi been joint together, then they would constitute to mean one residential house, thus eligible for claim of deduction u/s 54 of the Act. In this respect, we also rely upon the judgment of Jurisdictional Bombay High Court in the case of CIT Vrs. Raman Kumar Suri 212 taxman. 411, wherein the Hon'ble Bombay High Court categorically stated that the benefit of section 54F of the Act should be given if two adjacent flats are joined to one, but have common entrance and kitchen.
9. Ld. CIT(A) in his order has also mentioned that the facts of the assessee's case is very similar to the facts of the case mentioned in the case of CIT vrs. Devdas Nayak 366 ITR 12, wherein it was inter alia held that section 54 of the Act- Assessee claimed deduction u/s 54 on purchase of two flats - Though these flats were acquired under different agreements, but map of general lay out plan and internal layout plan indicated that there was only one common kitchen for both flats and both flats were used as a single unit. Thus, it was held that claim u/s 54 could not be denied.
10. After analyzing the facts of the present case, we find that Ld. CIT(A) had concluded that the assessee had combined two 12 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi flats but have separate entrance and separate kitchen, thus denied the exemption claimed by the assessee. Whereas on the contrary, Ld. AR submitted that assessee had purchased under construction two raw flats and had placed on record purchased agreements at page no. 38 to 124 alongwith layout plan on page no. 126 of the paper book, which reflects that both the flats are being utilized as one single residential house with common entrance and one kitchen.
11. We have perused the copy of layout plan of the flat in question which is at page no. 126 of the paper book coupled with Architect certificate at page no. 125 wherein it is mentioned that both the flats i.e. flat no. 905 and 906 are combined by removing internal wall and converted into single residential flat having common single entrance and single kitchen and is thus used as single residential unit only.
12. In rebuttal, the revenue could not place on record any documentary evidence to substantiate their stand that the flats owned by the assessee are having separate entrance and separate kitchen. Thus in the absence of any rebuttal to the documentary 13 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi evidences filed by the assessee, we are inclined to reject the contentions of the revenue.
13. Moreover a bare reading of section 54 (1) of the Act makes it clear that there is no requirement that the house has to be a single residential house. The only requirement of the provision is that the assessee must have purchased a residential house. The expression a residential house 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 word 'one'.
14. In the earlier part of the section, the words used are buildings or lands which are plural in number and that is referred to as 'a residential house', the original asset. An asset newly acquired after the sale of the original asset can also be buildings or lands appurtenant thereto, which also should be 'a residential house'. Therefore, the letter 'a' in the context it is used should not be construed as meaning 'singular". But being an indefinite article, the said expression should be read in consonance with the other words 'buildings' and 'lands' and therefore, the singular 'a residential house' also permits use of plural by virtue of section 14 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi 13(2) of the General Clauses Act. Although, there is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for the commercial use.
15. In our view, if there is nothing in the section which requires that the residential house should be built in a particular manner, it seems that the income tax authorities cannot insist upon that requirement. A person may construct a house according to his plans, requirements and compulsions. Thus in our view, the primary requirement for claiming deduction u/s 54 of the Act was fulfilled in the instant case by virtue of the fact that the funds emanated from the sum received out of the transfer of long term capital asset and that it was invested within a specified time.
16. The only reason given by AO for not allowing the deduction is, according to AO the assessee has purchased 2 flats and not the bigger flat i.e 3 BHK flats. The assessee states here that no bigger flats were available at that point of time when he was booking and also and his requirement of four bedrooms was not getting satisfied even if flat were available. Even otherwise, 15 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi the assessee has proved by placing on record a copy of layout plan and certificate of Architect, who shows that the flats of the assessee is a single flat having one entrance and one kitchen.
17. The Layout of the plan is annexed in the paper book Pg. No. 126 which clearly shows that therein there is only one entrance and one kitchen. Hence flat no. 905 and 906 are to be considered as one flat. The certificate provided by the assessee from architect states that he has physically examined the flat and the flat is one single residential flat which is being used by assessee as residence having common entrance, combined living room, single kitchen and one gas pipeline.
18. We have also perused the judgment in the case of CIT Vs Gita Duggal (Delhi High Court) Appeal No. 1237 OF 2011, wherein it was held that "the expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should I not be understood to indicate a singular number. Also, section 54/54F uses the expression I residential house" and not "a residential unit'. Section 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which 16 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as independent residence. There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems that the income tax authorities cannot insist upon that requirement. A person may construct a house according to his plans, requirements and compulsions. A person may construct a residential house in such a manner tljt he may use the ground floor for his own residence and let out the first floor having an independert entry so that his income is augmented. It is quito common to find such arrangements, particularly post-retirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children 17 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi and family to stay there, so that they are nearby, an::
arrangement which can be mutually supportive. may construct his residence in such a manner tht in case of a future need he may be able to dispose ol a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. The physical structuring of the new residential house, whether it is lateral or vertical, cannot come in the way of considering the building as a residential house. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction una r section 54/54F. It is neither expressly nor by necessary implication prohibited.
19. In the case of CIT Vs Syed Ali Adil (Andhra Pradesh High Court) 410 of 2012, wherein it was held that the expression "a residential house' in section. 54 (1) has to be understood in the sense that the building should be of residential nature and "a" should not be understood to indicate-,a singular number. Where an assessee had j3üihased two residential flats, he is entitled to exemption under section 54 in respect of capital gains on sale of its property on purchase of both the flats, despite the 18 I.T.A. No. 2949/Mum/2018 Mr. Hemant Doshi fact that the flats were purchased by separate sale deeds. Deduction is allowable eve if the flats are on different floors. On facts, as th two flats purchased by the assessee are adjacent V-) one another and have a common meeting point, the deduction cannot be denied.
20. Thus keeping in view the facts and circumstances as well as legal proposition as mentioned above, we allow these grounds raised by the assessee and direct the AO to allow the deduction u/s 54 of the Act to the assessee. It is ordered accordingly. Ground No. 6
21. This ground is general in nature, thus requires no specific adjudication.
22. In the net result, the appeal filed by the assessee stands allowed with no order as to cost.
Order pronounced in the open court on 23rd May, 2019.
Sd/- Sd/-
(Rajesh Kumar) (Sandeep Gosain)
Accountant Member Judicial Member
मुंबई Mumbai;ददनां कDated : 23.05.2019
Sr.PS. Dhananjay
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I.T.A. No. 2949/Mum/2018
Mr. Hemant Doshi
आदे शकीप्रनिनिनिअग्रे नर्ि/Copy of the Order forwarded to :
1. अपीलाथी/ The Appellant
2. प्रत्यथी/ The Respondent
3. आयकरआयुक्त(अपील) / The CIT(A)
4. आयकरआयुक्त/ CIT- concerned
5. दवभागीयप्रदतदनदध, आयकरअपीलीयअदधकरण, मुंबई/ DR, ITAT, Mumbai
6. गार्ड फाईल / Guard File आदे शधिुसधर/ BY ORDER, उि/सहधयकिंजीकधर .
(Dy./Asstt.Registrar) आयकरअिीिीयअनर्करण, मुंबई/ ITAT, Mumbai