INCOME TAX ACT, 1961

Section 54 Section 45

Capital gains - Deduction under section 54 - Investment in 3 flats at one location and one flat at different location by different agreements -

Assessee was a resident individual who earned long-term capital gain on sale of certain inherited residential property. The assessee's share in the property was to the extent of 18.78%. The assessee claimed deduction under section 54 on account of investment made in 4 properties by asserting that the conditions to claim the deduction were duly fulfilled by her. The flat Nos. 2 to 3 were stated to be situated on first floor, whereas flat No. 4 was stated to be situated at 10th floor. However, all the 3 flats were admittedly within one boundary wall of a society. The first flat was stated to be situated at altogether different location. AO denied deduction to the extent of investment in three flats situated at Navi Mumbai. CIT(A) confirmed the stand of AO. Held: The Finance (No.2) Act, 2014 substituted the expression 'a residential house property' with the words 'one residential house' with effect from 1-4-2015. The Finance Act, 2019 had further amended the said provision with effect from 1-4-2020 to provide that in case of capital gain not exceeding Rs. 2 Crores, deduction shall be available even against investment in two residential houses in India. Once it is held that the word 'a' employed can include plural residential houses also within the meaning of section 54 prior to its amendment, then such interpretation will not change merely because the purchase of new assets in the form of residential houses is at different addresses. So long as the same assessee purchased one or more residential houses out of the sale consideration for which the capital gain tax liability was in question, in its own name, the same assessee should be held entitled to the benefit of deduction under section 54, subject to the purchase or construction being within the stipulated time limit in respect of the plural number of residential houses also. It was also held that the amendment made by the Finance (No.2) Act, 2014 was intended to be specifically applied only prospectively with effect from assessment year 2015-16 since it took note of the judicial precedents for period prior to 1-4-2015. Accepting the interpretation of word 'a' as occurring in section 54 as made by Madras High Court in Tilokchand & Sons v. ITO, holding that on the facts and circumstances, the assessee would be eligible to claim deduction under section 54 on all the four residential houses. AO was, therefore, directed to recompute the income of the assessee.

Followed:Tilokchand & Sons v. ITO (2019) 105 Taxmann.com 151 (Mad) : 2019 TaxPub(DT) 2283 (Mad-HC), 14-3-2019), CIT v. D. Ananda Basappa (2009) 309 ITR 329 (Karn) : 2009 TaxPub(DT) 955 (Karn-HC) & CIT v. Khoobchand M. Makhija (2014) 43 Taxmann.com 143 (Karn) : 2014 TaxPub(DT) 1790 (Karn-HC), 18-12-2013), CIT v. Smt. K.G. Rukminiamma (2011) 331 ITR 211 (Karn) : 2011 TaxPub(DT) 429 (Karn-HC), CIT v. Gunamal Jain (160 DTR 221 3-3-2017) CIT v. V.R. Karpagam (2015) 373 ITR 127 (Mad) : 2014 TaxPub(DT) 4009 (Mad-HC) and CIT v. Syed Ali Adil (2013) 33 Taxmann.com 212 (AP) : 2013 TaxPub(DT) 1290 (AP-HC). Distinguished:Pawan Arya v. CIT (2011) 11 taxmann.com 312 (P&H-HC) : 2011 TaxPub(DT) 720 (P&H-HC) and CIT v. Raman Kumar Suri (2013) 212 Taxman 411 (Bom) : 2013 TaxPub(DT) 371 (Bom-HC). Overruled:ITO v. Sushila M. Jhaveri (2007) 107 ITD 327 (Mum) : 2007 TaxPub(DT) 1732 (Mum-Trib) and CIT v. Raman Kumar Suri (2013) 212 Taxman 411 (Bom) : 2013 TaxPub(DT) 371 (Bom-HC), CIT v. Devdas Naik (2014) 49 taxmann.com 30 (Bom) : 2014 TaxPub(DT) 3348 (Bom-HC). Applied:CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC) : 1973 TaxPub(DT) 421 (SC). Relied:CIT v. Devdas Naik (2014) 49 Taxmann.com 30 (Bom) : 2014 TaxPub(DT) 3348 (Bom-HC).

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