Abraham P. George, Accountant Member :
Assessee in this appeal had sold a residential house at Film Nagar, Hyderabad, during the relevant previous year, for a sum of Rs.6,50,00,000/-. After deducting indexed cost of acquisition, the long term capital gain came to Rs. 5,98,25,430/-. In the tax return filed, assessee claimed exemption under Section 54 of Income-tax Act, 1961 (in short 'the Act') on such capital gain for acquisition of a new residential house at Jubilee Hills, Hyderabad, for Rs. 1,86,15,220/- and acquisition of a land for Rs. 1,90,00,000/- for the purpose of constructing a residential house. Balance amount was placed in deposits in capital gains scheme. Assessing Officer was of the opinion that exemption under Section 54 could be given to only one residential property. He, therefore, disallowed the claim of exemption with reference to first property, viz. Rs.1,86,15,220/- and reworked the total income.
2. Assessee moved in appeal before CIT(Appeals) against the denial of exemption under Section 54 on two properties. Argument of the assessee was that the term "a residential house" used in Section 54 of the Act, had to be construed in plurality. Reliance was placed on the decision of Hon'ble Karnataka High Court in the case of CIT v. K.G. Rukminiamma (331 ITR 211), CIT v. D. Anand Basappa (309 ITR 329), CIT v. Smt. Jyothi K. Mehta (2011) 12 taxman 440, decision of Chennai Bench of the Tribunal in the case of ITO v. P.C. Ramakrishna (108 ITD 251), Delhi Bench of this Tribunal in the case of Prem Prakash Bhutani v. ACIT (2009) 31 SOT 38. However, CIT(Appeals) was not appreciative of these contentions. According to him, in all such cases, exemption under Section 54 was given for more than one residential unit for a reason that such residential units were situated within the same building or were adjacent or oppositely placed flats, amenable to a joint enjoyment. Reliance was placed by the CIT(Appeals) on the decision of Hon'ble Punjab and Haryana High Court in the case of Pawan Arya v. CIT (2011) 49 DTR 123.
3. Now before us, learned A.R., strongly assailing the orders of authorities below, apart from relying on the decisions cited by the assessee before the CIT(Appeals), also placed reliance on a unreported decision of Hon'ble Andhra Pradesh High Court in the case of CIT v. Syed Ali Adil in I.T.T.A. No.410 of 2012 dated 20.12.2012, copy of which has been placed at paper-book pages 30-32. As per learned A.R., decision of the Special Bench of this Tribunal in the case of ITO v. Ms. Sushila M. Jhaveri (107 ITD 327) stood overruled by virtue of the above judgment of Hon'ble Andhra Pradesh High Court. According to him, it was not necessary that residential units purchased by an assessee should be placed or situated within the same building or should be adjacent flats for claiming exemption under Section 54 of the Act.
4. Per contra, learned D.R. supported the orders of authorities below.
5. We have perused the orders and heard the rival submissions.
No doubt, the plethora of decisions relied on by the learned A.R. clearly mention that the term "a residential house" used in Section 54 has to be construed in plurality. But, as held by Hon'ble Hon'ble Apex Court in the case of CIT v. Sun Engineering Works Pvt. Ltd. (198 ITR 297), judgment of a court cannot be seen divorced from the fact situation. Its relevance is only when facts are on all four squares. In each of the case, relied on by the learned A.R., the residential units were situated in the same building or were part of the same residential complex and were flats. Either they were adjacently situated or were situated at upper and lower flats or situated in such a manner that the units could be construed together as "a residential house". Hon'ble Delhi High Court in the case of CIT v. Gita Duggal in ITA 1237/2011 dated 21.02.2013, observed at para 8 of its order, as under:-
"8. There could also be another angle. Section 54/54F uses the expression "a residential house". The expression used is not "a residential unit". This is a new concept introduced by the assessing officer into the section. Section 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which 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 an independent residence, the requirement of the Section should be taken to have been satisfied. 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 to us that the income tax authorities cannot insist upon that requirement. A person may construct a house according to his plans and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. For instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite 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 and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. We are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house. We do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. It is neither expressly nor by necessary implication prohibited."
The above decision was rendered by their Lordships after considering the decision of Hon'ble Karnataka High Court in the case of CIT v. Smt. K.G. Rukminiamma (supra). Tenor of this judgment would clearly show that plurality in interpreting "a residential house" would apply so long as the units were in the same building.
6. No doubt, Hon'ble Andhra Pradesh High Court in the case of CIT v. Syed Ali Adil (supra), at paras 9 and 10 of its order, observed as under:-
"9. He contended that the deduction under Section 54 of the Act is allowable only for one residential house and not for more than one residential house and that the Tribunal erred in holding that the deduction under Section 54 of the Act is allowable for two independent residential flats in the same complex. He also placed reliance on the decision of the Special Bench of the Tribunal in I.T.O. Vs. Suseela M.Jhaveri5.
10. We see no force in the said contention. As held in D.Ananda Basappa's case (1 supra) by the Karnataka High Court, the expression "a residential house" in Section 54 (1) of the Act has to be understood in a sense that the building should be of residential nature and "a" should not be understood to indicate a singular number and where an assessee had purchased 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, 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. This decision was followed by the Karnataka High Court in CIT Vs. Smt. K.G.Rukminiamma6 where a residential house was transferred and four flats in a single residential complex were purchased by the assessee, it was held that all four residential flats constituted "a residential house" for the purpose of Section 54 and that the four residential flats cannot be construed as four residential houses for the purpose of Section 54. Admittedly the two flats purchased by the assessee are adjacent to one another and have a common meeting point. In the impugned order, the Tribunal has also relied upon the decisions in K.G.Vyas's case (2 supra), P.C.Ramakrishna, HUF's case (3 supra) and Prakash Bhutani's case (4 supra) wherein it was held that exemption under Section 54 only requires that the property should be of residential nature and the fact that the residential house consists of several independent units cannot be an impediment to grant relief under Section 54 even if such independent units were on different floors. The decision in Suseela M.Jhaveri's case (5 supra) holding that only one residential house should be given the relief under Section 54 does not appear to be correct and we disapprove of it. We agree with the interpretation placed on Section 54 by the High Court of Karnataka in D.Ananda Basappa's case (1 supra) and Smt. K.G.Rukminiamma's case (6 supra) and the decisions of the Mumbai, Chennai and Delhi Benches of the Tribunal in K.G.Vyas (2 supra), P.C.Ramakrishna, HUF (3 supra) and Prakash Bhutani (4 supra). We therefore hold that the CIT (Appeals) was correct in setting aside the order of the assessing officer and the Tribunal rightly confirmed the decision of the CIT (Appeals)."
The above judgment does disapprove and hold as incorrect the decision of Special Bench in the case of Ms. Sushila M. Jhaveri (supra). Nevertheless, in the case before Hon'ble Andhra Pradesh High Court also, the flats were situated side-by-side and the builder had effected modification of the flats so as to make it one unit. As against this, if we look at the case before us, the two properties purchased were disparately situated. There was no way they could be joined together. Construction was to begin in one of the properties. Being geographically disparate, there was no possibility of joining them together to form a residential house. Therefore, in our opinion, the said decision of Hon'ble Andhra Pradesh will not help the assessee's case in any way. As against this, Hon'ble Punjab and Haryana High Court in the case of Pawan Arya v. CIT (supra), relied on by the ld. CIT(Appeals), held at paras 2 to 4 of its order, as under:-
"2. The assessee claimed exemption on capital gains on sale of flat on the ground of acquisition of two houses. The Assessing Officer set off the capital gain against one of the houses but held the claim not to be admissible against second house. However, the CIT(A) upheld the claim of the assessee relying upon decision of Bangalore Bench of the Tribunal in D.Anand Basappa Vs. ITO (2005) 92 TTJ (Bang) 597: (2004) 91 ITD 53 (Bang). The said view has been reversed by the Tribunal as follows:-
"6. We have carefully considered the rival submissions in the light of the material placed before us. The facts in the present case are clear. The assessee is claiming exemption in respect of two independent residential houses situated at different locations; one is in Dilshad Colony, Delhi and the other is in Faridabad. The assessee in the Special Bench case had also purchased two residential houses against sale consideration of residential flat at 'Gulistan' situated at Bhulabai Desai Road, Mumbai. One residential property was at Varun Apartments at Varsova and the other property was at Erlyn Apartments, Bandra and it was held by the Special Bench in the aforementioned case i.e. ITO Vs. Ms. Sushila M. Jhaveri (supra) that the assessee is entitled to get exemption only in respect of one house of her choice. Therefore, the decision of Special Bench is fully applicable to the present case and the assessee can avail exemption u/s 54 in respect of one residential house only. The factual aspect has not been disputed by ld. AR. The only dispute before us is legal proposition that whether the assessee is entitled to get exemption in respect of two independent residential houses purchased out of sale consideration of another residential house. Therefore, the issue is decided in favour of the department and it is held that the assessee is entitled to get exemption u/s 54 in respect of one property only and no question has been raised by ld. AR regarding the choice of the property or the factual aspect of the matter.
7. So it relates to the decision relied upon by ld. AR of Hon'ble Karnataka High Court in the case of CIT Vs. D. Anand Basapa, it may be mentioned that the said case cannot be applied to the case of the assessee on the ground that in that case the two houses purchased by the assessee were not independent properties and a factual finding has been recorded that the two apartments which were claimed to be exempted against sale consideration were situated side by side and it was also stated by the builder in that case that he has effected modification of the flats to make it as one unit by opening the door in between two apartments. On these facts, the Hon'ble High Court has observed that the fact that at the time when Inspector inspected the premises, the flats were occupied by two different tenants is not the ground to hold that apartment is not one residential unit. The fact that the assessee could have purchased both the flats in one single sale deed or could be narrated the purchase of two premises as one unit in the sale deed is not the ground to hold that the assessee had no intention to purchase two flats as one unit. From these observations of Hon'ble High Court, it is clear that while rendering the decision they have kept in mind that the purchase of two flats in the same building which were united for living of the assessee by making necessary modifications made the residential unit as one and, thus, that case could not be applied to the facts of the case of the assessee........."
3. We have heard learned counsel for the appellant.
4. As regards claim for exemption against acquisition of two houses under Section 54 of the Act, the same is not admissible in plain language of statute. In the judgment of Karnataka High Court in CIT v. D. Ananda Basappa [2009] 223 CTR (Kar) 186: (2009) 309 ITR 329 (Kar), referred to in the impugned order, exemption against purchase of two flats was allowed having regard to the finding that both the flats could be treated to be one house as both had been combined to make one residential unit. The said judgment, thus, proceeds on a different fact situation."
We are thus of the opinion that the CIT(Appeals) was justified in confirming the view taken by the A.O. that assessee could not claim exemption under Section 54 on two disparately placed properties.
7. In the result, appeal filed by the assessee is dismissed.
Order was pronounced in the Court on Thursday, the 4th of July, 2013, at Chennai.