Judgment:
1.This appeal arises out of the income-tax assessment of Shri K.G. Vyas (the appellant). The assessment year is 1979-80, for which the previous year was the Samvat year 2034. The assessee is assessed in the status of an individual. During this year, the assessee sold his residential flat in a building known as 'Giriraj' on Altamount Road for Rs. 2,37,000. He had acquired this flat some 10 years earlier for Rs. 44,250. Out of the sale proceeds of this flat, the assessee acquired the following four flats in a building known as 'Dattani Apartments', Kandivli. The particulars of the four flats purchased by the assessee are the following:18-1-1979 25 2nd Appellant and his son Shri Dhairyawan16-2-1979 35 3rd Appellant and his son Shri Ambrish8-3-1979 15 1st Appellant and his son Shri Suryakant The total amount invested in the purchase of these four flats was Rs. 1,77,750. In computing the capital gains arising from the sale of his residential flat on Altamount Road, the appellant claimed deduction of this amount of Rs. 1,77,750 by taking the purchase price of all the four flats together. It was contended by the assessee that 'a house property' in Section 54 of the Income-tax Act, 1961 ('the Act') would also include four flats located in the same building and that the house property may comprise of more than one residential unit. It was further submitted that the assessee and his family were living in all these four flats which were in the same building and that they should not be considered as four different house properties to deny the exemption claimed by the assessee under Section 54.
2.The ITO, however, did not agree with these contentions and allowed deduction in respect of one of the flats purchased for Rs. 49,500 Under Section 54 as the said property was purchased within the prescribed time limit. This action of the ITO was upheld by the Commissioner (Appeals) who held that exemption could not be allowed to the assessee with regard to the remaining flats since the appellant did not reside in the said three lats. It is against this order of the Commissioner (Appeals) that the appellant has come up in appeal to the Tribunal.
3. Shri V.R. Patil, the learned counsel for the assessee, contended that the provisions of Section 54 as it stood before the amendment by the Finance Act, 1982, with effect from 1-4-1983 would be applicable to the facts of the present case, that the said provision of law requires the pur chase of a house property within a period of one year after the sale of a residential house by an assessee and that in the present case all the four flats put together would constitute 'a house property' within the meaning of Section 54. Shri Patil contended that they are not separate houses but parts of a single house as they were located in the same building, though on different floors. Shri Patil pointed out that flat Nos. 12 and 15 were located on first floor, while flat Nos.
25 and 32 were located on the second and third floors. He further submitted that the flat that was sold by the assessee on Altamount Road had an area of 1,200 sq. ft. whereas the total area of all the flats put together was about 2,000 sq. ft. or slightly more. Shri Patil submitted that the assessee had to go in for the purchase of these four flats for the purpose of his own residence considering the strength of his family which was living in a large flat of 1,200 sq. ft. but that since a single flat of that size and accommoda tion was not available, he had to go in for the purchase of smaller flats but in the same building for the purpose of the residence of himself and the members of his family. The learned counsel submitted that there was a common kitchen maintained in one of the flats only and that he and his children were living together, even though the flats were purchased in the joint names of the appellant and his wife and the appellant and one of the sons, as the case may be. He further submitted that the assessee was not liable to any income-tax in the later assessment years but that the assessee's sons were income-tax assessees. In their assessments, the income from this property in respect of the flats in the joint names of themselves and their father was neither shown nor assessed.
Shri Patil submitted that there was a common kitchen and a common ration card for the assessee's entire family and that, therefore, the assessee was entitled to the exemption claimed by him in respect of the investment made in the purchase of these four flats as the purchase of a house property within the meaning of Section 54(1). Shri Patil next argued that assuming that these flats should be considered as different houses, yet the assessee cannot be denied the relief claimed by him as, according to him, 'a house property' would include house properties also. In support of his submission, Shri Patil relied on Col. H.H. Sir Harinder Singh v. CIT [1972] 83 ITR 416 (SC) and pointed out that in the said case, allowance in respect of self-occupied property was allowed in respect of two residential houses under the first proviso to Section 9(2) of the Indian Income-tax Act, 1922, and that this interpretation was accepted by the Parliament while enacting Section 23(2)(ii) of the 1961 Act by restricting the self-occupied property allowance to one house only at the assessee's option. Shri Patil compared the language of Section 5(1)(iv) and Section 7(4) of the Wealth-tax Act, 1957 and Section 33(1)(n) of the Estate Duty Act, 1953 and pointed out that wherever the Parliament intended to restrict the allowance to one property, the Parliament h ad taken care to specify the same in express terms. The learned counsel argued that there was no such restriction in Section 54(1). In support of this submission, Shri Patil relied on the decision of the Supreme Court in Trustees of Gordha ndas Govindram Family Chanty Trust v. CIT [1973] 88 ITR 47, wherein it was held that singular includes plural. He also relied on the provisions of Section 13 of the General Clauses Act, 1897. Finally, Shri Patil relied on the decision of the Allahabad High Court in Shiv Narain Chaudhari v CWT [1977] 108 ITR 104 and submitted that this case directly supported his contentions for deduction, though it was a case under Section 5(1)(iv). He also relied on the decision of the Calcutta High Court in B.B. Sarkar v. CIT [1981] 132 ITR 150. He, therefore, submitted that the departmental authorities erred in denying the relief claimed by the assessee under Section 54.
4. Shri Prem Kumar, the learned departmental representative, relied on the order of the Commissioner (Appeals) and pointed out that the intention of the assessee in purchasing these four flats in the names of himself and his wife and sons clearly established that he wanted to divide these properties among the members of his family and that this was further established by the fact of the electricity bills with the meter numbers mentioned in paragraph 5 of the order of the Commissioner (Appeals). He submitted that the wording of the provision of law in Section 54 did not admit of the interpretation sought to be placed by the learned counsel for the appellant and that the departmental authorities were fully justified in restricting the appellant's claim for relief to only in respect of one of the flats. He, therefore, argued that there was no merit in the assessee's appeal.
5. We have carefully considered the rival submissions of the parties in the light of the authorities referred to above. In the present case, there is no dispute that the assessee is entitled to the deduction claimed by him under Section 54(1) as it stood before its amendment by the Finance Act, 1982, with effect from 1-4-1983. In fact, the ITO himself has allowed the benefit of Section 54 in respect of a sum of Rs. 49,500 invested in the purchase of one flat while computing the capital gains assessable in the hands of the appellant as against the appellant's claim for deduction of Rs. 1,77,750. Therefore, the question narrows down to whether the assessee is entitled to deduct the balance of Rs. 1,28,250 representing the amount invested by him out of the sale proceeds of his flat in 'Giriraj' in the remaining three flats for the purpose of his residence under Section 54 in the computation of his capital gains, as claimed by him. This will depend upon the question whether the four flats purchased by the assessee in the building known as Dattani Apartments can be regarded as 'a house property purchased for the purposes of his own residence by the assessee' [Emphasis supplied] as specified in Section 54(1). The main objection of the department is that these four flats, though in the same building, are on different floors and are also self-contained residential units and that the intention of the assessee is to divide these flats among the members of his family. This objection of the revenue overlooks the factual position that all the four flats have been purchased in the name of the assessee and also in the name of one of his three sons or his wife, as the case may be, and that, therefore, the assessee is the owner of all the four flats by these purchases. The department does not dispute that the assessee and his family members are living together in all these four flats with a common kitchen and a common ration card. We are told that two of the flats, viz., flat Nos.
12 and 15 are contiguous flats being on the first floor and that the remaining two flats, viz., flat Nos. 25 and 35 are on the second and third floors, respectively, of the same building.
6. In Shiv Narain Chaudhari's case (supra), the Allahabad High Court had held that several self-contained dwelling units which are contiguous and situate in the same compound and within common boundaries and having unity of structure could be regarded as one house for the purpose of granting exemption under Section 5(1)(iv). In the said case, the High Court granted exemption under Section 5(1)(iV) in respect of four different independent residential units, which were connected by a common passage in a building owned by the assessee-HUF and bearing Municipal Door Nos. 92, 92A, Darbhanga Castle. Their Lordships held as follows : The aforesaid decisions also support the view we have taken, namely,that a house may consist of 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. (p. 110) This decision relied on by the learned counsel for the appellant fully supports the appellant's contentions that all the four flats should be regarded as a house of the appellant and not as separate houses, as held by the departmental authorities.
7. The next decision we would like to refer is to the decision of the Calcutta High Court in B.B. Sarkar's case (supra). In this case their Lordships of the Calcutta High Court had held that the expression used in a statute should ordinarily be Understood in the sense in which it is best harmonious with the object of the statute and which effectuates the object of the Legislature and that it is, therefore, necessary to read Section 54 in the context of the subject-matter and its setting in the scheme of capital gains and the object of the exemption and to ascertain its true import. Their Lordships held that the main purpose of Section 54 is to give relief in respect of profit on the sale of a residential house, that if the assessee is entitled to relief on the fulfilment of either of the two conditions, that is to say, either purchasing a house property within one year or constructing the house within two years, it would be improper to hold that on fulfilment of both the conditions he would be disentitled to that relief, that it is the fulfilment of two alternative conditions that is contemplated by Section 54 and that where both the conditions are fulfilled within the time stipulated, the assessee will be entitled to the relief Under the section. In the said case, the department denied the relief to the assessee under Section 54 in respect of the amounts spent by him in constructing an additional floor on the dwelling house which he had purchased after dis posing of his old residential house at No. 1 Park Lane, Calcutta. This decision also supports the contention of the appellant's counsel.
8. In a recent decision in CIT v. Kodandas Chanchlomal [1985] 155 ITR 273 their Lordships of the Gujarat High Court have held that a house property for the purpose of Section 54 has the same meaning as the concept of house property under Sections 22 to 27 of the Act which takes into account the entire residential unit and does not mean an independent and complete house and that it takes into account all residential units, particularly in these days when multi-storied flats are becoming the order of the day. In the said case, the assessee sold a residential property valued at Rs. 1,02,000 and earned capital gains of Rs. 79,000. Within two years of the sale of the property he constructed a house for Rs. 96,500 which consisted of a ground floor, a first and a second floor. The assessee leased out the ground floor and used the first and second floors for his personal residence and claimed deduction of Rs. 57,600 under Section 54 on the ground that part of the capital gains in respect of the sale of the property was used for construction of a new residential house property. Accepting the assessec's claim, their Lordships of the Gujarat High Court held that a substantial portion of the new house property was retained by the assessee for his personal purposes, and since the construction of the new building was completed within the statutory period of .two years, both the conditions for grant of exemption were fulfilled and the assessee was entitled to prorata exemption under Section 54 from the liability to tax on capital gains to the extent of the value of the portion of the property in his occupation. Their Lordships followed the decision of the Delhi High Court in Addl. CIT v. Vidya Prakash Talwar [1981] 132 ITR 661 and an earlier decision of the Gujarat High Court in CIT v. Natu Hansraj [1976] 105 ITR 43. In our view this decision of the Gujarat High Court clinches the issue in favour of the assessee and against the revenue.
9. In the present case all the four flats have been purchased by the assessee in the same building for the purpose of his own residence and are being used by him for that purpose only. The mere fact that the assessee had purchased them jointly either in the name of his wife or in the names of his sons would not materially affect or alter the factual position that he is the owner of all the four flats and that he is also living in them along with the members of his family. The fact that on a future date the assessee may divide these properties among the members of his family is of no relevance or consequence for the purpose of allowing relief to the assessee under Section 54, since the assessee has fulfilled the conditions laid down under Section 54, namely, that he had purchased a house for his own residence by investing the sale proceeds of his former residential house in the purchase of these four flats. It can hardly be denied that considering the strength of the assessee's family with ten members, the accommodation acquired by the assessee in the form of four flats in the same building is commensurate to his requirements. We are, therefore, inclined to accept the contentions of the learned counsel for the appellant and hold that the assessee is entitled to full relief under Section 54 in respect of the entire amount of Rs. 1,77,750 as invested by him in the purchase of four flats for the purpose of his own residence under Section 54(1). Accordingly, we accept the contentions of the learned counsel for the appellant and direct the ITO to allow deduction of the balance of Rs. 1,28,250 in the compu tation of capital gains under Section 54(1) to the appellant.