Can Assessee Claim Exemption u/s 54F for More Than One Property ? - Held Yes
Expression “a residential house” used in Section 54, should not be taken to convey the meaning that it refers to a 'single residential' house and if that was the intention of the legislature, the framers of the statute would have used the word “one” instead of “a”.
Prayer :-This Writ Petition is filed under Article 226 of the Constitution of India, seeking for a Writ of Certiorari, to call for the records in PANADYPC1409L/A.Y.2011-2012, dated 30.08.2015, relating to Assessment Year 2011-12 read with reasons for re-assessment in PAN-ADYPC1409L/Scr./2015-16, dated 16.06.2015, both on the file of the respondent above, and quash the same.
1. The petitioner filed his return of income for the assessment year 2011-12 admitting an income of Rs.1,71,470/- and claimed exemption under Section 54F of the Act for an amount of Rs.3,12,50,000/-
2. A survey under Section 133A of the Act, was conducted in the premises of the petitioner on 31.10.2014, in the course of such survey verification of the genuineness of the claim for deduction as claimed by the petitioner under Section 54F of the Act, which arose out of a sale transaction of the property owned by a partnership firm M/s.Karpagam Studios (hereinafter referred to as the 'firm') in which the petitioner was one of the partners and the petitioner had invested Rs.2,62,50,000/- in five flats at No.134, Arcot Road, Saligramam, Chennai, (subject property), out of the sale consideration of Rs.3,12,50,000/- was undertaken
3. The firm and its partners (including the petitioner) entered into a deed of sale dated 29.10.2010, in terms of which the petitioner sold his share in the subject property for a sum of Rs.3,12,50,000/- and the consideration was invested towards purchase of constructed area of 9500 sq.ft., along with undivided share of land of an extent of 1807sq.ft., vide agreement dated 29.10.2010
4. Pursuant to a supplementary agreement, dated 05.09.2013, the allotable built up area was reduced to 8050 sq.ft
5. The sale proceeds having been fully utilised for the purchase of residential property, the petitioner claimed exemption under Section 54F of the Act
6. While so, the petitioner received a notice dated 27.03.2015, under Section 148 of the Act, stating that the respondent has reasons to believe that the income chargeable to tax had escaped assessment due to deliberate omission in the return of income of the petitioner as taxable income was not truly and fully disclosed to the department
7. The petitioner responded by letter dated 27.04.2015, and he filed a return claiming exemption to an extent of Rs.2,62,50,000/- and claiming Rs.50,00,000/- as allowable expenditure in computation of capital gains under Section 49 of the Act, apart from seeking for the reasons for reopening the assessment
8. The respondent vide reply dated 16.06.2015, stated that the petitioner has invested into five flats out of the sale consideration received, the construction of which was not completed upto 70%. On the relevant date, the petitioner is entitled to claim exemption only for a residential property, construction of which should have been completed within three years from the date of transfer, reckoned as 29.10.2010
9. In this Writ Petition, the petitioner challenges the notice for reopening along with the reasons recorded by the respondent
The learned counsel for the petitioner submitted that the respondent based on an erroneous assumption that investment in five flats does not satisfy the parameters of Section 54F, has initiated proceedings for reassessment. That being a beneficial provision, without taking note of the provision, as it stood at the relevant point of time, investment in residential property is allowable, even though spread over multiple flats. In support of such contention, reliance was placed on the decision of the Hon'ble Division Bench of this Court in Smt.V.R.Karpagam vs. ITO, reported in (2013) 157 TTJ (Chennai) 887, and the decision in the case of Dr.Smt.P.K.Vasanthi Rangarajan vs. CIT reported in  23 Taxmann.com 299 (Mad), and the decision of the Hon'ble Division Bench in the case of Commissioner of Income Tax-IX, vs. G.Saroja in TC(Appeal) No.656 of 2015, dated 04.01.2012. The learned counsel referred to the circular of the CBDT, in circular No.1 of 2015, dated 21.01.2015, to submit that the amendments to Section 54F(1), will take effect from 1 st , April, 2014 and will accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years and would not apply to the petitioner's case pertaining to the assessment year 2011-12. Further, it is submitted that delay in handing over of the property by the seller to the petitioner is not materially relevant for grant of exemption under Section 54F of the Act. Reliance was placed on the decisions of the ITAT in the case of Narasimha Raju Rudra Raju, vs. Asst., Commissioner of Income Tax, Hyderabad in ITA No.234/Hyd/12, dated 26.04.2013.
The learned Senior Standing counsel for the respondent Department submitted that the petitioner has invested in five different flats in different blocks, out of which one is under joint ownership and therefore, the petitioner has not fulfilled the condition for claiming exemption under Section 54F of the Act, which states that within a period of three years, the assessee should have constructed a residential house, which has to be interpreted as one residential house and not more than one and this position was so even prior to the amendment of Section 54F(1) of the Act. The learned counsel sought to factually distinguish the decisions in the case of Smt.V.R.Karpagam, and Dr.Smt.P.K.Vasanthi Rangarajan. Further, it is submitted that as per the principles laid down by the Hon'ble Supreme Court in the case of GKN Driveshafts (India) Ltd Vs. Income Tax Officer, 259 [ITR] 19, the petitioner has to participate in the reassessment proceedings. The learned counsel placed reliance on the decision of the Punjab & Haryana High Court in the case of Pawan Arya vs. Commissioner of Income Tax reported in  11 Taxmann.com 312 (Punjab & Haryana), and the decision of the ITAT – Mumbai in Shri Narender Khubchandani vs. Income tax Officer in I.T.A.No.238/Mum/2011, dated 17.12.2014
Thus, by applying the legal principles enunciated in the case of Smt.V.R.Karpagam (supra), Dr.Smt.P.K.Vasanthi Rangarajan (supra), and G.Saroja, (supra), it is to be pointed out that the expression “a residential house” used in Section 54, should not be taken to convey the meaning that it refers to a 'single residential' house and if that was the intention of the legislature, the framers of the statute would have used the word “one” instead of “a”. In fact, the facts of the case in Smt.V.R.Karpagam (supra), is more or less identical to that of the case on hand, which also pertained to a development of a property, originally owned by the assessee and the consideration was that the owner/assessee was to receive 43.75% of built up area after development, which translated into five flats.
In the instant case, there is no doubt raised by the respondent with regard to the petitioner's eligibility to claim exemption under Section 54F, but the dispute is as to whether the petitioner is entitled to claim such exemption for all the five flats or for only one flat.
In the light of the above discussion and taking note of the law laid down in the various decisions cited above, it is held that the petitioner is entitled to the benefit of exemption under Section 54F as claimed by him and the reasons for reopening the assessment for the relevant assessment year is unsustainable. Accordingly, the Writ Petition is allowed and the impugned proceedings are quashed. No costs. Consequently, connected Miscellaneous Petitions are closed
Cases Referred to
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