IN THE ITAT MUMBAI
BENCH ‘D’
Assistant Commissioner of Income-tax, 26(1),
Mumbai
v.
Dr. P.S. Pasricha
Sunil Kumar Yadav,
Judicial Member
and V.K. Gupta,
Accountant Member
IT Appeal
No. 6808 (Mum.) of 2003
[Assessment year
2001-02]
January 11, 2008
Section 54 of the Income-tax Act, 1961 -
Capital gains - Profit on sale of property used for residential house -
Assessment year 2001-02 - Whether requirement of section 54 is that assessee
should acquire a residential house within period of one year before or two
years after date on which transfer took place and source of funds is quite
irrelevant inasmuch as it is not necessary that same funds must be utilized for
purchase of another residential house - Held, yes - Assessee acquired a
residential flat/property at cost of approximately Rs.
3 lakhs - During relevant previous year, assessee
sold said property for Rs. 1.40 crores
- Assessee within period specified under section 54(1), purchased two adjoining
residential flats in one building for a total consideration of Rs. 104.78 lakhs and gave them on
rent to two different tenants - Assessee claimed deduction of Rs. 104.78 lakhs under section
54(1) - Assessing Officer denied deduction under section 54 on grounds that
sale proceeds from original flat were not deployed fully in new flats, and that
assessee had not purchased one single property, but two units - Whether since
assessee had purchased residential flats before due date of filing of return of
income, he was entitled to deduction under section 54(1) and his claim was not
hit by sub-section (2) of section 54 - Held, yes - Whether since assessee had
purchased two adjoining flats in one building and these flats were rented out
to two different tenants after few days from purchase, it could be said that assessee
had never intended to use both flats as a residential house by removing
intermediate wall with a common kitchen and, therefore, assessee would be
entitled to deduction under section 54(1) with respect to any one of flats as
claimed - Held, yes
Facts
The assessee acquired a residential
flat/property at cost of approximately Rs. 3 lakhs. During the previous year relevant to assessment year
2001-02, the assessee had sold the said property for Rs. 1.40 crores. After the sale
of the said property, the assessee purchased a commercial property for a total
consideration of Rs. 125.28 lakhs.
Thereafter, within the period specified under section 54(1), the assessee
purchased two adjoining residential flats in one building for a total
consideration of Rs. 104.78 lakhs
and gave them on rent to two different tenants. The assessee worked out the
capital gain arising on sale of the aforesaid flat approximately at Rs. 1.24 crores. The assessee
further claimed deduction of Rs. 104.78 lakhs under section 54(1) and, thus, returned the taxable
capital gain at Rs. 19.23 lakhs.
The Assessing Officer denied the deduction under section 54 on the grounds that
the sale proceeds from the original flat were not deployed fully in the new
flats, and that the assessee had not purchased one single property, but two
units. On appeal, the Commissioner (Appeals) held that the assessee was
entitled to deduction under section 54 (1) even when the capital gain was
invested in more than one flat and that the entire sale proceeds were utilized
for purchase of both the flats in question. The Commissioner (Appeals),
therefore, allowed the deduction under section 54(1) as claimed by the
assessee.
On second appeal, the revenue contended that
the sale proceeds were utilized by the assessee for purchase of a commercial
property and residential house was purchased out of the funds obtained from
different sources and, as such, the identity of funds had been changed.
Held
The requirement of section 54 is that the
assessee should acquire a residential house within the period of one year
before or two years after the date on which transfer took place. Nowhere, it
has been mentioned that the same funds must be utilized for the purchase of the another residential house. The requirement of the law is
that the assessee should purchase a residential house within the specified
period and source of funds is quite irrelevant. [
Since the assessee had purchased the
residential flats before the due date of filing of the return of income, his
claim was not hit by sub-section (2) of section 54. Therefore, the assessee was
entitled to deduction under section 54(1). Now the question arose whether the
assessee could claim deduction under section 54(1) with respect to both the
flats purchased by him, but were not used by himself for his residential
purpose. Undisputedly, the assessee had purchased two adjoining flats in one
building and these flats were rented out to two different tenants after few
days from the purchase and later on these flats were finally sold in 2005, as
stated by the assessee. Meaning thereby, the assessee had never intended to use
both the flats as a residential house by removing the intermediate wall with a
common kitchen. Therefore, the assessee was not entitled to deduction with
respect to both the flats. He could only claim deduction with respect to any
one of the flats. Therefore, the matter was to be restored to the file of the
Assessing Officer to allow deduction under section 54(1) with respect to any
one of the flats as claimed by the assessee. [
Case referred to
ITO v. Ms. Sushila
M. Jhaveri [2007] 7 ITD 327 (Mum.) (SB) (para
7).
Mohit Jain for the Appellant. Jitendra Sanghavi for the Respondent.
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