By K. B. Bhujle | Advocate
New Page 1
Reported :
46 Capital gains : Exemption
u/s.54 of Income-tax Act, 1961 : A.Y. 2004-05 : Joint development agreement for
development of assessee’s residential property into 8 residential units :
Assessee to get 4 flats as her share : Assessee was entitled to benefit u/s.54
in respect of entire value of four flats.
[CIT v. Smt. K. G.
Rukminiamma, 196 Taxman 87 (Kar.)]
The assessee had a
residential property on certain land. Under a joint development agreement, she
gave that property to a builder for putting up flats. The builder agreed to
construct residential apartments and agreed to deliver 48% of the super-built
area to the assessee in the form of residential apartments. The entire cost of
construction and other expenses were to be borne by the builder. Accordingly,
the builder constructed eight flats and handed over four flats to the assessee.
The assessee claimed benefit of S. 54F and, therefore, she declared capital gain
as ‘Nil’. The Assessing Officer disallowed the assessee’s claim and computed
capital gain by taking cost of construction of four flats as sale consideration
for transfer of property. The Commissioner (Appeals) held that the assessee was
entitled to deduction u/s.54 and not u/s.54F. The Tribunal dismissed the
Revenue’s appeal.
On appeal to the High Court,
the Revenue contended that u/s.54, the expression used is ‘a residential house’,
which would mean that if more than one residential house is acquired as in the
instant case, the benefit can be extended only in respect of one residential
flat.
The Karnataka High Court
held as under :
“(i) A reading of S. 54
makes it very clear that the property sold is referred to as original asset
in the Section. That original asset is described as buildings or lands
appurtenant thereto and being a residential house. Therefore, it is not
merely ‘a residential house’. The residential house may include buildings or
lands appurtenant thereto. The stress is on the use to which the property is
put to. Only when that asset is used as a residential house, which may
consist of buildings or lands appurtenant thereto, the income derived from
the sale of such a residential house is chargeable under the head ‘income
from house property.’
(ii) If the assessee
has, within a period of one year before or two years after the date on which
the transfer took place, purchased or has within a period of three years
after that date, constructed a residential house, then instead of the
capital gain being charged to income-tax as income of the previous year in
which the transfer took place, it shall be dealt with in accordance with the
aforesaid provisions. In this part of the Section also, the expression ‘a
residential house’ is again used. The said residential house necessarily has
to include buildings or lands appurtenant thereto. It cannot be construed as
one residential house.
(iii) The context in
which the expression ‘a residential house’ is used in S. 54 makes it clear
that it was not the intention of the legislation to convey the meaning that
it refers to a single residential house. If that was the intention, they
would have used the word ‘one’. As in the earlier part, the words used are
buildings or lands which are plural in number and that is referred to as ‘a
residential house’, the original asset, an asset newly acquired after the
sale of the original asset also can be buildings or lands appurtenant
thereto, which also should be ‘a residential house’. Therefore, the letter
‘a’ in the context it is used should not be construed as meaning ‘singular’.
But, being an indefinite article, the said expression should be read in
consonance with the other words ‘buildings’ and ‘lands’ and, therefore, the
singular ‘a residential house’ also permits use of plural by virtue of S.
13(2) of the General Clauses Act.
(iv) In the instant
case, the consideration for selling 52% of the site was four flats
representing 48%. All the four flats were situated in a residential
building. Those four residential flats constituted ‘a residential house’ for
the purpose of S. 54. Profit on sale of property was used for residence. The
four residential flats could not be construed as four residential houses for
the purpose of S. 54. They had to be construed only as ‘a residential house’
and the assessee was entitled to the benefit accordingly.
(v) In that view of the
matter, the Tribunal as well as the Appellate Authority were justified in
holding that there was no liability to pay capital gain tax as the case
squarely fell u/s. 54.”
