Capital gains : Exemption u/s. 54 of I. T. Act, 1961 : A. Y. 1996-97 : Purchase of two flats and combined to make one residential unit : Exemption u/s. 54 available

[CIT vs. D. Ananda Basappa; 309 ITR 329 (Karn).]

In October 1995 the assessee sold a residential house for
Rs.2,12,50,000 resulting in long-term capital gain. The assessee purchased two
residential flats adjacent to each other executing two separate registered
sale deeds in respect of two flats situated side by side, on the same day. The
two flats were modified to make it one residential apartment. The assessee
claimed exemption u/s. 54 in respect of investment in the two flats. It was
found by the inspector that the two flats were in the occupation of two
different tenants. The Assessing Officer held that Section 54(1) does not
permit exemption for the purchase of more than one residential premises and
therefore allowed exemption to the extent of purchase of one residential flat.
The Tribunal allowed the assessee’s claim in full.

On appeal filed by the Revenue, the Karnataka High Court
upheld the decision of the Tribunal and held as under :

“i) A plain reading of the provisions of section 54(1) of
the Income-tax Act, 1961, discloses that when an individual or Hindu
undivided family sells a residential building or land appurtenant, he can
invest the capital gains for purchase of a residential building to seek
exemption of the capital gains tax. Section 13 of the General Clauses Act,
1897, declares that whenever a singular is used for a word, it is
permissible to include the plural. The expression ‘a’ residential house
should be understood in a sense that the building should be residential in
nature and ‘a’ should not be understood to indicate a singular number.

ii) It was shown by the assessee that the apartments were
situated side by side. The builder had also stated that he had effected
modifications of the flats to make them one unit by opening the door in
between the two apartments. The fact that at the time when the Inspector
inspected the premises, the flats were occupied by two different tenants was
not a ground to hold that the apartment was not one residential unit. The
fact that the assessee could have purchased both the flats in one single
sale deed or could have narrated the purchase of two premises as one unit in
the sale deed was not a ground to hold that the assessee had no intention to
purchase two flats as one unit. The assessee was entitled to the exemption
u/s. 54.”