Rajesh Keshav Pillai v. ITO ITAT ‘D’ Bench, Mumbai Before D. Manmohan (VP) and Rajendra Singh (AM) ITA No. 6661/M/2009 A.Y.: 2006-07. Decided on: 23-2-2011 Counsel for assessee/revenue: S. E. Dastur and H. S. Raheja/R. N. Jha

Facts:
The assessee earned long-term capital gain on sale of two residential houses. The assessee purchased two residential houses and claimed exemption u/s.54 of the Act on the ground that the aggregate investment in purchase of two residential houses was more than the aggregate long-term capital gain arising on sale of two residential houses. The Assessing Officer (AO), referring to the decision of the Special Bench of the Tribunal in the case of ITO v. Sushila M. Jhaveri, [292 ITR (AT) 1], held that the assessee is entitled to exemption u/s.54 in respect of long-term capital gain arising on sale of one residential house with the corresponding investment in one residential house. He, accordingly, charged to tax long-term capital gain arising on sale of other residential house.

Aggrieved, the assessee preferred an appeal to CIT(A) who upheld the view taken by the AO.

Aggrieved, by the order of the CIT(A), the assessee preferred an appeal to the Tribunal.

Held:
There is no restriction placed anywhere in section 54 that exemption is available only in relation to sale of one residential house. Therefore, in case the assessee has sold two residential houses, being long-term capital assets, the capital gain arising from the second residential house is also capital gain arising from transfer of a long-term capital asset being a residential house. The provisions of section therefore will also be applicable to the sale of second residential house and also to a third residential house and so on. Whenever exemption is restricted to one asset, a suitable provision is incorporated in the relevant section itself. Considering the language used in section 54(1), exemption will be available in respect of transfer of any number of long-term capital assets being residential houses if other conditions are satisfied.

The decision of the Special Bench of ITAT in the case of Sushila M. Jhaveri (supra) is distinguishable. There the issue was whether exemption was available in case the gain from sale of a house is invested in more than one residential houses and it was held that exemption will be available only for one house. But exemption will be available in respect of sale of any number of residential houses if there are corresponding investments in residential houses and all other conditions are fulfilled.

In case there is sale of more than one residential house, the exemption will be available in relation to each set of sale and corresponding investment in the residential house. In case there are sales of more than one residential houses, exemption has to be computed considering each set of sale of residential hose and the corresponding investment in one residential house and the combination which is beneficial to the assessee has to be allowed. The exemption cannot be calculated considering the aggregate of capital gain and aggregate of investment in the residential houses.

This appeal filed by the assessee was allowed.