Bombay High Court
Krishnagopal B.Nanpal vs Dy.Commissioner Of Income-Tax,Spl. … on 22 July, 2025
2025:BHC-OS:11546-DB
Ajit Pathrikar ITXA-569-2003-ajit.docx
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 569 OF 2003
Krishnagopal B. Nangpal ....Appellant
: Versus :
Dy. Commissioner of Income Tax
Special Range - 3, Pune ....Respondent
Mr. Nishant Thakkar with Ms. Jasmin Amalsadwala and Mr. Bhavesh
Bhatia i/b Lumiere Law Partners, for the Assessee-Appellant.
Mr. Akhileshwar Sharma, for the Revenue-Respondent.
CORAM : ALOK ARADHE, CJ. &
SANDEEP V. MARNE, J.
Judgment Reserved on : 17 July 2025.
Judgment Pronounced on : 22 July 2025.
JUDGMENT (Per Sandeep V. Marne, J.):
1) The Assessee has filed the present appeal under provisions
of Section 260 (A) of the Income Tax Act, 1961 (the Act) challenging the
judgment and order dated 7th March 2003, passed by Income Tax
Appellate Tribunal, Pune Bench dismissing his Appeal to the extent of
exemption on capital gains under Section 54 of the Act arising out of
sale proceeds of a flat in Mumbai used towards purchase of seven row
houses in Pune. The appeal has been admitted by a Bench of this Court
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vide order dated 29th October 2004 on the following substantial question
of law :
On the facts and in the circumstances of the case, whether the
Appellant is entitled for availing deduction under Section 54 of the
Income Tax Act, 1961 against the entire capital gain arising out of sale
of his flat in Mumbai in as much as he has invested the sale proceeds
from the sale of his flat at Mumbai by joint venture agreement with
Samant Estate Pvt. Ltd. for acquisition/construction of the 7 row
houses in their project at Yashodanandan Viman Nagar, Pune ?
2) The solitary issue that arises for consideration in this
appeal is whether Section 54(1) of the Act allows the Assessee to set off
the purchase cost of more than one residential units against the capital
gains earned from sale of a single residential house.
3) A brief reference to the facts of the case would be necessary
to appreciate the controversy at hand. Residential Flat No. 30 situated at
Prabhat Building, 28 B Road, Marine Drive, Mumbai-400020 (Mumbai
Flat) was owned by Appellant’s mother late Smt. Vishnabai Nangpal.
Appellant’s mother executed Will on 23 rd December 1988 and
bequeathed the said Mumbai Flat to the Appellant. One Madan Samant
was appointed as guardian of the Appellant, since he was minor at that
time. Appellant’s mother expired on 30 th August 1990. Mr. Madan
Samant, in his capacity as Appellant’s guardian, entered into an
agreement for sale of the Mumbai Flat on Appellant’s behalf on 08 th
September 1993 for a consideration of Rs.1,45,00,000/-. The purchasers
paid the amount of Rs. 45,00,000/- to the Appellant on the date of
execution of the agreement. An application was made on Appellant’s
behalf to the Income Tax Department in February 1994 for clearance
under provisions of Chapter XXA of the Act and the appropriate
authority issued “No Objection Certificate” for transfer of the flat. On
17th April 1994, purchasers paid balance amount of consideration of
Rs.1 crore to the Appellant who handed over possession of the flat to
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the purchasers. On 20th June 1995, Appellant entered into joint venture
agreement with Samant Estate Private Limited for construction of
residential house in their project Yashodanandan situated at
Vimannagar, Pune and invested therein entire sale proceeds of the said
flat. During assessment year 1994-95 or 1995-96, the Appellant did not
file any return of income. Proceedings of search under Section 132 (1) of
the Act were initiated on 19 th June 1996 against the Appellant. Appellant
entered into 5 agreements with Samant Estate Private Limited on 22 nd
July 1995 for allotment of 5 row houses. The said agreement was
cancelled and a fresh agreement was entered into on 28 th July 1995 for
allotment of 7 row houses in the project Yashodanandan at Vimannagar,
Pune.
4) In the above factual background, Appellant received notice under
Section 158 BC of the Income Tax Act, 1961 on 13 th September 1996.
Appellant filed return on 22nd April 1997 for the block period declaring
undisclosed income at Rs.13,41,350/-. On 21 July 1997, Appellant filed
revised return for the block period of 1987-88 to 1996-97 disclosing that
the total undisclosed income for the block period was Rs.51,20,990/-.
He showed Nil income for assessment year 1994-95 and 1995-96 stating
that he had invested the entire capital gain of Rs.1,08,30,625/- arising
out of sale of his flat at Mumbai for acquisition/construction of the 7
row houses in a joint venture with Samant Estate Private Limited and
that therefore he was entitled for exemption under Section 54 of the Act
against the entire capital gain on sale of his flat. The Deputy
Commissioner of Income Tax, Special Range-3 Pune passed assessment
order dated 27th June 1997 disallowing the deduction under Section 54
of the Act against capital gain of Rs.1,08,30,625/- arising out of
Appellant’s flat at Mumbai for assessment year 1995-96. Appellant
preferred appeal before the Income Tax Appellate Tribunal, Pune Bench,
Pune (ITAT) against the order passed by the Deputy Commissioner
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claiming exemption under Section 54 of the Act against capital gain of
Rs.1,08,30,625/-. The ITAT has partly allowed the appeal preferred by
the Assessee directing the Assessing Officer to consider investment
made in acquiring/construction of only one row house bearing B-16
worth Rs.21,78,000/- as qualifying for exemption under Section 54 of
the Act while computing the long term capital gain arising out of sale of
flat at Mumbai for a total consideration of Rs.1,45,00,000/-. Being
aggrieved by the order dated 7 th March 2003, passed by ITAT in respect
of block assessment years 1987-88 to 1996-97, the Assessee has preferred
the present appeal under Section 260A of the Act.
5) Mr. Thakkar the learned Counsel appearing for Assessee
would submit that the Assessee is entitled to exemption against the
entire capital gain of Rs.1,08,30,625/- which amount was invested for
purchase of seven row houses by him. He would demonstrate the
comparison between provisions of Section 54(1) of the Act prior to and
after its amendment by Finance (No. 2) Act, 2014. He would submit that
the unamended Section 54(1) of the Act used the expression ‘a
residential flat’ as against use of the expression ‘one residential house in
India’ in the amended Section 54(1) of the Act. That the words ‘a
residential house’ are merely descriptive of nature of the asset and not
restrictive of the number of assets sold/purchased. That since the
Section 54 (1) covers sale of “lands and building” (i.e. in plural), there is
no reason why purchase or construction of residential house should not
be interpreted to be in the plural and be restricted to only ‘one’
residential house as canvassed by the Revenue. That the phrase ‘a
residential house’ is only meant to qualify the nature of asset
purchased/sold, viz. what is sold or purchased cannot be a commercial
asset/premises. That amendment made by Finance (No. 2) Act, 2014
makes it explicitly clear that the restriction of exemption of capital gain
against ‘one residential house’ is made applicable prospectively, i.e.
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with effect from 01st April 2015. That, it is absurd to interpret the
expression ‘a residential house’ as ‘one house’ especially in the context
of HUF/large families selling one house and relocating into another
house comprising of multiple units. That Section 13 of General Clauses
Act, 1897 provides singular to include plural. That even if two views are
possible, the view in favour of the Assessee must be adopted since
provisions of Section 54 (1) are beneficial in nature and must be
interpreted liberally. He would rely on judgment of the Apex Court in
Mavilayi Service Co-operative Bank Ltd. and Ors. Vs. CIT & Anr.1.
6) Mr. Thakkar would further submit that the ITAT has held
that all the 7 houses are contagious and in fact 6 of the said 7 units are
interconnected with a common entrance. Despite recording such
finding, the ITAT has erroneously treated the same as separate units.
That the ITAT has erred in relying on judgment of this Court in K. C.
Kaushik Vs. P. B. Rane2. He would rely upon Karnataka High Court in
Arun K. Thiagarajan Vs. CIT (Appeals)3 submitting that similar issue
has already been answered in favour of the Assessee. He would also
rely upon judgment of Madras High Court in Tilokchand & Sons Vs.
ITO4 and of Delhi High Court in CIT Vs. Gita Duggal5. He would
further submit that the reliance placed by the ITAT on subsequent
letting of one of the row houses after 3 years of assessment year 1989-90
is clearly erroneous. That Karnataka High Court was confronted with
the similar situation in CIT Vs. D. Ananda Basappa6 where occupation
of flats by two different tenants was found to be irrelevant factor by the
Karnataka High Court. That department’s SLP against the said decision
has been dismissed. On above broad submissions, Mr. Thakkar would
1 AIR 2021 SC 612
2 1990 (1) 85 ITR 499 (Bombay)
3 2020 (427) ITR 190 (Karnatak)
4 2019 (413) ITR 189 (Madras)
5 (2013) 357 ITR 153 (Delhi)
6 2009 (309) ITRA 329 (Karnataka)
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pray for setting aside the order passed by the ITAT and for answering
the question of law in favour of the Assessee.
7) The appeal is opposed by Mr. Sharma, the learned Counsel
appearing for the Revenue. He would submit that the concurrent
findings recorded by the department and ITAT do not warrant any
interference in exercising appellate jurisdiction by this Court under
Section 260A of the Act. That the interpretation placed by the ITAT on
provisions of Section 54(1) of the Act, after taking into consideration the
ratio of judgment of this Court in K.C. Kaushik (supra), is perfectly
valid. That judgment of this Court in K.C. Kaushik was not brought to
the notice of Karnataka High Court while deciding Arun K.
Thiagarajan (supra). He would submit that in the light of ITAT,
Mumbai taking contrary view in some of the cases involving multiple
houses, a Special Bench of ITAT was constituted in ITO Vs. Ms. Sushila
M. Jhaveri7 and by judgment and order dated 17 th April 2007, the
Special Bench has ruled that the exemption under provisions of Section
54 of the Act is allowable in respect of only one residential house. That
the Special Bench of ITAT has followed inter alia the judgment of this
Court in K.C. Kaushik. That the attention of Karnataka High Court
while deciding Arun K. Thiagarajan (supra) was not brought to the
judgment of special Court in ITO Vs. Ms. Sushila M. Jhaveri (supra).
That the Legislature has intended to give different meanings to the
words ‘any’ and ‘a’ in different Sections of the Act and has consciously
used the words ‘a residential house’ instead of using the words ‘any
residential house’. That the word ‘a’ is intended to mean only one
residential house unlike use of the word ‘any’ to convey investments in
one or more assets. That the only exemption recognised by the Special
Bench is where more than one residential house is connected by
common kitchen. That in the present case, separate kitchens exist for 7
7 2007 (107) ITD 327 (Mumbai)
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row houses and the claim of the Assessee has rightly been rejected. That
the judgment of the special bench in ITO Vs. Ms. Sushila M. Jhaveri
continues to apply and has not been reversed by any Court. He would
also rely upon judgment of Punjab and Haryana High Court in Pawan
Arya Vs. CIT8, of this Court in CIT Vs. Raman Kumar Suri9 (two houses
joined together) and CIT Vs. Devdas Naik10. On above broad
submissions, Mr. Sharma would pray for dismissal of the Assessee’s
appeal.
8) Rival contentions of parties now fall for our consideration.
9) The short issue that arises for consideration in the present
Appeal is whether the Assessee is entitled to claim exemption under
provisions of Section 54(1) of the Act against the entire capital gains of
Rs.1,08,30,625/- arising out of sale of his flat in Mumbai, on account of
utilization thereof towards purchase of seven row houses in Pune ? To
paraphrase, the issue for consideration is whether sale proceeds of one
residential house, used for purchase of multiple residential houses,
would qualify for exemption under Section 54(1) of the Act ?
10) Before proceeding further, it must be noted that the case
pertains to the Assessment Year 1995-96, and accordingly, provisions of
Section 54(1) of the Act, prior to its amendment by Finance (No. 2) Act,
2014, are relevant. The unamended Section 54(1) of the Act read thus:
“54. Profit on sale of property used for residence.
(1) Subject to the provisions of sub-section (2), where, in the case of an
assessee being an individual or a Hindu undivided family, the capital
gain arises from the transfer of a long-term capital asset, being
buildings or lands appurtenant thereto, and being a residential house,
the income of which is chargeable under the head Income from house
property (hereafter in this section referred to as the original asset), and
8 2011 (237) CTR 210 (P & H)
9 2014 (3) ITR OL 127 (Bombay)
10 2014 (366) ITR 12 (Bombay)
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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 following provisions of this section, that is to say,…”
(emphasis supplied)
11) After amendment by Finance (No. 2) Act, 2014, provisions
of Section 54 (1) of the Act read thus:
“54. Profit on sale of property used for residence.
(1) Subject to the provisions of sub-section (2), where, in the case of an
assessee being an individual or a Hindu undivided family, the capital
gain arises from the transfer of a long-term capital asset, being
buildings or lands appurtenant thereto, and being a residential house,
the income of which is chargeable under the head “Income from house
property” (hereafter in this section referred to as the original asset), and
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, one residential house in India,
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 following provisions of this section, that is to say-,…”
(emphasis supplied)
12) For purpose of the present appeal, what is relevant is
replacement of the expression ‘a residential house’ by the expression
‘one residential house’ by way of 2014 amendment. Prior to the 2014
amendment, capital gains arising from transfer of a long term capital
asset, including a residential house, qualified for exemption if the same
was invested for purchase or construction of ‘a residential house’. The
department has disallowed the claim of the Assessee for adjustment of
the entire capital gain arising of sale of the flat in Mumbai, on the
ground that the Assessee has purchased seven row houses in project at
Pune. According to the department, exemption under Section 54 (1) of
the Act is applicable only in respect of investment made in purchase of
only one residential house and is not permissible for the purchase of
multiple residential houses. The ITAT has accordingly granted the
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benefit of Section 54(1) of the Act in respect of one of the seven row
houses purchased by the Assessee.
13) In our view, the amendment brought in by Finance (No.2)
Act 2014 makes the position clear that after the amendment, the capital
gains can be adjusted against purchase of only ‘one’ residential house.
The word ‘a’ is consciously replaced by the legislature by the word ‘one’
by way of amendment making the intention clear that after the
amendment, it is impermissible to adjust the capital gains arising out of
one house towards purchase of more than one houses. If the restriction
of adjustment of capital gains against only one house was already there
in the unamended Section 54(1), there was no necessity of amendment
by specifically using the word ‘one’.
14) The Tribunal has relied on judgment of Single Judge of this
Court in K.C. Kaushik (supra) while rejecting Assessee’s claim in
respect of all seven row houses and while allowing the same only
against one row house. However, while deciding the case in K.C.
Kaushik, this Court did not have the benefit of comparing the amended
and unamended provisions of Section 54(1) of the Act. Also, the issue
involved before Single Judge of this Court in K.C. Kaushik was
altogether different. In that case, the Assessee had sold the residential
house in the year 1979 and had purchased one residential house in the
year 1979, and a second residential house in 1980. The cost of second
residential house (brought in 1980) was sought to the set off by the
Assessee against the capital gains earned from the sale of original
residential property. The Assessing Officer permitted set off for the cost
of the first residential house and not the second residential house, and
accordingly, granted partial relief under Section 54 of the Act. In a
revision application filed under Section 264 of the Act by the Assessee,
the Commissioner held that the Assessee was right in claiming set off
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with respect to the second house. However, since the second house was
not occupied by the Assessee and was rented out within 3 years after its
purchase, the Assessee was held not entitled to claim relief under
Section 54 (1) of the Act. It was this finding of the Commissioner, which
became subject matter of challenge in a writ petition filed by the
Assessee before the learned Single Judge of this Court. This Court was
not called upon to consider correctness of decision of the Commissioner
in holding that the Assessee was entitled to set off the cost of acquisition
of the second residential house purchased against the capital gains
arising out of the sale of the original residential property. The issue of
setting off cost of acquisition of multiple residential houses was never
involved before this Court. The issue before this Court was about the act
of the Assessee of letting out the second residential property within a
period of 3 years of its purchase and whether such act would disentitle
him from claiming the cost of second residential property as a set off
against the capital gain of the original residential property. This issue
was answered in favour of the Assessee and against the revenue. In our
view therefore, the judgment in K.C. Kaushik cannot be read in support
of a proposition that capital gains can be adjusted against only one
residential house.
15) On the other hand, the issue involved in the present case
appears to be squarely covered by the judgment of the Karnataka High
Court in Arun K. Thiagarajan (supra), authored by one of us (The Chief
Justice). In the case before Karnataka High Court, the Assessee owned a
residential property in Chennai, which was sold on 9 th October 2002
and in the return of income, the Assessee declared long term capital
gain arising out of the sale of the said property of Rs.15,44,009/- by
claiming deduction under Section 54 of the Act in respect of two
properties purchased in Bangalore on 23rd September 2002 and 23rd
October 2002. The Assessing Officer, however, held that the Assessee
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was not entitled to claim deduction under Section 54 of the Act in
respect of investment made in acquiring two residential properties. The
issue for consideration is formulated in paragraph-2 of the judgment as
under :-
2. The issue, which arises for consideration in this appeal is whether the
assessee is entitled to claim exemption under Section 54 of the Act as he had
purchased more than two houses. In order to appreciate the factual
background, in which the aforesaid issue arises for considertion, reference to
relevant facts is necessary, which are stated hereinafter.
After taking into consideration the unamended provisions of Section 54
of the Act, the Division Bench held in paragraphs 11 to 15 as under :-
“11. From close scrutiny of the aforesaid provision, it is axiomatic that
property sold is referred to as original asset and the original asset is
prescribed as buildings and lands appurtenant thereto and being a
residential house. The expression ‘a residential house’ therefore,
includes building or lands appurtenant thereto. It cannot be construed
as one residential house.
12. A Bench of this court in case of Smt. KG Rukminiamma (supra)
dealt with the meaning of expression ‘a residential house’ used in
Section 54(1) of the Act while taking into account Section 13(2) of the
General Clauses Act, 1897 held that unless there is anything
repugnant in the subject or context, the words in singular shall
include the plural and vice versa. It was further held that context in
which the expression ‘a residential house’ is used in Section 54 makes it
evident that it is not the intention of the legislature to convey the
meaning that it refers to a single residential house. It was also held that
an asset newly acquired after sale of original asset can also be buildings
or lands appurtenant thereto, which also should be residential house,
therefore, the letter ‘a’ in the context it is used should not be construed as
meaning singular, but the expression should be read in consonance with
other words viz., buildings and lands. Accordingly, the contention raised
by the revenue was rejected. Similar view was taken by a bench of this
court in Khoobchand M. Makhijasupra, B. Srinivassupra and in the
case of Smt. Jyothi K Mehtasupra. The Madras High Court while
dealing with Section 54 of the Act as it stood prior to amendment by
Finance Act No. 2/2014 in the case of Tilokchand & Sons supra took the
similar view and held that the word ‘a’ would normally mean one but
in some circumstances it may include within its ambit and scope some
plural numbers also. The Delhi High Court also took the similar view
in case of Gita Duggal supra.
13. It is well settled in law that an Amending Act may be purely
clarificatory in nature intended to clear a meaning of a provision of the
principal Act, which was already implicit. [See: Decision of The Supreme
Court In CIT v. Ram Kishan Das [2019] 103 taxmann.com 414/263 Taxman
657/413 ITR 337. In view of aforesaid enunciation of law by different
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High Courts including this court and with a view to give definite
meaning to the expression ‘a residential house’, the provisions of
Section 54(1) were amended with an object to restrict the plurality to
mean singularity by substituting the word ‘a residential house’ with
the word ‘one residential house’. The aforesaid amendment came into
force with effect from 1-4-2015. The relevant extracts of Explanatory note
to provisions of Finance (No. 2) Act, 2014 reads as under:
20.3 Certain courts had interpreted that the exemption is also
available if investment is made in more than one residential house.
The benefit was intended for investment in one residential house
within India. Accordingly, sub-Section (1) of Section 54 of the
Income-Tax Act has been amended to provide that the rollover
relief under the said Section is available if the investment is made
in one residential house situated in India.
20.5 Applicability:- These amendments take effect from 1st
April, 2015 and will accordingly apply in relation to Assessment
year 2015-16 and subsequent Assessment years.
Thus it is axiomatic that the aforesaid amendment was specifically
applied only prospectively with effect from Assessment year 2015-16.
14. The subsequent amendment of Section 54(1) also fortifies the
fact that the legislature felt the need of amending the provisions of
the Act with a view to give a definite meaning to the expression ‘a
residential house’, which was interpreted as plural by various courts
by taking into account the context in which the aforesaid expression
was used. The subsequent amendment of the Act also fortifies the view
taken by this court as well as Madras High Court and Delhi High Court.
It is trite law that the principle underlying the decision would be binding
as precedent in a case. In Halsbury Laws of England, Volume 22, Para
1682, Page 796, the relevant extract reads as under:
The enunciation of the reasons or principle on which a question before a
court has been decided is alone binding as a precedent. This underlying
principle is often termed the ratio decided, that is to say, the general
reasons given for the decision or the general grounds on which it is
based, detached or abstracted from the specific peculiarities of the
particular case which gives rise to the decision.
15. This Court as well as Madras and Delhi High Court have
interpreted the expression ‘a residential house’ and have held that the
aforesaid expression includes plural. The ratio of the decisions rendered
by coordinate bench of this court are binding on us and we respectively
agree with the view taken by this court while interpreting the expression
‘a residential house’. Therefore, the contention of the revenue that the
assessee is not entitled to benefit of exemption under Section 54(1) of the
Act in the facts of the case does not deserve acceptance
In view of preceding analysis, the substantial question of law framed by
this court is answered in favor of the assessee and against the revenue. In
the result. The order passed by the assessing officer and Commissioner
of Income-tax (Appeals) and the Income-tax Appellate Tribunal insofar
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as it deprives the assessee of the benefit of exemption under section 54(1)
of the Act are hereby quashed and the assessee is held entitled to benefit
of exemption under section 54(1) of the Act. In the result, the appeal is
allowed.”
16) The Karnataka High Court took into consideration ratio of
Division Bench judgment of Madras High Court in Trilokchand & Sons
(supra), in which similar issue was involved. It is held in paragraphs 20
and 21 of the judgment in Tilokchand & Sons as under :-
“20. We have discussed about the two decisions from the Karnataka
High Court, which, in our opinion, dealt with similar controversy as is
raised before us herein. The only difference which we find is that the
purchase of the residential houses in the present case is at different
address in the same city of Madurai. In D. Ananda Basappa case stated
(supra), two flats in question were admitedly adjacent to each other and
which were joined to become one residential house. In the case of
Khoobchand M.Makhija (supra), two door nos are given viz., 623 and 729,
but the complete addresses and even the name of the city is not clear in
the facts narrated in the said Judgment. But in our considered opinion,
the difference of location of the newly purchased residential house(s)
will not alter the position for interpretation of the word ‘a residential
house’ to the effect that it may include more than one or plural
residential houses, as held by Karnataka High Court, with which we
respectfully agree. The location of the newly purchased houses by the
same assessee viz., HUF out of sale consideration received on the sale of
original capital Asset or a residential house in the given circumstances of
availability of such residential houses as per the requirement of the HUF
will not alter the position of interpretation.
21. In our understanding, if the word ‘a’ as employed under Section 54
prior to its amendment and substitution by the words ‘one’ with effect
from 01.04.2015 could not include plural units of residential houses,
there was no need to amend the said provisions by Finance Act No.2 of
2014 with effect from 01.04.2015 which the Legislature specifically made
it clear to operate only prospectively from A.Y. 2015-2016. Once we can
hold that the word ‘a’ employed can include plural residential houses
also in Section 54 prior to its amendment such interpretations will not
change merely because the purchase of new assets in the form of
residential houses is at different addresses which would depend upon
the facts and circumstances of each case. So long as the same Assessee
(HUF) purchased one or more residential houses out of the sale
consideration for which the capital gain tax liability is in question in its
own name, the same Assessee should be held entitled to the benefit of
deduction under Section 54 of the Act, subject to the purchase or
construction being within the stipulated time limit in respect of the
plural number of residential houses also. The said provision also
envisages an investment in the prescribed securities which to some
extent the present Assessee also made and even that was held entitled to
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Ajit Pathrikar ITXA-569-2003-ajit.docxdeduction from Capital Gains tax liability by the authorities below. If
that be so, the Assessee-HUF in the present case, in our opinion,
complied with the conditions of Section 54 of the Act in its true letter
and spirit and, therefore was entitled to the deduction under Section 54
of the Act for the entire investment in the properties and securities.
Therefore, in our opinion, Judgment rendered by the Karnataka High
Court in D Ananda Basappa (supra) & Khoobchand M. Makhija (supra) cited
at bar by the learned counsel for the Assessee apply on all fours to the
facts of the present case.”
17) Thus, the Madras High Court in Tilokchand & Sons (supra)
has held that the word ‘a’ used in Section 54, prior to the amendment
and substitution by the word ‘one’ with effect from 1 st April 2015, itself
means that there was provision in the unamended Section 54 to include
plural units of residential houses, which is a reason why the
amendment was necessary. The Madras High Court has also held that
even if the multiple houses are purchased bearing different addresses,
the same did not make any difference, so long as the same Assessee has
purchased the same out of sale consideration of the sold house.
18) Both Karnataka High Court in Arun K. Thiagarajan and
Madras High Court in Tilokchand & Sons have also referred to another
judgment of Karnataka High Court decision in CIT Vs. Khoobchand M.
Makhija11. The Madras High Court also took note of another judgment
of Karnataka High Court in CIT Vs. D. Ananda Basappa12. The Madras
High Court also took note of the fact that the Special Leave Petition
preferred by the Revenue against the judgment in D. Ananda Basappa
was dismissed by the Supreme Court. The Delhi High Court in CIT Vs.
Geeta Duggal (supra) has also adopted the same view. Thus, the issue
involved in the present appeal is squarely covered by several judgments
as discussed above.
11 (2014) 43 taxmann.com 143/223
12 (2009) 309 ITR 329/180 Taxman 4
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19) Thus, the position appears to be fairly well settled that use
of the words ‘a residential house’ in unamended Section 54 (1) of the
Act would not mean a single residential house and the contemplated
even multiple residential houses. The emphasis in the unamended
Section 54 (1) of the Act is on residential nature of the property and the
objective was never to restrict the number of residential houses
purchased against capital gains. The words ‘a residential house’ were
merely descriptive nature of the assets sold/purchased and not
restrictive of the number of assets sold or purchased. The position got
modified by the Legislature only w.e.f. 01 April 2015.
20) Mr. Sharma has strenuously relied on the judgment of
Special Bench of ITAT in ITO Vs. Ms. Sushila M. Jhaveri(supra) which
does not bind this Court, and therefore, it is not necessary to discuss the
ratio of the said judgment. We have already distinguished the judgment
of Single Judge of this Court in K. C. Kaushik which was relied upon by
the Special Bench of ITAT in Sushila M. Jhaveri. Also, as against the
Special Bench judgment of ITAT, there are subsequent judgments of
Division Benches of Karnataka and Madras High Court, which squarely
answer the issue involved in the present appeal.
21) Also of relevance is the fact that the provisions of Section
54(1) of the Act are beneficial in nature. The benevolent provision is
aimed at encouraging the house purchase activities. It therefore needs
to be read literally and reasonably. Therefore, even though two
interpretations of the provisions of unamended Section 54(1) of the Act
may be possible, the one in favour of the Assessee will have to be
accepted. Reliance in this regard by Mr. Thakkar on Apex Court
judgment in Mavilayi Service Coop Bank Ltd. (supra) is apposite.
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22) What remains now is to deal with three judgments relied
upon by Mr. Sharma:
(a) In Pawan Arya Vs. CIT (supra), the Division Bench of Punjab
and Haryana High Court has refused to admit the appeal of
the Assessee. The attention of the Division Bench was invited
to the judgment in Karnataka High Court in D. Ananda
Basappa, which was sought to be distinguished by holding
that exemption against purchase of two flats was allowed
having regard to the fact that both the flats were treated as one
house, as both were combined to make one residential unit.
However, after the order passed by the Punjab and Haryana
High Court in Pawan Arya on 13th December 2010, the
Karnataka High Court in Khoobchand M. Makhija (decision
rendered in 2014) and Arun K. Thiagarajan (decision rendered
in 2020) have interpreted the provisions of unamended Section
54 (1) of the Act for holding that the expression ‘a residential
house’ would also include within its ambit and scope, plural
number as well. Similarly, at the time of passing the order in
Pawan Arya, the Division Bench of Punjab and Haryana High
Court did not have benefit of subsequent amendment brought
about by the Finance (No.2) Act, 2014. The effect of the said
amendment has been discussed by the Madras High Court in
Tilokchand & Sons and by Karnataka High Court in Arun K.
Thiagarajan. Therefore reliance on the order of Punjab and
Haryana High Court in Pawan Arya does not assist the case of
Revenue.
(b) The judgment in Raman Kumar Suri (supra), a decision
rendered prior to amendment of Section 54 (1) of the Act, has
been rendered purely in the facts of the case where two flats
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were joined together, and therefore, the exemption under
Section 54 (1) of the unamended Act was held to be admissible.
In fact, in the present case, the Assessee has contended that 6 of
7 row houses were joined by common passage and ought to
have been treated as one residential unit, and in that sense, the
judgment of this Court in Raman Kumar Suri (supra) may
assist the case of Assessee. However, we need not go into that
issue as we have held that the expression ‘a residential house’
in unamended Section 54(1) of the Act would also include
multiple houses as well.
(c) The judgment of this Court in CIT Vs. Devdas Naik (supra) is
again rendered considering peculiar facts where two flats were
purchased under two distinct agreements from different sellers
but there was a common kitchen for both the flats and the flats
were converted into one unit for the purpose of residence of the
Assessee.
23) Considering the overall conspectus of the case, we are of
the view that the issue involved in the present case is squarely covered
by the judgments of Karnataka High Court in Arun K. Thiagarajan and
of Madras High Court in Tilokchand & Sons. We are in respectful
agreement with the view expressed therein that the expression ‘a
residential house’ in unamended Section 54(1) of the Act includes more
than one residential house.
24) In view of the foregoing analysis, the Appeal is allowed.
The substantial question of law formulated by this Court is answered in favour of the Assessee and against the Revenue. In the result, the order passed by the
Assessing Officer and the ITAT, to the extent of deprivation of benefit
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of exemption under Section 54 (1) of the Act is hereby quashed and set
aside and the Assessee is held entitled to the benefit of exemption
under provisions of Section 54(1) of the Act against the entire capital
gains of Rs.1,08,30,625/- arising out of sale of his flat in Mumbai, on
account of utilization thereof towards purchase of seven row houses in
Pune.
[SANDEEP V. MARNE, J.] [CHIEF JUSTICE]
Digitally
signed by
NEETA
NEETA SHAILESH
SHAILESH SAWANT
SAWANT Date:
2025.07.22
16:00:22
+0530
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