Navin Jolly vs. ITO (Karnataka High Court)

IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 18TH DAY OF JUNE 2020
PRESENT
THE HON’BLE MR. JUSTICE ALOK ARADHE
AND
THE HON’BLE MR. JUSTICE M.NAGAPRASANNA
I.T.A. NO.320 OF 2011
BETWEEN:
SHRI.NAVIN JOLLY
C/O NAVIN ARCHITECT PRIVATE LIMITED
UNIT NO.112, G.F.NO.139
OXFORD TOWERS
OPP. LEELA PALACE HOTEL
AIRPORT ROAD
BANGALORE – 560 008.
… APPELLANT
(By Sri.A.SHANKAR SR.ADV.
A/W SRI.M.LAVA, ADV.,)
AND:
THE INCOME-TAX OFFICER
WARD 11(1), R.P.BHAVAN
OPP TO RBI, NRUPATUNGA ROAD
BANGALORE 0 560 001.
… RESPONDENT
(By Sri.K.V.ARAVIND, ADV.)
– – –
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,
1961 ARISING OUT OF ORDER DATED 29.03.2011 PASSED IN ITA
NO.969(BANG)/2010 FOR THE ASSESSMENT YEAR 2006-07,
PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO:
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(I) FORUMULATE THE SUBSTANTIAL QUESTIONS OF LAW
STATED THEREIN.
(I) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO
THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY
THE TRIBUNAL IN ITA NO.969/BANG/2010 DAETD 29.03.2011, IN
THE INTEREST OF JUSTICE AND EQUITY.
THIS ITA COMING ON FOR FINAL HEARING, THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal under Section 260A of the Income Tax
Act, 1961 (hereinafter referred to as the Act for short)
has been preferred by the assessee. The subject matter
of the appeal pertains to the Assessment year 2006-07.
The appeal was admitted by a bench of this Court vide
order dated 06.06.2012 on the following substantial
questions of law:
(i) Whether the tribunal is justified in law
in confirming the denial of exemption
claimed by the appellant under Section
54F of the Income-Tax Act, 1961, on
the facts and circumstances of the
case?
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(ii) Whether the tribunal erred in law in
interpreting the meaning of the word
residential house used in Section 54F(1)
proviso (a) (i) of the Income Tax Act?
(iii) Whether the authorities below are
justified in law in holding that a
property used for the commercial
purpose, falls within the meaning of
residential house as per the proviso (a)
(i) to Section 54F(1) of the Act on the
facts and circumstances of the case?
2. Facts leading to filing of this appeal briefly
stated are that assessee is an individual and is Director
of M/s Aburge India Property Services Pvt. Ltd.,
Bangalore. The assessee filed his return of income for
Assessment year 2006-07 on 30.10.2006 declaring
income of Rs.53,06,473/-. The return filed by the
assessee was selected for scrutiny and notice under
Section 143(2) of the Act was issued. The assessee
stated that he had sold shares in the company viz., M/s
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Corporate Leisure Resorts and Hotels Pvt. Ltd., during
financial year 2005-06 and derived long term capital
gain of Rs.1,55,47,315/-. The appellant further declared
that he had constructed a residential property during the
year situate at 808/7 and 808/8 Kaikondanahalli,
Sarjapur, Bangalore. The appellant claimed exemption
under Section 54F of the Act to the extent of
Rs.1,55,47,315/-. Before the assessing officer, the
assessee agreed voluntarily to offer a sum of
Rs.4,17,339/- for taxation.
3. The assessing officer vide order dated
31.12.2008 inter alia held that the assessee owns nine
residential flats in his name and that he is deriving the
income from the residential flats and declared the same
under the head income from house property during
Assessment year 2006-07 and is therefore, not eligible
to claim exemption by invoking proviso (a)(i) and (b)to
Section 54F (1). The assessing officer further recorded a
finding that properties owned by the appellant are
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residential apartments. Accordingly, exemption under
Section 54F of the Act was denied.
4. Being aggrieved, the assessee filed an appeal.
The Commissioner of Income Tax (Appeals) by an order
dated 31.05.2010 inter alia held that by virtue of clauses
(a)(i) and (b) of proviso to Section 54F(1), the assessee
is ineligible to claim exemption. It was further held that
from perusal of the record, it is evident that out of nine
properties two properties viz., Unit No.204 and 605 of
Oxford Suites have got plan sanction of residential in
nature and therefore, the claim of the assessee that the
properties be not treated as residential houses cannot
be accepted. It was further held that on the date of
transfer of original asset the assessee was in possession
of atleast two residential houses and therefore, the
appellant is not entitled to the benefit of exemption
under Section 54F of the Act. It was also held that in
respect of six out of seven properties, from the records
it is evident that they have been let out by the assessee
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to different companies and rental income is being shown
regularly in the returns as income from house property
and even if the nature of plan sanction is commercial,
the appellant cannot be allowed to take a different stand
and to contend that the properties are not residential
houses. It was also noted that by explanatory circular
dated 30.06.1982, the word ‘residential house’ includes
not only self occupied properties but also let out
properties. It was further held that the assessee is not
entitled to benefit of deduction under Section 54F of the
Act. Accordingly, the appeal was dismissed.
5. The assessee approached the Income Tax
Appellate Tribunal. The tribunal by an order dated
29.03.2011 inter alia held that assessee should not have
more than one residential unit on the date of transfer of
the original asset. It was further held that it is
immaterial as to how the assessee utilized the
residential units and whether these residential units are
used for commercial purposes or residential purposes,
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so long as these units were recognized as residential
units. Therefore, it was held that the assessee cannot
claim the benefit of exemption under Section 54F of the
Act. The appeal preferred by the assessee was
therefore, dismissed. In the aforesaid factual
background, this appeal has been filed.
6. Learned Senior Counsel for the assessee
submitted that apartments No.204 and 605 viz., Oxford
suites is a building comprising units offered for serviced
apartments and each floor consists of eight apartments
of 500 square feet floor area and the appellant had let
out both the properties to be used as commercial /
serviced apartments. Therefore, the aforesaid serviced
apartments could not have been treated as residential
units and in fact the same were commercial units and
were being used by serviced apartments by the
companies to accommodate their guests. It is also urged
that clause (a) (i) of proviso to Section 54F(1) are not
attracted and clause (b) of proviso to Section 54F(1) are
8
also not attracted. It is further submitted that the
authorities erred in law in interpreting the meaning of
the word ‘residential house’ used in proviso (a)(i) to
Section 54F(1) of the Act and it is submitted that the
expression ‘residence’ implies some sought for
permanency and cannot be equated to the expression
‘temporary stay’ as a lodger. It is also argued that
usage of property has to be taken into account while
determining whether the property is a residential
property or commercial property and the beneficial
provisions of the Act have to be construed liberally in
order to achieve the purpose for which it were
incorporated. Alternatively, it is submitted that even if
two apartments are treated to be residential, then also
since, they are situate in the same building, therefore,
the apartments have to be treated as one residential
only. In support of aforesaid submissions, reliance has
been placed on the following decisions ‘CIT V.
I.IFTHIQAR ASHIQ’, (2016) 239 TAXMAN 443
9
(MADRAS), ‘FIRM GANGA RAM KISHORE CHAND
VS. FIRM JAI RAM BHAGAT RAM’, AIR 1957
PUNJAB 293, ‘GLOBE THEATRES LTD. VS. KHAN
SAHEB ABDUL GANI AND ANOTHER’, 1956 MYSORE
57 ((S) AIR V 43 C 25 DEC.), ‘C.H.KESAVA RAO VS.
CIT’, (1985) 156 ITR 369 (MADRAS), ‘CIT VS.
OUSEPH CHACKO’, 271 ITR 29 (KERALA),
‘SANJEEV PURI VS. DCIT’, (2016) 180 TTJ 649
(DELHI-TRIB), ‘P.N.SHUKLA VS. CIT’, (2005) 276
ITR 642 (ALLAHABAD), ‘CIT VS. SMT.SHYAMA
DEVI DALMIA’, (1992) 194 ITR 114 (CALCUTTA), ‘
ITO VS. SMT.ROHINI REDDY’, (2010) 122 ITD 1
(HYDERABAD), ‘BAJAJ TEMPO LTD. VS. CIT’,
(1992) 196 ITR 188 (SC), ‘CIT VS.
SRISAMBANDAM UDAYKUMAR’, (2012) 345 ITR
389 (KARNATAKA), ‘GITA DUGGAL (2013) 357 ITR
153 (DELHI) and ‘GITA DUGGAL (2015) 228
TAXMAN 62 (SC).
7. On the other hand learned counsel for the
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revenue submitted that clause (a) to proviso to Section
54F(1) does not apply but clause (b) to proviso to
Section 54F(1) applies to the fact situation of the case.
It is submitted that the question whether the property is
a residential or commercial property has to be
determined on the basis of the sanction granted in
respect of the same and the nature of its use by the
assessee is not the criteria. It is also argued that the
classification of the property either as residential or
commercial has to be taken into account for the purpose
of taxation. It is however submitted that out of nine
flats, seven flats have been sanctioned for commercial
purposes and only two flats have been sanctioned as
residential units which are being used for commercial
purposes. It is also urged that requirement as
prescribed in proviso to Section 54F(1) is of owning a
residential house and not of its user. Our attention has
also been invited to Section 32(1) of the Act and it has
been stated that the legislature in Section 32(1) of the
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Act has used the expression ‘owned’ and ‘used’
simultaneously, whereas, the same has not been done in
proviso to Section 54F(1) of the Act. It is argued that
language of a taxing statute should ordinarily be
understood in the sense in which it is harmonious with
the object of statute to effectuate the legislative
animation and taxing statute deserves to be strictly
construed. In support of aforesaid proposition, reliance
has been placed on decision of the supreme court in
‘COMMISSIONER OF INCOME-TAX-III VS.
CALCUTTA KNITWEARS’, (2014) 43 TAXMANN.COM
446 (SC).
8. We have considered the submissions made on
both the sides and have perused the record. Before
proceeding further, it is apposite to take note to Section
54F(1) of the Act, which is reproduced below for the
facility of reference:
54F. (1) Subject to the provisions of subsection
(4), where, in the case of an
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assessee being an individual or a Hindu
undivided family, the capital gain arises from
the transfer of any long-term capital asset,
not being a residential house (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 (hereafter in this section referred to as
the new asset), the capital gain shall be
dealt with in accordance with the following
provisions of this section, that is to say,—
(a) if the cost of the new asset is not less than
the net consideration in respect of the
original asset, the whole of such capital gain
shall not be charged under section 45 ;
(b) if the cost of the new asset is less than the
net consideration in respect of the original
asset, so much of the capital gain as bears
to the whole of the capital gain the same
proportion as the cost of the new asset
bears to the net consideration, shall not be
charged under section 45:
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Provided that nothing contained in this subsection
shall apply where—
(a) the assessee,—
(i) owns more than one residential house,
other than the new asset, on the date
of transfer of the original asset; or
(ii) purchases any residential house, other
than the new asset, within a period of
one year after the date of transfer of
the original asset; or
(iii) constructs any residential house, other
than the new asset, within a period of
three years after the date of transfer of
the original asset; and
(b) the income from such residential house,
other than the one residential house owned
on the date of transfer of the original asset,
is chargeable under the head “Income from
house property”.
Explanation.—For the purposes of this section,—
“net consideration”, in relation to the
transfer of a capital asset, means the full
value of the consideration received or
accruing as a result of the transfer of the
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capital asset as reduced by any expenditure
incurred wholly and exclusively in connection
with such transfer.
9. From close scrutiny of Section 54F(1) of the Act,
it is evident that in order to attract Section 54F(1) of the
Act, the conditions stipulated in clauses (a) and (b) of
proviso to Section 54F(1) have to be complied with as
the legislature has used the expression ‘and’ at the end
of clause (a) of proviso to Section 54F(1) of the Act. It is
pertinent to note that under Section 22 of the Act any
income from any buildings irrespective of which the use
which has to be treated under the head ‘income from
house property’. It is well settled legal proposition that
a provision in a taxing statute providing incentive for
promoting growth and development has to be construed
liberally so as to advance the object of the Section and
not to frustrate it. [SEE:’CIT VS. STRAWBOARD MFg.
CO. LTD.’, (1989) 177 ITR 431 (SC) AND ‘BAJAJ
TEMPO LTD. SUPRA]. A bench of this court in
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SAMBANDAM UDAY KUMAR SUPRA while interpreting
Section 54F of the Act has held that provisions of
Section 54F is a beneficial provision for promoting
construction of residential houses and has to be
construed liberally. Kerala, Delhi, Allahabad, Calcutta
and Hyderabad High Courts have taken a view that
usage of the property has to be considered in
determining whether it is a residential property or a
commercial property and Madras High Court in
C.H.KESVA RAO supra has held that expression
‘residence’ implies some sought of permanency and
cannot be equated to the expression ‘temporary stay’ as
a lodger.
10. In the backdrop of aforesaid well settled legal
principles, the facts of the case in hand may be
examined. Learned counsel for the revenue have fairly
submitted that out of nine apartments, seven flats have
been sanctioned for commercial purposes. Therefore,
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the dispute only survives in respect of two apartments,
which have been sanctioned for residential purposes and
are being used for commercial purposes as serviced
apartments. The usage of the property has to be
considered for determining whether the property in
question is a residential property or a commercial
property. It is not in dispute that the aforesaid two
apartments are being put to commercial use and
therefore, the aforesaid apartments cannot be treated
as residential apartments. The contention of the revenue
that the apartments cannot be taxed on the basis of the
usage does not deserve acceptance in view of decisions
of Kerala, Delhi, Allahabad, Calcutta and Hyderabad
High Courts with which we respectfully concur.
11. Alternatively, we hold that assessee even
otherwise is entitled to the benefit of exemption under
Section 54F(1) of the Act as the assessee owns two
apartments of 500 square feet in same building and
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therefore, it has to be treated as one residential unit.
The aforesaid fact cannot be permitted to act as
impediment to allowance of exemption under Section
54F(1) of the Act. Similar view was taken by Delhi High
Court in case of Geeta Duggal wherein the issue
whether a residential house which consists of several
independent residential units would be entitled to
exemption under Section 54F(1) of the Act was dealt
with and the same was answered in the affirmative. The
appeal against the aforesaid decision was dismissed by
the Supreme Court by an order reported in (2014) 52
taxmann.com 246 (SC). We agree with the view
taken by Delhi High Court.
12. For the aforementioned reasons, the
substantial questions of law are answered in favour of
the assessee and against the revenue. In the result, the
orders of the assessing officer and Commissioner of
Income Tax (Appeals) and Income Tax Appellate
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Tribunal insofar as it pertains to denial of exemption
under Section 54F(1) of the Act to the appellant is
hereby quashed. In the result, appeal is allowed.
Sd/-
JUDGE
Sd/-
JUDGE
ss