IN THE HIGH COURT OF KARNATAKA AT BENGALURU
\nDATED THIS THE 18TH DAY OF JUNE 2020
\nPRESENT
\nTHE HON\u2019BLE MR. JUSTICE ALOK ARADHE
\nAND
\nTHE HON\u2019BLE MR. JUSTICE M.NAGAPRASANNA
\nI.T.A. NO.320 OF 2011
\nBETWEEN:
\nSHRI.NAVIN JOLLY
\nC\/O NAVIN ARCHITECT PRIVATE LIMITED
\nUNIT NO.112, G.F.NO.139
\nOXFORD TOWERS
\nOPP. LEELA PALACE HOTEL
\nAIRPORT ROAD
\nBANGALORE \u2013 560 008.
\n… APPELLANT
\n(By Sri.A.SHANKAR SR.ADV.
\nA\/W SRI.M.LAVA, ADV.,)
\nAND:
\nTHE INCOME-TAX OFFICER
\nWARD 11(1), R.P.BHAVAN
\nOPP TO RBI, NRUPATUNGA ROAD
\nBANGALORE 0 560 001.
\n… RESPONDENT
\n(By Sri.K.V.ARAVIND, ADV.)
\n– – –
\nTHIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,
\n1961 ARISING OUT OF ORDER DATED 29.03.2011 PASSED IN ITA
\nNO.969(BANG)\/2010 FOR THE ASSESSMENT YEAR 2006-07,
\nPRAYING THAT THIS HON\u2019BLE COURT MAY BE PLEASED TO:
\n2
\n(I) FORUMULATE THE SUBSTANTIAL QUESTIONS OF LAW
\nSTATED THEREIN.
\n(I) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO
\nTHE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY
\nTHE TRIBUNAL IN ITA NO.969\/BANG\/2010 DAETD 29.03.2011, IN
\nTHE INTEREST OF JUSTICE AND EQUITY.
\nTHIS ITA COMING ON FOR FINAL HEARING, THIS DAY,
\nALOK ARADHE J., DELIVERED THE FOLLOWING:
\nJUDGMENT
\nThis appeal under Section 260A of the Income Tax
\nAct, 1961 (hereinafter referred to as the Act for short)
\nhas been preferred by the assessee. The subject matter
\nof the appeal pertains to the Assessment year 2006-07.
\nThe appeal was admitted by a bench of this Court vide
\norder dated 06.06.2012 on the following substantial
\nquestions of law:
\n(i) Whether the tribunal is justified in law
\nin confirming the denial of exemption
\nclaimed by the appellant under Section
\n54F of the Income-Tax Act, 1961, on
\nthe facts and circumstances of the
\ncase?
\n3
\n(ii) Whether the tribunal erred in law in
\ninterpreting the meaning of the word
\nresidential house used in Section 54F(1)
\nproviso (a) (i) of the Income Tax Act?
\n(iii) Whether the authorities below are
\njustified in law in holding that a
\nproperty used for the commercial
\npurpose, falls within the meaning of
\nresidential house as per the proviso (a)
\n(i) to Section 54F(1) of the Act on the
\nfacts and circumstances of the case?
\n2. Facts leading to filing of this appeal briefly
\nstated are that assessee is an individual and is Director
\nof M\/s Aburge India Property Services Pvt. Ltd.,
\nBangalore. The assessee filed his return of income for
\nAssessment year 2006-07 on 30.10.2006 declaring
\nincome of Rs.53,06,473\/-. The return filed by the
\nassessee was selected for scrutiny and notice under
\nSection 143(2) of the Act was issued. The assessee
\nstated that he had sold shares in the company viz., M\/s
\n4
\nCorporate Leisure Resorts and Hotels Pvt. Ltd., during
\nfinancial year 2005-06 and derived long term capital
\ngain of Rs.1,55,47,315\/-. The appellant further declared
\nthat he had constructed a residential property during the
\nyear situate at 808\/7 and 808\/8 Kaikondanahalli,
\nSarjapur, Bangalore. The appellant claimed exemption
\nunder Section 54F of the Act to the extent of
\nRs.1,55,47,315\/-. Before the assessing officer, the
\nassessee agreed voluntarily to offer a sum of
\nRs.4,17,339\/- for taxation.
\n3. The assessing officer vide order dated
\n31.12.2008 inter alia held that the assessee owns nine
\nresidential flats in his name and that he is deriving the
\nincome from the residential flats and declared the same
\nunder the head income from house property during
\nAssessment year 2006-07 and is therefore, not eligible
\nto claim exemption by invoking proviso (a)(i) and (b)to
\nSection 54F (1). The assessing officer further recorded a
\nfinding that properties owned by the appellant are
\n5
\nresidential apartments. Accordingly, exemption under
\nSection 54F of the Act was denied.
\n4. Being aggrieved, the assessee filed an appeal.
\nThe Commissioner of Income Tax (Appeals) by an order
\ndated 31.05.2010 inter alia held that by virtue of clauses
\n(a)(i) and (b) of proviso to Section 54F(1), the assessee
\nis ineligible to claim exemption. It was further held that
\nfrom perusal of the record, it is evident that out of nine
\nproperties two properties viz., Unit No.204 and 605 of
\nOxford Suites have got plan sanction of residential in
\nnature and therefore, the claim of the assessee that the
\nproperties be not treated as residential houses cannot
\nbe accepted. It was further held that on the date of
\ntransfer of original asset the assessee was in possession
\nof atleast two residential houses and therefore, the
\nappellant is not entitled to the benefit of exemption
\nunder Section 54F of the Act. It was also held that in
\nrespect of six out of seven properties, from the records
\nit is evident that they have been let out by the assessee
\n6
\nto different companies and rental income is being shown
\nregularly in the returns as income from house property
\nand even if the nature of plan sanction is commercial,
\nthe appellant cannot be allowed to take a different stand
\nand to contend that the properties are not residential
\nhouses. It was also noted that by explanatory circular
\ndated 30.06.1982, the word \u2018residential house\u2019 includes
\nnot only self occupied properties but also let out
\nproperties. It was further held that the assessee is not
\nentitled to benefit of deduction under Section 54F of the
\nAct. Accordingly, the appeal was dismissed.
\n5. The assessee approached the Income Tax
\nAppellate Tribunal. The tribunal by an order dated
\n29.03.2011 inter alia held that assessee should not have
\nmore than one residential unit on the date of transfer of
\nthe original asset. It was further held that it is
\nimmaterial as to how the assessee utilized the
\nresidential units and whether these residential units are
\nused for commercial purposes or residential purposes,
\n7
\nso long as these units were recognized as residential
\nunits. Therefore, it was held that the assessee cannot
\nclaim the benefit of exemption under Section 54F of the
\nAct. The appeal preferred by the assessee was
\ntherefore, dismissed. In the aforesaid factual
\nbackground, this appeal has been filed.
\n6. Learned Senior Counsel for the assessee
\nsubmitted that apartments No.204 and 605 viz., Oxford
\nsuites is a building comprising units offered for serviced
\napartments and each floor consists of eight apartments
\nof 500 square feet floor area and the appellant had let
\nout both the properties to be used as commercial \/
\nserviced apartments. Therefore, the aforesaid serviced
\napartments could not have been treated as residential
\nunits and in fact the same were commercial units and
\nwere being used by serviced apartments by the
\ncompanies to accommodate their guests. It is also urged
\nthat clause (a) (i) of proviso to Section 54F(1) are not
\nattracted and clause (b) of proviso to Section 54F(1) are
\n8
\nalso not attracted. It is further submitted that the
\nauthorities erred in law in interpreting the meaning of
\nthe word \u2018residential house\u2019 used in proviso (a)(i) to
\nSection 54F(1) of the Act and it is submitted that the
\nexpression \u2018residence\u2019 implies some sought for
\npermanency and cannot be equated to the expression
\n\u2018temporary stay\u2019 as a lodger. It is also argued that
\nusage of property has to be taken into account while
\ndetermining whether the property is a residential
\nproperty or commercial property and the beneficial
\nprovisions of the Act have to be construed liberally in
\norder to achieve the purpose for which it were
\nincorporated. Alternatively, it is submitted that even if
\ntwo apartments are treated to be residential, then also
\nsince, they are situate in the same building, therefore,
\nthe apartments have to be treated as one residential
\nonly. In support of aforesaid submissions, reliance has
\nbeen placed on the following decisions \u2018CIT V.
\nI.IFTHIQAR ASHIQ\u2019, (2016) 239 TAXMAN 443
\n9
\n(MADRAS), \u2018FIRM GANGA RAM KISHORE CHAND
\nVS. FIRM JAI RAM BHAGAT RAM\u2019, AIR 1957
\nPUNJAB 293, \u2018GLOBE THEATRES LTD. VS. KHAN
\nSAHEB ABDUL GANI AND ANOTHER\u2019, 1956 MYSORE
\n57 ((S) AIR V 43 C 25 DEC.), \u2018C.H.KESAVA RAO VS.
\nCIT\u2019, (1985) 156 ITR 369 (MADRAS), \u2018CIT VS.
\nOUSEPH CHACKO\u2019, 271 ITR 29 (KERALA),
\n\u2018SANJEEV PURI VS. DCIT\u2019, (2016) 180 TTJ 649
\n(DELHI-TRIB), \u2018P.N.SHUKLA VS. CIT\u2019, (2005) 276
\nITR 642 (ALLAHABAD), \u2018CIT VS. SMT.SHYAMA
\nDEVI DALMIA\u2019, (1992) 194 ITR 114 (CALCUTTA), \u2018
\nITO VS. SMT.ROHINI REDDY\u2019, (2010) 122 ITD 1
\n(HYDERABAD), \u2018BAJAJ TEMPO LTD. VS. CIT\u2019,
\n(1992) 196 ITR 188 (SC), \u2018CIT VS.
\nSRISAMBANDAM UDAYKUMAR\u2019, (2012) 345 ITR
\n389 (KARNATAKA), \u2018GITA DUGGAL (2013) 357 ITR
\n153 (DELHI) and \u2018GITA DUGGAL (2015) 228
\nTAXMAN 62 (SC).
\n7. On the other hand learned counsel for the
\n10
\nrevenue submitted that clause (a) to proviso to Section
\n54F(1) does not apply but clause (b) to proviso to
\nSection 54F(1) applies to the fact situation of the case.
\nIt is submitted that the question whether the property is
\na residential or commercial property has to be
\ndetermined on the basis of the sanction granted in
\nrespect of the same and the nature of its use by the
\nassessee is not the criteria. It is also argued that the
\nclassification of the property either as residential or
\ncommercial has to be taken into account for the purpose
\nof taxation. It is however submitted that out of nine
\nflats, seven flats have been sanctioned for commercial
\npurposes and only two flats have been sanctioned as
\nresidential units which are being used for commercial
\npurposes. It is also urged that requirement as
\nprescribed in proviso to Section 54F(1) is of owning a
\nresidential house and not of its user. Our attention has
\nalso been invited to Section 32(1) of the Act and it has
\nbeen stated that the legislature in Section 32(1) of the
\n11
\nAct has used the expression \u2018owned\u2019 and \u2018used\u2019
\nsimultaneously, whereas, the same has not been done in
\nproviso to Section 54F(1) of the Act. It is argued that
\nlanguage of a taxing statute should ordinarily be
\nunderstood in the sense in which it is harmonious with
\nthe object of statute to effectuate the legislative
\nanimation and taxing statute deserves to be strictly
\nconstrued. In support of aforesaid proposition, reliance
\nhas been placed on decision of the supreme court in
\n\u2018COMMISSIONER OF INCOME-TAX-III VS.
\nCALCUTTA KNITWEARS\u2019, (2014) 43 TAXMANN.COM
\n446 (SC).
\n8. We have considered the submissions made on
\nboth the sides and have perused the record. Before
\nproceeding further, it is apposite to take note to Section
\n54F(1) of the Act, which is reproduced below for the
\nfacility of reference:
\n54F. (1) Subject to the provisions of subsection
\n(4), where, in the case of an
\n12
\nassessee being an individual or a Hindu
\nundivided family, the capital gain arises from
\nthe transfer of any long-term capital asset,
\nnot being a residential house (hereafter in
\nthis section referred to as the original asset),
\nand the assessee has, within a period of one
\nyear before or two years after the date on
\nwhich the transfer took place purchased, or
\nhas within a period of three years after that
\ndate constructed, one residential house in
\nIndia (hereafter in this section referred to as
\nthe new asset), the capital gain shall be
\ndealt with in accordance with the following
\nprovisions of this section, that is to say,\u2014
\n(a) if the cost of the new asset is not less than
\nthe net consideration in respect of the
\noriginal asset, the whole of such capital gain
\nshall not be charged under section 45 ;
\n(b) if the cost of the new asset is less than the
\nnet consideration in respect of the original
\nasset, so much of the capital gain as bears
\nto the whole of the capital gain the same
\nproportion as the cost of the new asset
\nbears to the net consideration, shall not be
\ncharged under section 45:
\n13
\nProvided that nothing contained in this subsection
\nshall apply where\u2014
\n(a) the assessee,\u2014
\n(i) owns more than one residential house,
\nother than the new asset, on the date
\nof transfer of the original asset; or
\n(ii) purchases any residential house, other
\nthan the new asset, within a period of
\none year after the date of transfer of
\nthe original asset; or
\n(iii) constructs any residential house, other
\nthan the new asset, within a period of
\nthree years after the date of transfer of
\nthe original asset; and
\n(b) the income from such residential house,
\nother than the one residential house owned
\non the date of transfer of the original asset,
\nis chargeable under the head “Income from
\nhouse property”.
\nExplanation.\u2014For the purposes of this section,\u2014
\n“net consideration”, in relation to the
\ntransfer of a capital asset, means the full
\nvalue of the consideration received or
\naccruing as a result of the transfer of the
\n14
\ncapital asset as reduced by any expenditure
\nincurred wholly and exclusively in connection
\nwith such transfer.
\n9. From close scrutiny of Section 54F(1) of the Act,
\nit is evident that in order to attract Section 54F(1) of the
\nAct, the conditions stipulated in clauses (a) and (b) of
\nproviso to Section 54F(1) have to be complied with as
\nthe legislature has used the expression \u2018and\u2019 at the end
\nof clause (a) of proviso to Section 54F(1) of the Act. It is
\npertinent to note that under Section 22 of the Act any
\nincome from any buildings irrespective of which the use
\nwhich has to be treated under the head \u2018income from
\nhouse property\u2019. It is well settled legal proposition that
\na provision in a taxing statute providing incentive for
\npromoting growth and development has to be construed
\nliberally so as to advance the object of the Section and
\nnot to frustrate it. [SEE:\u2019CIT VS. STRAWBOARD MFg.
\nCO. LTD.\u2019, (1989) 177 ITR 431 (SC) AND \u2018BAJAJ
\nTEMPO LTD. SUPRA]. A bench of this court in
\n15
\nSAMBANDAM UDAY KUMAR SUPRA while interpreting
\nSection 54F of the Act has held that provisions of
\nSection 54F is a beneficial provision for promoting
\nconstruction of residential houses and has to be
\nconstrued liberally. Kerala, Delhi, Allahabad, Calcutta
\nand Hyderabad High Courts have taken a view that
\nusage of the property has to be considered in
\ndetermining whether it is a residential property or a
\ncommercial property and Madras High Court in
\nC.H.KESVA RAO supra has held that expression
\n\u2018residence\u2019 implies some sought of permanency and
\ncannot be equated to the expression \u2018temporary stay\u2019 as
\na lodger.
\n10. In the backdrop of aforesaid well settled legal
\nprinciples, the facts of the case in hand may be
\nexamined. Learned counsel for the revenue have fairly
\nsubmitted that out of nine apartments, seven flats have
\nbeen sanctioned for commercial purposes. Therefore,
\n16
\nthe dispute only survives in respect of two apartments,
\nwhich have been sanctioned for residential purposes and
\nare being used for commercial purposes as serviced
\napartments. The usage of the property has to be
\nconsidered for determining whether the property in
\nquestion is a residential property or a commercial
\nproperty. It is not in dispute that the aforesaid two
\napartments are being put to commercial use and
\ntherefore, the aforesaid apartments cannot be treated
\nas residential apartments. The contention of the revenue
\nthat the apartments cannot be taxed on the basis of the
\nusage does not deserve acceptance in view of decisions
\nof Kerala, Delhi, Allahabad, Calcutta and Hyderabad
\nHigh Courts with which we respectfully concur.
\n11. Alternatively, we hold that assessee even
\notherwise is entitled to the benefit of exemption under
\nSection 54F(1) of the Act as the assessee owns two
\napartments of 500 square feet in same building and
\n17
\ntherefore, it has to be treated as one residential unit.
\nThe aforesaid fact cannot be permitted to act as
\nimpediment to allowance of exemption under Section
\n54F(1) of the Act. Similar view was taken by Delhi High
\nCourt in case of Geeta Duggal wherein the issue
\nwhether a residential house which consists of several
\nindependent residential units would be entitled to
\nexemption under Section 54F(1) of the Act was dealt
\nwith and the same was answered in the affirmative. The
\nappeal against the aforesaid decision was dismissed by
\nthe Supreme Court by an order reported in (2014) 52
\ntaxmann.com 246 (SC). We agree with the view
\ntaken by Delhi High Court.
\n12. For the aforementioned reasons, the
\nsubstantial questions of law are answered in favour of
\nthe assessee and against the revenue. In the result, the
\norders of the assessing officer and Commissioner of
\nIncome Tax (Appeals) and Income Tax Appellate
\n18
\nTribunal insofar as it pertains to denial of exemption
\nunder Section 54F(1) of the Act to the appellant is
\nhereby quashed. In the result, appeal is allowed.
\nSd\/-
\nJUDGE
\nSd\/-
\nJUDGE
\nss<\/p>\n","protected":false},"excerpt":{"rendered":"
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 17 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<\/p>\n