AI Structured Summary
Not yet generated for this judgment
Judgment
PER BRAJESH KUMAR SINGH, AM.
This appeal by the Assessee is against the order of National Faceless Appeal Centre (NFAC) [hereinafter referred to as the ‘Ld. CIT(A)] order dated 21.05.2025 arising out of the order dated 16.03.2016 passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘the Act’) passed by the Income Tax Officer, Ward-59(2), New Delhi, (hereinafter referred to as the ‘AO’) pertaining to Assessment Year (AY) 2013-14.
The statement of facts as submitted by the assessee in the appeal before the Tribunal is reproduced as under:
“STATEMENT OF FACTS
1.The appellant was employed with M/s Sun Imports Pvt. Ltd. and filed his return of income for A.Y. 2013-14 declaring total income of Rs. 13,12,810/-.
2.During the year, the appellant sold two residential properties at Gurgaon and Noida and earned long-term capital gains of Rs. 2.07 crores and Rs. 78 lakhs, respectively.
3.The appellant invested the entire net consideration in four residential properties amounting to Rs. 3.50 crores and claimed exemption under section 54 of the Act.
4.The Assessing Officer, relying on a restrictive interpretation of the phrase "a residential house", allowed exemption only in respect of one property and disallowed deduction claimed on the others.
5.The learned CIT(A) confirmed the disallowance relying primarily on the decision of the ITAT Special Bench in ITO v. Sushila M. Jhaveri and the P&H High Court decision in Pawan Arya v. CIT, without properly appreciating the contrary judgments of other High Courts and the factual matrix of the appellant's case.
6.The amendment to section 54 via Finance Act, 2014 was prospective and could not be applied to AY 2013-14.
7.Hence, the present appeal before this Hon'ble Tribunal.”
Brief facts of the case: The AO noted that during the year, the assessee had sold two immovable properties at Gurugram and Noida declaring capital gains of Rs. 2,35,71881/-. On query by the AO the assessee revised its long term capital gains in terms of section 50 C of the Act in respect of the Noida property. The revised capital gains was now declared at Rs. 2,85,71,881/- as per the following details.
| S.no | Property bearing No | Amount | Transfer Exp. | Net Sale Consideration | Long Term Capital Gain |
| 1. | T-7/1502, Vipul Belmont, Sector 53, Golf Course Road, Gurgaon | 3,07,00,000 | 2,50,000 | 3,04,50,000 | 2,07,34,420 |
| 2. | Parsvanath Prestige-II, Shrishti Plot No.2, Noida | 1,50,00,000 | 1,50,00,000 | 78,37,461 | |
| Total | 4,57,00,000 | 2,50,000 | 4,54,50,000 | 2,85,71,881 |
Further, the AO noted that the assessee had claimed deduction u/s 54 of the Act, by investing the said capital gain in 4 residential houses (total investment value-Rs. 3,50,30,187/-) as under:
| S.No. | Unit No. | Amount Invested | Date of Acquisition/Booking |
| 1 | La Lagune Appartment | 63,81,720 | 01/12/2010 |
| 2 | B-2301 Heritage One | 1,09,69,434 | 23/10/2012 |
| 3 | PTF-14-0101 Palm Tarraces | 1,26,74,737 | 09/01/2013 |
| 4 | Adani M2K (H-1801) | 50,04,296 | 03/02/2013 |
The AO referring to the provision of section 54(1) of the Act, asked the assessee to clarify as to that why deduction u/s 54(1) of the Act, should be allowed in respect of investment in respect of 4 residential houses when the provision of the 54 of the Act allows deduction only in respect of ‘a residential property’ i.e. the deduction will be restricted in respect of investment in respect of one residential property only.
In reply the assessee submitted various case laws in support of his contention which was not accepted by the AO by making following observations.
| S.No. | Case law relied upon by the assessee as noted by the AO in the assessment order | Observations of the AO on the same |
| 1 | a. CIT Vs D Ananda Basappa [2009] 309 ITR 329 (Karnataka) …..the expression a residential house in section 54 (1) of the Act has to be understood in a sense that the building should be of residential nature and "a" should not be understood to indicate a singular number and where an assessee had purchased two residential flats, he is entitled to exemption under section 54 in respect of capital gains on sale of its property on purchase of both the flats, more so, when the flats are situated side by side and the builder has effected modification of the flats to make it as one unit, despite the fact that the flats were purchased by separate sale deeds." | The above judgment is in respect of two residential flats situated side by side, whereas the assessee, in the instant case, has purchased several properties, none of which are side by side. The facts of the assessee being different, the ratio of this judgement is not applicable to the facts of the present case. |
| 2 | b. CIT vs Geeta Duggal [2013] 357 ITR 153 (Delhi) "i) Fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the exemption u/s. 54/54F. It is neither expressly nor by necessary implication prohibited. ii) Tribunal was therefore justified in allowing exemption u/s. 54F in respect of entire investment in construction of a building consisting of two residential units." | b.1 The above judgment is in respect of a building consisting of two residential units, which were close to each other, whereas the assessee, in the instant case, has purchased several properties, which are quite far from each other. The facts of the assessee being different, the ratio of this judgement is not applicable to the facts of the present case. |
| 3 | c. CIT vs Smt K G Rukminiamma [2011] 331 ITR 211 (Karnataka) “…..where a residential house was transferred and four flats in a single residential complex were purchased by the assessee, it was held that all four residential flats constituted a residential house" for the purpose of section 54 and that the four residential flats cannot be construed as four residential houses for the purpose of section 54. Admittedly the two flats purchased by the assessee are adjacent to one another and have a common meeting point.....” | c.1 From the above judgment, it is evident that in that case, the assessee was allowed deduction u/s 54 in respect of four flats in a single residential complex, two of which were adjacent, whereas the facts in the instant case are distinguishable. The assessee, in this case, has purchased several properties, which are in different residential areas and so the ratio of this judgment is also not applicable to the facts of the present case. |
| 4 | d. CIT v. Syed Ali Adil [2013] 352 ITR 418 (Andhra Pradesh) "Section 54 of the Income-tax Act, 1961 Capital gains Profit on sale of property used for residential house - Whether exemption under section 54 only requires that property purchased by assessee out of sale proceeds should be of residential nature and fact that residential house consisted of several independent units could not be an impediment for granting relief under said section, even if such independent units were situated side by side, on different floors or were purchased under separate sale deeds - Held, yes [Para 10]” | The above judgment is in respect of two residential flats situated side by side, whereas the assessee, in the instant case, has purchased several properties, none of which are side by side. The facts of the assessee being different, the ratio of this judgment is not applicable to the facts of the present case. |
| 5 | e. CIT v. Khoobchand M Makhija [2014] 223 Taxmann 189 (Karnataka) (MAG) “Hon'ble Karnataka High Court in the case of Khoonchand M Makhija held as under: “16. In the instant case, one residential house is sold. Out of the sale consideration, it was open to the assessee to purchase a big residential house so as to accommodate both his sons, in which event in terms of Section 54(1). he would have been entitled to the benefit of the said Section. However, instead of purchasing one big house, having regard to the fact both his sons are grown up, have families | b.1 The above judgment refer to purchase of two small residential properties instead of one big property to accommodate two sons and to avoid litigation and disharmony among them in future. Further, the court clarified that interpretation of word 'a' should be according to the facts of the case and when 'a' cannot be read as singular, it also cannot be read as multiples. In the instant case, the assessee had purchased a number of flats for investment purpose only. Therefore, the ratio of this judgment |
and in order to see that in future there won't be is not applicable to the facts of this any litigation or disharmony, he chose to case. purchase two small residential houses to accommodate both his sons.
17.It is clear that the assessee was not attempting to evade tax. In fact, after purchasing two residential houses, still there remained unutilized capital gain, which he has offered for tax. Therefore, as held in the aforesaid Rukminiamma's case, the context in which the expression "a residential house" is used in Section 54 makes it clear that it was not the intention of the legislature to convey the meaning that it refers to a single residential house. The letter "a" in the context, which is used, should not be construed as meaning singular, but being a indefinite article, the said expression should be read in consonance with the other words "buildings and lands" and therefore, the singular "a residential house" also permits use of plural by virtue of Section 13(2) of the General Clauses Act.
18.Therefore, we are of the view, in the facts and circumstances of this case, the acquisition of two residential houses by the assessee out of the capital gains falls within the phrase "residential house and accordingly, the assessee is entitled to the benefit conferred under Section 54(1) of the Act. However, we make it clear that while interpreting this word, the Court or the Tribunal or the authorities have to keep in mind the facts of the particular case. When we have held "a" cannot be read as singular, it also cannot be read as multiples and so as to avoid paying tax under Section 45 of the Act. Therefore, in the facts and circumstances of this case, we answer the first substantial question of law raised in favour of the assessee and against the revenue.
Further, the AO relied upon the decision of The Hon'ble High Court of Punjab & Haryana, in the case of Pawan Arya Vs. Commissioner of Income Tax (2011) 237 CTR 210. Referring to the above judgment, the AO observed that the Hon’ble Court in this case held that the deduction u/s 54 of the Act was not allowable against acquisition of two houses. Further, the AO noted that the Hon’ble Court in this judgment also clarified that the decision of Karnataka High Court in CIT vs. D. Ananda Basappa (2009) 223 CTR (Kar) 186 was for purchase of two flats wherein both the flats could be treated to be one house as both had been combined to make one residential unit. The relevant discussion by the AO in the assessment order in this regard is reproduced as under:
“4.2The Hon'ble High Court of Punjab & Haryana, in the case of Pawan Arya Vs. Commissioner Of Income Tax (2011) 237 CTR 210, has held as under:
"We have heard learned counsel for the appellant. As regards claim for exemption against acquisition of two houses under s. 54 of the Act, the same is not admissible in plain language of statute. In the judgment of Karnataka High Court in CIT vs. D. Ananda Basappa (2009) 223 CTR (Kar) 186: (2009) 309 ITR 329 (Kar), referred to in the impugned order, exemption against purchase of two flats was allowed having regard to the finding that both the flats could be treated to be one house as both had been combined to make one residential unit. The said judgment, thus, proceeds on a different fact situation.”
4.2.1The ratio of the above judgement is that the deduction u/s 54 of the Act is not allowable against acquisition of two houses and in this judgment, it is also clarified that the decision of Karnataka High Court in CIT vs. D. Ananda Basappa (2009) 223 CTR (Kar) 186 was for purchase of two flats which could be treated as one house as both were combined to make one residential units”
Thereafter, the AO referred to the amendment in section 54 of the Act, brought in by the Finance (No.2) Act, 2014 w.e.f. 01.04.2015 wherein the term ‘a residential house’ was substituted by ‘one residential house’. The AO treated the said amendment to be clarificatory in nature and applied the same in the case of the assessee for A.Y 2013-14 to support his view that the assessee will be entitled to deduction u/s 54 of the Act, in respect of investment in only in one residential house and not in respect of 4 residential houses as claimed by the assessee.
The AO further noted in that the investment made in property mentioned at sl. No. 1 as per the table reproduced earlier on page no. 3 of this order does not qualify for deduction u/s 54 of the Act as the investment was made prior to one year from the sale of the properties on which the capital gains arose. The AO accordingly out of the remaining 3 properties allowed deduction made in investment in property situated at PTF- 14-0101 Pam Terraces amounting to Rs. 1,26,74,737/- being the highest investment and computed the taxable capital gains at Rs. 1,58,97,144/- as against nil offered by the assessee as under:
“5.In view of the above, the income under the head LTCG is worked out as under:
Long Term Capital Gain (as discussed above) Rs. 2,85,71,881/-
Less: Exemption allowable u/s 54 as discussed above Rs. 1,26,74,737/-
Long Term Capital Gain Rs. 1,58,97,144/-“
Aggrieved with the said order the assessee filed an appeal before the Ld. CIT (A). The ld. CIT (A) agreed with the findings of the AO and inter-alia relying upon the order of the Special Bench of the Mumbai in the case of ITO Vs Sushila M. Jhaveri (ITAT, SB-Mum) 107 ITD 321 and dismissed the appeal of the assessee. The relevant extracts of the Ld. CIT A are reproduced as under:
“In ITO Vs Sushila M. Jhaveri (ITAT, SB-Mum) 107 ITD 321 Hon'ble court has observed "Perusal of the above provisions clearly reveals that the legislature has used the words "a" and "any" with reference to investment of capital gain/sale consideration in certain asset or assets. The legislature was not oblivious regarding the meaning of these two words. The word "any" has been used by the legislature in Sections 54B, 54D, 54E, 54EA and 54EB while the word "a" has been used in Sections 54 and 54F of the Act. This clearly shows that the legislature intended different meanings to be given to these two words. A close reading of these sections shows that legislature intended to allow exemption in respect of investment in more than one asset by using the word "any". Section 54E allows exemption in respect of investment in any specified asset. Expln. 1 to Section 54E defines the "specified asset". It includes various assets in which investment can be made by the assessees who are eligible for exemption under Section 54E. There is nothing to indicate that investment is restricted to any of the specified assets. Had the legislature intended to restrict investment in any one of the specified assets, it would have used the words "in any one of the specified assets" instead of "in any specified asset". This clearly shows that the word "any" has been used where the legislature intended investment in more than one asset. Similarly, in Section 54EB, the legislature has used the words "In any of the assets specified by the Board". Similar is the position in Section 54EA. Section 54B and Section 54D also used the word "any other land" and "any other land and building" respectively. The expression "any other land" is an expression of widest amplitude and, therefore, its meaning cannot be restricted to any one piece of land. On the other hand, the legislature has used the word "a" in Sections 54 and 54F. Had the legislature intended for investment in more than one asset, it could have easily used the words "In any residential house" in Sections 54 and 54F instead of the words "a residential house". Superfluous words are not used by the legislature. Different words "a" and "any" have been deliberately used by the legislature to convey different meanings. Therefore, in our humble view, the legislature used the word "a" where it intended investment in one the word "any" where it intended investment in one or more assets. ………….
It is obvious that the phrase 'a residential house' has the meaning of one residential house. The word 'a' was subsequently changed to 'one' to bring more clarity on the provision. Therefore, respectfully, following the decisions of Hon'ble courts, I find that there is no infirmity in the restriction to the deduction under section 54 made by the AO. During the year under consideration the appellant assessee had invested in the following properties.
1.Palm Terraces property Rs. 1,26,74,737/-
2.M2K property Rs. 50,04,296/-
3.La Lagune property Rs. 63,81,720/-
4.Heritage property Rs. 1,09,69,434/-
AO has rightly allowed deduction in respect of only one property and amount of deduction was restricted to the investment of that property being in the Palm Terraces property amounting to Rs. 1,26,74,737/-. The disallowance made by AO is therefore confirmed.”
Aggrieved with the said order, the assessee has filed an appeal before us on the following grounds of appeal:
“1.That the learned CIT(A) has erred in law and on facts in upholding the order of the Assessing Officer restricting the appellant's claim of exemption under section 54 of the Income Tax Act, 1961 to investment in only one residential house.
2.That the learned CIT(A) has erred in holding that the amendment made in section 54 by the Finance Act, 2014 substituting the phrase "a residential house" with "one residential house" is clarificatory in nature and hence applicable retrospectively.
3.That the learned CIT(A) has failed to appreciate the settled legal position that prior to the amendment by Finance Act, 2014, the term "a residential house" has been interpreted by various High Courts, including the Hon'ble Karnataka High Court in CIT v. D. Ananda Basappa (309 ITR 329) and CIT v. Smt. K.G. Rukminiamma (331 ITR 211), to include multiple residential units.
4.That the learned CIT(A) has erred in not appreciating that the investments made by the appellant in four different properties were within the statutory time limit prescribed under section 54 and that there was no bar in the then-prevailing provisions to such multiple investments.
5.That the learned CIT(A) has failed to appreciate that deduction under section 54 is allowable if the conditions as to the utilization of capital gains within the prescribed period are met, irrespective of the number of residential houses.
6.That the learned CIT(A) has erred in dismissing the ground related to initiation of penalty proceedings under section 271(1)(c) as premature, despite the fact that the impugned addition is directly relevant to the penalty proceedings.
7.That the order of the learned CIT(A) is bad in law and deserves to be set aside.
The appellant craves leave to add, amend, alter, or withdraw any of the above grounds of appeal before or at the time of hearing.”
At the time of hearing the Ld. AR filed a written submission placed at page no. 1-15 of the paper book filed by the assessee. In the written submission the assessee mainly relied upon the submissions made before the AO and the Ld. CIT A. Further, the assessee filed a list of judgements relied upon in support of his claim placed at page no. 18 of the paper book, which is reproduced as under:
LIST OF JUDGEMENTS RELIED UPON
| S. No | Particulars | Page No. |
| 1. | Commissioner of Income Tax & Anr v D. Ananda Basappa 2008 SCC Online Kar 693 | 71-73 |
| 2. | Commissioner of Income-Tax & Anr v Smt K.G. Rukhminiamma 2010 SCC Online Kar 517 | 74-78 |
| 3. | Commissioner of Income Tax v Gita Duggal 2013 SCC Online Del 752 | 79-84 |
| 4. | The PR. Commissioner of Income tax Central-1 v Lata Goel ITA 127/2025 | 85-94 |
| 5. | Krishnagopal B Nangpal v Dy. Commissioner of Income tax Special Range-3, Pune Income Tax Appeal No. 569 of 2003 | 95-112 |
| 6. | Smt. Harminder Kaur v ITO ITA No. 2656/Del/2017 | 113-134 |
On the other hand, the Ld. Sr. DR relied upon the orders of the authorities below.
We have heard both the parties and perused the material available on record. In this case, the assessee had earned long term capital gains amounting to Rs. 2,85,71,881/- on the sale of two properties as listed out above and had claimed deduction in respect of investments amounting to Rs. 3,50,30,187/- in respect of 4 properties as listed out above. The AO did not allow the deduction in respect of the item as sl. no. 1 of the table being La Lagune Apartment on the ground that the acquisition/investment was in the year 2010 i.e. on 01.12.2010 being financial year 2010-11 whereas the assessee had sold the property in financial year 2012-13.
Further, the AO held that the assessee would be eligible for deduction u/s 54 of the Act, only in respect of investment in one residential house on the ground that in view of the term ‘a residential house’ the deduction would be permissible only in respect of one residential house only. Accordingly, the AO allowed deduction made in investment in property situated that PTF- 14-0101 Pam Terraces amounting to Rs. 1,26,74,737/- and computed the taxable capital gains at Rs. 1,58,57,144/- as against nil offered by the assessee. The main objection of the AO is that the case laws relied upon by the assessee, wherein deduction u/s 54 of the Act has been allowed in respect of more than one residential house was that the two residential houses were side by side and could be considered as one residential house, whereas in the case of the assessee the investment in the four flats were located at entirely different locations and thus, could not be considered as a one residential unit.
However, on similar facts, where an assessee had bought two flats at different locations and also purchased a plot of land again at different location and had also deposited a part of the capital gains in the Capital Gains Accounts Scheme, the Hon’ble Madras High Court in the case of Tilokchand & Sons v. Income-tax Officer, Ward-II (4), Madurai [2019] 105 taxmann.com 151 (Madras) held that in their 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 they respectfully agreed. Further, in this case the Hon’ble Court also held that the amendment in section 54 of the Act, brought in by the finance (No.2) Act, 2014 w.e.f. 01.04.2015 wherein the term ‘a residential house’ was substituted by ‘one residential house’ was clarificatory in nature and it will apply prospectively and not retrospectively as was done by the AO in the case of the assessee as discussed above. In this regard, the substantial question of law and the relevant facts as noted by Hon’ble Madras High Court in the case of Tilokchand & Sons v. Income-tax Officer, Ward-II (4), Madurai(supra) and the decision in the said case is reproduced as under:
“The Assessee, M/s.Tilokchand & Sons, a Hindu Undivided Family (in short 'HUF'), a separate assessable entity under the Income Tax Act, has filed this Appeal under Section 260 A of the Income Tax Act (in short 'the Act'), aggrieved by the order passed by the Income Tax Appellate Tribunal on 27.02.2009, allowing the Revenue's Appeal and denying the benefit of deduction from capital tax as per Section 54 of the Act, as claimed by the Assessee for the A.Y.2005-2006.
2.This Appeal was admitted by a Co-ordinate Bench of this Court on 14.09.2009 on the following substantial Questions Of Law:
"1.Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the appellant Hindu Undivided Family is entitled to exemption under Section 54 of the Income Tax Act, 1961 with respect to the investment out of long term capital gains made in one residential house only?
2.Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in denying the exemption under Section 54 of the Act, when, unlike section 54F, there is no bar in acquiring more than one residential house to meet the needs of the appellant Hindu Undivided Family?
3.Whether on the facts and circumstances of the case and in law, the Appellate Tribunal's view that exemption under Section 54 is available in respect of one residential house only in accordance with the scope and ambit of Section 54 of the Act?
4.Whether on the facts and circumstances of the case and in law, the Appellate Tribunal's was right in law in denying exemption on the amount deposited in Capital Gains Account Scheme, which is eligible for exemption under Section 54 (2) of the Act?"
3.The facts in brief resulting in the present Appeal filed by the Assessee before us are as under:
"(i)The Assessee, a HUF, comprising of 11 members, Karta, his wife, two major sons with their own families including minors, sold its residential house situated at East Avani Moola Street, Madurai to one Smt.M.Jeyalakshmi for a consideration of Rs.1,17,00,000/-, which resulted in Long Term Capital Gains to the extent of Rs.1,00,93,149/- . The Assessee claimed the said Capital Gains as exempt from the Income Tax, since the Assessee according to him had complied with the conditions of Section 54 of the Income Tax Act, 1961 by purchasing new properties which were in the form of two residential houses and one plot of land and deposit of the part of the capital gains in the prescribed investment securities. The details of the sale consideration received by the Assessee and the investment made for the purchase of the new property as given by the Assessee are reproduced hereunder for ready reference:
FACT SHEET
A. Sale of Property (Residential House) at No.11, East Avani Moola Street, Madurai
Date of Sale : 16.09.2004
Sale Consideration : Rs.1,17,00,000/-
Long Term Capital Gain thereon : Rs.1,00,93,149/-
B. Purchase of Properties
1.Residential House at No.122, 3rd Cross Street, Anna Nagar, Madurai
Name of Purchaser: Thiru Tilokchand (PAN AABHT 1598 R)* Document No.3349 of 2004
01.12.2004
Date of Purchase:
Purchase Consideration: Rs.32,00,000/-
Stamp Duty and Registration Fee etc- Rs. 3,45,000/-
Total Rs.35,45,000/-
2.Residential House at No.24, Dhanappa Mudali Street, Madurai
Name of Purchaser: Thiru.D.Tilokchand (PAN AABHT 1598 R)* Document No.1323 of 2005
Date of Purchase: 24.02.2005
Purchase consideration: Rs.39,00,000/-
Stamp Duty and Registration Fee etc- Rs. 4,45,000/-
Total Rs.43,45,000/-
3.Plot at K.K.Nagar Main Road, Madurai
Name of Purchaser:Thiru.D.Tilokchand (PAN AABHT 1598 R)* Document No.3430 of 2004
08.12.2004
Date of Purchase :
Purchase consideration : Rs.11,38,193/-
Stamp Duty and Registration Fee etc- Rs. 1,72,807/-Total Rs.13,11,000/-*PAN number of Tilokchand & Sons (HUF)
4.Deposit under Capital Gain Account Scheme. SB-CGS 137016 with Canara Bank, South Veli Street Branch,Madurai in the name of Tilokchand & Sons-HUF-Balance as on 31.07.2005-Rs.20,25,048/-"
4.The Assessing Authority however denied the benefit of deduction under Section 54 of the Act to the Assessee and partly allowed only in respect of the residential house purchased by the Assessee at the highest of three purchases at Rs.43,45,000/- viz., the property at No.24, Dhanappa Mudali Street, Madurai, and thus imposed the tax on the balance amount of capital gains which was assessed @ Rs.57,48,149/-, after deducting a sum of Rs.43,45,000/- from Long Term Capital Gains on sale declared by the Assessee at Rs.1,00,93,149/
14.We have heard the learned counsel at length and perused the decisions relied by them at the bar.
15.Section 54 of the Act, to its relevant extent, is quoted below for ready reference:
"Profit on sale of property used for residence.
54.[(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,-
(i)if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii)if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain."
[Prior to amendment by Finance Act 2014 w.e.f. 01.04.2015 amendment, the aforesaid words in brackets read like this.' Contructed, a residential house]
16.We are conscious of the fact that the questions posed for our consideration have to be answered in the context of an Assessee which is a HUF, which has a special character. It is only by deeming fiction of law that a HUF, is treated as a separate assessable entity by including the same in the definition of the word 'person' under Section 2 (31) of the Act. The definition of the word "Assessee" under Section 2(7) of the Act means a 'person' by whom any tax or sum of money is payable under the Act. Thus, the HUF is also a 'person' and a separate assessable entity under the Income Tax Act, 1961.
17.The purpose of Section 54 appears to allow a deduction to an Assessee, being an individual or HUF, to the extent of investment made in residential house as against the Capital Gains accruing on the sale of original residential house or sold capital asset. The word 'a' has been used in the said provisions of Section 54 (1) of the Act at more than one place and such word 'a' was not replaced by way of amendment by Finance (No.2) Act 2014 with effect from 01.04.2015 at all such places in the said provision. In the first part of Section (1) of the Act, the words 'being a Residential House' coupled with the words 'Buildings or Lands" (plural) appurtenant purchased thereto both clearly indicate the plural sense. The sale being of a residential house does not necessarily restrict the meaning of 'a' to one. If the capital gains arise out of sale of plural of Capital Assets also, including the residential house, it would give rise to taxable capital gains. There is no reason to restrict the benefit of deduction upon investment in residential houses even though such units of residential houses are plural, which is not always so. The word 'a' would normally mean one. But it can in some circumstances include within its ambit and scope plural number also. It may be two or three or even more. The very need to amend the later part of Section 54(1) seems to have been to restrict such plurality to be included in word 'a' by inserting word "one residential house" with effect from 01.04.2015.
18.It would be of interest to refer to the Explanatory notes along with the Finance Bill by which the said amendment was incorporated in Section 54, which is quoted below for ready reference:
"20.Capital gains exemption in case of investment in a residential house property
20.1.The provisions contained in sub-section (1) of Section 54 of the Income Tax Act, before its amendment by the Act, inter alia, provided that where capital gain arises from the transfer of long-term capital asset, being buildings or land appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house, then, the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Income-tax Act.
20.2.The provisions contained in sub-section(1) of section 54F of the Income-tax Act, before its amendment by Act, inter-alia, provided that where capital tains arises from transfer of a long-term capital asset, not being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house, then, the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax.
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.
20.4.Similarly, sub-section (1) of Section 54F of the Income-tax Act has been amended to provide that the exemption 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."
19.A closer and bare reading of the aforesaid Explanatory Notes to the provisions of the said Act, clearly shows that the said amendment was intended to be specifically applied only prospectively with effect from A.Y.2015-2016. It took note of the judicial precedents for the period prior to 01.04.2015, giving a different and contra interpretation. Therefore this amendment cannot be held to be mere clarificatory so as to be applied retrospectively for A.Y.2005-2006 in the present case.
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 deduction 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.
22.The decision of Punjab and Haryana High Court relied upon by the learned counsel for the Revenue, in which the Division Bench of the said Court finding a distinction with D. Ananda Basapaa's case (supra) on facts, without expressing contrary opinion in detail, held that no Substantial Questions of Law arose, renders little help to the arguments advanced by the learned counsel for the Revenue.
23.Therefore, we are of the considered opinion that the present Appeal filed by the Assessee deserves to be allowed and the same is accordingly allowed and the questions of law framed above are aswered in favour of the Assessee and as against the Revenue. No order as to costs.”
(emphasis supplied by us.)
Further, the Hon’ble Delhi High Court in the case of CIT v. Ravinder Kumar Arora [2012] 342 ITR 38 though on different facts held that objective of section 54F of the Act, (where the material portion of the section is identical to section 54 of the Act, regarding the stipulated time limit of investment and the wording of the term ‘a residential house’) held that Section 54F of the Act is a beneficial provision which should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied on hyper technical ground. In this regard the relevant extract of the order is reproduced as under:
“10.Even when we look into the matter from another angle, facts remain that the assessee is the actual and constructive owner of the house. In CIT v. Podar Cement (P.) Ltd. [1997] 92 Taxman 541 / 226 ITR 625 (SC), the Supreme Court has also accepted the theory of constructive ownership. Moreover, Section 54F mandates that the house should be purchased by the assessee and it does not stipulate that the house should be purchased in the name of the assessee only. Here is a case where the house was purchased by the assessee and that too in his name and wife's name was also included additionally. Such inclusion of the name of the wife for the above-stated peculiar factual reason should not stand in the way of the deduction legitimately accruing to the assessee. Objective of Section 54F and the like provision such as Section 54 is to provide impetus to the house construction and so long as the purpose of house construction is achieved, such hyper technicality should not impede the way of deduction which the legislature has allowed. Purposive construction is to be preferred as against the literal construction, more so when even literal construction also does not say that the house should be purchased in the name of the assessee only. Section 54F of the Act is the beneficial provision which should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied on hyper technical ground. Andhra Pradesh High Court in the case of Mir Gulam Ali Khan v. CIT [1987] 165 ITR 228 /[1986] 28 Taxman 572 has held that the object of granting exemption under Section 54 of the Act is that an assessee who sells a residential house for purchasing another house must be given exemption so far as capital gains are concerned. The word "assessee" must be given wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word "assessee" as that would frustrate the object of granting exemption.
11.We also find judgments of other High Courts giving benefit of Section 54F(1) of the Act when the house of the assessee is purchased jointly with his wife. In the case of CIT v. Natarajan [2006] 287 ITR 271/ 154 Taxman 399 (Mad.), though this case was decided in relation to Section 54 of the Act, the said Section is pari materia of Section 54F(1) of the Act. Likewise, the Punjab & Haryana High Court in the case of CIT v. Gurnam Singh [2010] 327 ITR 278/[2008] 170 Taxman 160 took the same view while discussing the provisions of Section 54 of the Act which is again pari materia of Section 54F(1) of the Act.
12.We, thus, answer the question in favour of the assessee and dismiss this appeal with cost quantified @ Rs. 10,000/-.”
(emphasis supplied by us)
Further, as reproduced above, the Ld. CIT A had relied upon the order of (the Special Bench of the Tribunal in the case of ITO Vs. Sushila M Jhaveri (ITAT, SB-Mum.) 107 ITD 321), where it was held that in section 54 and 54F of the Act, that the legislature used the word “a” where it intended investment in one residential house and used the word “any” where it intended investment a one or more assets. However, the Hon’ble Bombay High Court in its order dated 22 July, 2025 in the case of Krishnagopal B. Nangpal vs Dy.Commissioner of Income-Tax, Spl-3, Pune in ITA No. 569 of 2003 did not agree with the above view of the Tribunal and held that assessee was eligible for deduction u/s 54 of the Act, in respect of investment property for acquisition/construction of the seven row houses in their project at Yashodanandan Viman Nagar, Pune. The substantial question of law before the Hon’ble Bombay High Court in the said case and the relevant extracts of the order are reproduced as under:
“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 ?”
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 1st 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
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.
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 andHaryana 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 flatswere 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 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.”
(emphasis supplied by us)
As noted above, in this case the assessee had a capital gain of Rs. 2,35,71,881/- on the sale of two residential houses and had claimed deduction u/s 54(1) of the Act in respect of investment in 4 residential properties, out of which the AO allowed investment in respect of PTF-14-0101 Palm Terraces having investment value of Rs. 1,26,74,737/- by limiting the deduction in respect of one residential house. Further, the AO had disallowed the investment in B-2301 Heritage One 1,09,69,434/- and Adani M2K (H-1801) 50,04,296/- on the ground that the deduction was allowable only in respect of investment in one residential property and also that these properties were at different locations and could not be considered as one residential unit as held in the case laws relied upon by the assessee.
However, we note that the case of the assessee is for A.Y. 2013-14 i.e. prior to A.Y. 2015-16 wherein by way of amendment in section 54 of the Act brought in by the Finance (No.2) Act, 2014 w.e.f. 01.04.2015 the term ‘a residential house’ was substituted by ‘one residential house’. In this regard, as noted above the Hon’ble Madras High Court in the case of Tilokchand & Sons v. Income-tax Officer, Ward-II (4), Madurai (supra) dealing with this issue for AY 2005-06 held that in their 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 they respectfully agreed. Further, in this case the Hon’ble Court also held that the amendment in section 54 of the Act, brought in by the Finance (No.2) Act, 2014 w.e.f. 01.04.2015 wherein the term ‘a residential house’ was substituted by ‘one residential house’ was clarificatory in nature and it will apply prospectively and not retrospectively as was done by the AO in the case of the assessee as discussed above. Further, the Hon’ble Delhi High Court in the case of CIT vs. Ravinder Kumar Arora (supra) has held that Section 54F of the Act is a beneficial provision which should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied on hyper technical ground.
Further, we also take note of the decision of the Hon’ble Bombay High Court wherein it was held that the provisions of Section 54(1) of the Act are beneficial in nature and the benevolent provision was aimed at encouraging the house purchase activities. The Hon’ble Court in this case held that this provision therefore needs to be read literally and reasonably. The Hon’ble Court further held that 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 and observed that the reliance in this regard by Mr. Thakkar on Apex Court judgment in Mavilayi Service Coop Bank Ltd. (supra) is apposite.
Therefore, respectfully following the above decisions, we hold that the assessee is entitled for deduction u/s 54(1) of the Act in respect of the capital gains amounting to Rs. 2,35,71,881/- in respect of investment/ acquisition of more than one residential property as claimed by the assessee as against in respect of one property allowed by the AO. We, therefore, direct the AO to allow further claim for deduction u/s 54(1) of the Act by the assessee in respect of B-2301 Heritage One (Rs. 1,09,69,434/-) and Adani M2K (H-1801) (Rs. 50,04,296/-) in addition to deduction u/s 54(1) of the Act already allowed by the AO in the case of PTF-14-0101 Palm Terraces having investment value of Rs. 1,26,74,737/-. Further, the AO is directed to verify the claim of the assessee in respect of La Lagune Apartment (Rs. 63,81,720/-) and if it is found by the AO that the investment in respect of this property is made within the stipulated period as per the requirement of section 54(1) of the Act then to allow the deduction u/s 54 of the Act in respect of the investment in this property also amounting to Rs. 63,81,720/-. Ground Nos. 1 to 5 and 7 of the appeal are partly allowed.
Ground No. 6 of the appeal is against the initiation of penalty u/s 271(1)(c) of the Act. This ground of appeal is premature at this stage. Hence, this ground of appeal is dismissed.
In the result, the appeal of the assessee is partly allowed.