This appeal of Revenue is directed against order of CIT(A), wherein following ground has been raised: "On facts and in circumstances of case, learned CIT(A) has erred in directing AO to allow such indexation of cost of original asset sold and to allow deduction under s. 54(1) of IT Act, 1961 regarding long- term capital gain reinvested in purchase of new asset being residential house property at Rs. 9,15,025." issue relates to long-term capital gain and claim of deduction under s. 54 of IT Act, 1961. In this regard AO has observed in assessment order, which is reproduced below: "On verification of details filed, it is found that assessee has purchased two residential flats from M/s Rajasthan Builders as B-I and B-II as per agreement dt. 24th Oct., 1986 for Rs. 3,00,000 and Rs. 2,50,000, respectively. assessee was conducting beauty parlour in name of M/s Top Model in above premises, i.e., B-I and same was closed in December, 1993 as per letter dt. 3rd Dec, 1997. above premises was sold by assessee in February, 1994 for consideration of Rs. 19,10,000. capital gain received in above transaction has been reinvested in new residential property in Building No. B, Krishna Building, Vishal Nagar, Marve Road, Malad (W) amounting to Rs. 9,15,000 as per copy of agreement filed. In present case, assessee has invested capital gains arising out of same proceeds in house properties as per two separate agreements entered into between her and New Rajasthan Builders, registered partnership firm on 24th Oct., 1986. One agreement, i.e., for flat B-II on 1st floor of Vishal Nagar Krishna Co-op. Housing Society Ltd., cost is Rs. 2,65,000. For flat B-I is in name of M/s Top Model, M/s Top Model was beauty parlour in which Miss Sandhya Saxena was proprietor, cost of purchase of beauty parlour premises according to agreement dt. 24th Oct., 1986 is Rs. 3,00,000. Assessee has claimed exemption under s. 54 on both these investments. During course of assessment proceedings, assessee was asked to substantiate her claim. Her only reply to this is that premises were residential in nature and that she had taken permission from municipality for water purposes only. In reply to various queries, assessee had confirmed that she has been conducting beauty parlour in B-I Vishal Nagar, Krishna Housing Society Ltd., w.e.f. May, 1987 to 24th Feb., 1994. For conducting beauty parlour, she has taken bank loan of Rs. 1,50,000 in year 1987 and repaid same in 1990. In her answer to query No. 17 in statement recorded on 1st Aug., 1994, by then ITO, she has stated that she has taken permission from society and t h e Municipal Corporation for starting beauty parlour. However, she has produced only copy of licence from society is not produced. letter under s. 133(6) of IT Act, 1961 dt. 7th Aug., 1995 was served on secretary, Vishal Nagar Krishna Co-op. Housing Ltd., Malad (W), Bombay, to cross-verify factual position. earlier summons under s. 131(1) dt. 25th March, 1994 served on society secretary, Mr. A. Khanna was not replied by him, though said summons was served through ward inspector on 26th March, 1994. reply letter dt. 15th Sept., 1995 signed by society chairperson Rine D Silva and society treasurer, Shri Arun Mistry is filed in this office on 18th Sept., 1995 vide inward entry No. 295. replies are quoted hereunder: "With reference to your letter No. WD-28(6)/information under s. 133(6)/1995-96 dt. 7th Aug., 1995 which reached us on 22nd Aug., 1995 we furnished following information as required by you as per our society records. flats occupied by Miss Sandhya Saxena namely, B-I, B-2, were residential flats and none of them was commercial premises. However, she was running beauty parlour at B-I, without prior permission and has been given no permission. It may kindly be noted that neither society has given her any permission in writing for conducting beauty parlour in any of said premises nor had she applied for permission from society. Hence, there was not question of seeking municipality permission for same. Since both B-I and B-II were residential flats, society is not aware of any price difference between two. Information as per record for purchase and sale of premises by Miss Sandhya Saxena: Date of agreement of flat No. B-I/B-II was 24th Oct., 1986 between Miss Sandhya Saxena and M/s New Rajasthan Builder. Purchase value in hand of Sandhya Saxena. For B-I Rs. 3,00,000 For B-II Rs. 2,65,000 Date of sale of agreement by Miss Sandhya Saxena with Mr. Vijendra Mittal (present occupier was 24th Feb., 1994. Sake vakye ub gabd if Miss Sandhya Saxena with Mr. Vijendra Mittal (present occupier was 24th Feb., 1994. Sale value in hand of Miss Sandhya Saxena. For B-I Rs. 9,60,000 For B-II Rs. 9,50,000 Thus, from replies of society also, it is clear that Miss Sandhya Saxena was running beauty parlour at B-I Vishal Nagar Krishna Co-op Housing Society Ltd. She had obtained licence from municipality and same has been renewed from time-to-time as per municipal rules. Beauty parlour was conducted with all equipments. Agreement for B-I flats was made separately in name of Top Model Beauty Parlour. All these are on records and are admitted by Miss Sandhya Saxena in her letters and in her statement on oath which was recorded under s. 131(1) on 1st Aug., 1994 by my predecessor. Therefore, it is clear that flat at B-I Vishal Nagar Krishna Co-op. Housing Society Ltd. was purchased for purpose of running beauty parlour and it was also used as such. Hence, said purchase of flat was for commercial purposes. It is relevant to mention here that assessee has subsequently sold these two flats to one Shri Vijendra Mittal on 24th Feb., 1994. Here again, assessee had entered into two separate sale agreements with said Vijendra Mittal for Rs. 9,60,000 and for Rs. 9,50,000, respectively. maps enclosed with sale agreement of both flats are separately shown with separate kitchen, bath, etc. Therefore, assessee s claim for exemption under s. 54 with regard to flat at B-I Vishal Krishna is not as per law. Assessee is allowed exemption in respect of residential flat at B-II, cost of which is Rs. 2,65,000 only." matter was carried before first appellate authority, wherein following submissions were made on behalf of assessee: "We reiterate that ground floor and first floor is single residential house and that these two floors cannot be used as two different flats. appellant had purchased residential duplex house consisting of ground floor and first floor from M/s Rajasthan Builders vide agreements dt. 24th Oct., 1986. For sake of convenience builder had prepared two separate agreements of first and ground floors. Both agreements were made in name of appellant. However, for sake of convenience name of M/s Top Model which was proprietary concern of appellant was mentioned in agreement for ground floor. above duplex house is independent bungalow and single residential unit covered by boundary walls. There is main entrance for entering into premises. Within premises there is garden and parking place. Thereafter, there is teak wood door for entering into ground floor and from inside ground floor there is staircase for going on first floor. There is separate entrance for going on to first floor. appellant had used small part of ground floor as beauty parlour during period from 1st April, 1987 to 31st March, 1993. maximum part of ground floor and entire first floor were used by appellant for purpose of her residence. appellant had made one additional door in hall of ground floor as beauty parlour as that customers can enter beauty parlour through garden of premises without disturbing her personal life. Although part of ground floor was used as beauty parlour by appellant but she has not claimed depreciation for same in her return of income for any of assessment years. appellant had sold above duplex house bungalow to Shri Vijendra Mittal 24th Feb., 1994 as residential house through two different agreements since she had purchased vide two separate agreements. AO, in her reply, has constantly harped on fact that appellant has purchased above house through two different agreements and also sold t h e same through different agreements and ground floor was used for commercial purpose. AO in her reply has totally ignored, and has completely failed to apply, clear principles laid down, various judicial precedents (including those of jurisdictional Tribunal) referred to inter alia at page No. 2 (ITA No. 9639/BM/1989, dt. 15th May, 1996) and page No. 3 CIT vs. A.R. Mathavan Pillai (1996) 132 CTR (Ker) 374: (1996) 219 ITR 696 (Ker) of appellant s written submissions which have categorically held that: (i) if two units are used as composite unit then exemption under s. 54 cannot be denied. (ii) AO had not dealt with or rebutted any of said judicial precedents. We further would like to invite your Honour s attention to decision of jurisdictional Tribunal in matter of K.G. Vyas vs. ITO (1986) 26 TTJ (Bom) 491: (1986) 16 ITD 195 (Bom) wherein assessee sold his residential flat and purchased out of sale proceeds thereof four flats in another building, two on ground floor and one each on first and second floors. On this fact Hon ble Tribunal has held that assessee is entitled to deduction under s. 54 in respect of investment in four flats. copy of said decision is enclosed for your Honour s kind perusal and consideration. Further there are two different electricity meters in house with common consumer number and BSES has raised single bill in respect of electricity consumed in house. Had there been two different flats/units there would have been different consumer numbers and consequently BSES would have raised two different bills for electricity consumed. For your Honour s kind perusal we are enclosing copies of some electricity bills which show only one consumer number and different meters installed at premises. Ref.: Inspector s report that there is separate entrance for going to 1st floor. detailed affidavit of appellant stating factual position and rebutting allegation of AO that there is separate entrance for first floor is enclosed. undersigned had personally visited premises on 1st Dec., 2001 and would like to state that house consisting of ground floor and first floor is single residential house and there is no separate entrance for first floor. Further present owner of house, Shri Vijendra Mittal who was present at time of visit had categorically stated that house is nothing but singly bungalow which can be used only by singly family and cannot be used by singly family and cannot be use as two different flats/units." After taking into consideration detailed submissions made on behalf of assessee, CIT(A) held as under: "I have carefully considered facts of case as contained in order of assessment as well as in submissions of appellant. I am inclined to agree with learned Authorised Representative of appellant that house property B-I and B-II, though purchased by two separate agreements on same day, is one house property despite fact that part of this house property was used by appellant for running beauty parlour for some time. beauty parlour was already closed at time of sale of property and this fact is clear from assessment order itself and even if it was used for commercial purpose in past, it cannot change character of house property in view of reasoning that no depreciation was claimed thereon in past and society s secretary has certified same as being residential house property all along. facts of this case are supported by recent judgment of Hon ble Tribunal in case of Mrs. Gulshan Banoo R. Mukhi vs. Jt. CIT (ITA. No. 3369/Mum/2000, dt. 16th Jan., 2002) [reported at (2003) 78 TTJ (Mumbai) 768 Ed.]. In view of fact that both units B-I and B-II of house property are joined together by common entrance and interlinked staircase, house property has to be considered as one only. Further, appellant has acquired this property on 24th Oct., 1986 and sold on 24th Feb., 1994 both dates verifiable from records of housing society records and accepted by AO, appellant is entitled to claim indexation of same while computing taxable capital gain. AO is directed to allow such indexation of cost of original asset sold and to allow deduction under s. 54(1) of IT Act, 1961 regarding long- term capital gain reinvested in purchase of new asset being residential house property at Rs. 9,15,025." After going through rival contentions and after perusing material on record, we are not inclined to interfere with well reasoned finding of CIT(A), who has held that house property, i.e., B-I and B-II, though purchased by two separate agreements on same day, is one house property despite fact that part of this house property was used by assessee for running beauty parlour for some time. said beauty parlour had already been closed prior to sale. Even if part of said property had been used for commercial purpose for sometime, but it does not change character of house property in view of reasoning that no depreciation had been claimed thereon in past and society s secretary had certified same as being residential house property all along. Both these units jointed together by common entrance and interlinked staircase, house property had to be considered as one only. said property was acquired on 24th Oct., 1986 and sold on 24th Feb., 1994 both dates had been verified from records of housing society and same was accepted by AO. Accordingly, CIT(A) has rightly directed AO to allow such indexation of cost of original asset sold and to allow deduction under s. 54(1) of IT Act, 1961, with regard to long-term capital gain reinvested in purchase of new asset being residential house property. As result, appeal of Revenue is dismissed. *** INCOME TAX OFFICER v. MS. SANDHYA SAXENA