Navin Jolly v. The Income-tax Officer Ward 11(1), Bangalore
[Citation -2020-LL-0618-4]

Citation 2020-LL-0618-4
Appellant Name Navin Jolly
Respondent Name The Income-tax Officer Ward 11(1), Bangalore
Court HIGH COURT OF KARNATAKA
Relevant Act Income-tax
Date of Order 18/06/2020
Assessment Year 2006-07
Judgment View Judgment
Keyword Tags construction of residential houses • income from house property • long-term capital asset • allowance of exemption • residential property • benefit of deduction • denial of exemption • commercial property • commercial purpose • residential units • commercial use • rental income
Bot Summary: The appeal was admitted by a bench of this Court vide order dated 06.06.2012 on the following substantial questions of law: 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 3 Whether the tribunal erred in law in interpreting the meaning of the word residential house used in Section 54F(1) proviso of the Income Tax Act 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 to Section 54F(1) of the Act on the facts and circumstances of the case 2. 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(i) andto Section 54F. The assessing officer further recorded a finding that properties owned by the appellant are 5 residential apartments. 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 11 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. 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 and of proviso to Section 54F(1) have to be complied with as the legislature has used the expression and at the end of clause of proviso to Section 54F(1) of the Act. SEE: CIT VS. STRAWBOARD MFg. CO. LTD. , 177 ITR 431 AND BAJAJ TEMPO LTD. SUPRA. A bench of this court in 15 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. The usage of the property has to be considered for determining whether the property in question is a residential property or a commercial property.


1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 18TH DAY OF JUNE 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND 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 560008. APPELLANT (By Sri.A.SHANKAR SR.ADV. A/W SRI.M.LAVA, ADV.,) AND: INCOME-TAX OFFICER WARD 11(1), R.P.BHAVAN OPP TO RBI, NRUPATUNGA ROAD BANGALORE 0 560001. 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 ASSESSMENT YEAR 2006-07, PRAYING THAT THIS HON BLE COURT MAY BE PLEASED TO: 2 (I) FORUMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (I) ALLOW APPEAL AND SET ASIDE FINDINGS TO EXTENT AGAINST APPELLANT IN ORDER PASSED BY TRIBUNAL IN ITA NO.969/BANG/2010 DAETD 29.03.2011, IN INTEREST OF JUSTICE AND EQUITY. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by assessee. subject matter of appeal pertains to Assessment year 2006-07. appeal was admitted by bench of this Court vide order dated 06.06.2012 on following substantial questions of law: (i) Whether tribunal is justified in law in confirming denial of exemption claimed by appellant under Section 54F of Income-Tax Act, 1961, on facts and circumstances of case? 3 (ii) Whether tribunal erred in law in interpreting meaning of word residential house used in Section 54F(1) proviso (a) (i) of Income Tax Act? (iii) Whether authorities below are justified in law in holding that property used for commercial purpose, falls within meaning of residential house as per proviso (a) (i) to Section 54F(1) of Act on facts and circumstances of case? 2. Facts leading to filing of this appeal briefly stated are that assessee is individual and is Director of M/s Aburge India Property Services Pvt. Ltd., Bangalore. assessee filed his return of income for Assessment year 2006-07 on 30.10.2006 declaring income of Rs.53,06,473/-. return filed by assessee was selected for scrutiny and notice under Section 143(2) of Act was issued. assessee stated that he had sold shares in company viz., M/s 4 Corporate Leisure Resorts and Hotels Pvt. Ltd., during financial year 2005-06 and derived long term capital gain of Rs.1,55,47,315/-. appellant further declared that he had constructed residential property during year situate at 808/7 and 808/8 Kaikondanahalli, Sarjapur, Bangalore. appellant claimed exemption under Section 54F of Act to extent of Rs.1,55,47,315/-. Before assessing officer, assessee agreed voluntarily to offer sum of Rs.4,17,339/- for taxation. 3. assessing officer vide order dated 31.12.2008 inter alia held that assessee owns nine residential flats in his name and that he is deriving income from residential flats and declared same under 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). assessing officer further recorded finding that properties owned by appellant are 5 residential apartments. Accordingly, exemption under Section 54F of Act was denied. 4. Being aggrieved, assessee filed appeal. Commissioner of Income Tax (Appeals) by order dated 31.05.2010 inter alia held that by virtue of clauses (a)(i) and (b) of proviso to Section 54F(1), assessee is ineligible to claim exemption. It was further held that from perusal of 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, claim of assessee that properties be not treated as residential houses cannot be accepted. It was further held that on date of transfer of original asset assessee was in possession of atleast two residential houses and therefore, appellant is not entitled to benefit of exemption under Section 54F of Act. It was also held that in respect of six out of seven properties, from records it is evident that they have been let out by assessee 6 to different companies and rental income is being shown regularly in returns as income from house property and even if nature of plan sanction is commercial, appellant cannot be allowed to take different stand and to contend that properties are not residential houses. It was also noted that by explanatory circular dated 30.06.1982, word residential house includes not only self occupied properties but also let out properties. It was further held that assessee is not entitled to benefit of deduction under Section 54F of Act. Accordingly, appeal was dismissed. 5. assessee approached Income Tax Appellate Tribunal. tribunal by order dated 29.03.2011 inter alia held that assessee should not have more than one residential unit on date of transfer of original asset. It was further held that it is immaterial as to how assessee utilized residential units and whether these residential units are used for commercial purposes or residential purposes, 7 so long as these units were recognized as residential units. Therefore, it was held that assessee cannot claim benefit of exemption under Section 54F of Act. appeal preferred by assessee was therefore, dismissed. In aforesaid factual background, this appeal has been filed. 6. Learned Senior Counsel for assessee submitted that apartments No.204 and 605 viz., Oxford suites is building comprising units offered for serviced apartments and each floor consists of eight apartments of 500 square feet floor area and appellant had let out both properties to be used as commercial / serviced apartments. Therefore, aforesaid serviced apartments could not have been treated as residential units and in fact same were commercial units and were being used by serviced apartments by 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 authorities erred in law in interpreting meaning of word residential house used in proviso (a)(i) to Section 54F(1) of Act and it is submitted that expression residence implies some sought for permanency and cannot be equated to expression temporary stay as lodger. It is also argued that usage of property has to be taken into account while determining whether property is residential property or commercial property and beneficial provisions of Act have to be construed liberally in order to achieve 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 same building, therefore, apartments have to be treated as one residential only. In support of aforesaid submissions, reliance has been placed on 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 other hand learned counsel for 10 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 fact situation of case. It is submitted that question whether property is residential or commercial property has to be determined on basis of sanction granted in respect of same and nature of its use by assessee is not criteria. It is also argued that classification of property either as residential or commercial has to be taken into account for 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 residential house and not of its user. Our attention has also been invited to Section 32(1) of Act and it has been stated that legislature in Section 32(1) of 11 Act has used expression owned and used simultaneously, whereas, same has not been done in proviso to Section 54F(1) of Act. It is argued that language of taxing statute should ordinarily be understood in sense in which it is harmonious with object of statute to effectuate legislative animation and taxing statute deserves to be strictly construed. In support of aforesaid proposition, reliance has been placed on decision of supreme court in COMMISSIONER OF INCOME-TAX-III VS. CALCUTTA KNITWEARS , (2014) 43 TAXMANN.COM 446 (SC). 8. We have considered submissions made on both sides and have perused record. Before proceeding further, it is apposite to take note to Section 54F(1) of Act, which is reproduced below for facility of reference: 54F. (1) Subject to provisions of sub- section (4), where, in case of 12 assessee being individual or Hindu undivided family, capital gain arises from transfer of any long-term capital asset, not being residential house (hereafter in this section referred to as original asset), and assessee has, within period of one year before or two years after date on which transfer took place purchased, or has within period of three years after that date constructed, one residential house in India (hereafter in this section referred to as new asset), capital gain shall be dealt with in accordance with following provisions of this section, that is to say, (a) if cost of new asset is not less than net consideration in respect of original asset, whole of such capital gain shall not be charged under section 45 ; (b) if cost of new asset is less than net consideration in respect of original asset, so much of capital gain as bears to whole of capital gain same proportion as cost of new asset bears to net consideration, shall not be charged under section 45: 13 Provided that nothing contained in this sub- section shall apply where (a) assessee, (i) owns more than one residential house, other than new asset, on date of transfer of original asset; or (ii) purchases any residential house, other than new asset, within period of one year after date of transfer of original asset; or (iii) constructs any residential house, other than new asset, within period of three years after date of transfer of original asset; and (b) income from such residential house, other than one residential house owned on date of transfer of original asset, is chargeable under head "Income from house property". Explanation. For purposes of this section, "net consideration", in relation to transfer of capital asset, means full value of consideration received or accruing as result of transfer of 14 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 Act, it is evident that in order to attract Section 54F(1) of Act, conditions stipulated in clauses (a) and (b) of proviso to Section 54F(1) have to be complied with as legislature has used expression and at end of clause (a) of proviso to Section 54F(1) of Act. It is pertinent to note that under Section 22 of Act any income from any buildings irrespective of which use which has to be treated under head income from house property . It is well settled legal proposition that provision in taxing statute providing incentive for promoting growth and development has to be construed liberally so as to advance object of Section and not to frustrate it. [SEE: CIT VS. STRAWBOARD MFg. CO. LTD. , (1989) 177 ITR 431 (SC) AND BAJAJ TEMPO LTD. SUPRA]. bench of this court in 15 SAMBANDAM UDAY KUMAR SUPRA while interpreting Section 54F of Act has held that provisions of Section 54F is beneficial provision for promoting construction of residential houses and has to be construed liberally. Kerala, Delhi, Allahabad, Calcutta and Hyderabad High Courts have taken view that usage of property has to be considered in determining whether it is residential property or 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 expression temporary stay as lodger. 10. In backdrop of aforesaid well settled legal principles, facts of case in hand may be examined. Learned counsel for revenue have fairly submitted that out of nine apartments, seven flats have been sanctioned for commercial purposes. Therefore, 16 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. usage of property has to be considered for determining whether property in question is residential property or commercial property. It is not in dispute that aforesaid two apartments are being put to commercial use and therefore, aforesaid apartments cannot be treated as residential apartments. contention of revenue that apartments cannot be taxed on basis of 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 benefit of exemption under Section 54F(1) of Act as assessee owns two apartments of 500 square feet in same building and 17 therefore, it has to be treated as one residential unit. aforesaid fact cannot be permitted to act as impediment to allowance of exemption under Section 54F(1) of Act. Similar view was taken by Delhi High Court in case of Geeta Duggal wherein issue whether residential house which consists of several independent residential units would be entitled to exemption under Section 54F(1) of Act was dealt with and same was answered in affirmative. appeal against aforesaid decision was dismissed by Supreme Court by order reported in (2014) 52 taxmann.com 246 (SC). We agree with view taken by Delhi High Court. 12. For aforementioned reasons, substantial questions of law are answered in favour of assessee and against revenue. In result, orders of assessing officer and Commissioner of Income Tax (Appeals) and Income Tax Appellate 18 Tribunal insofar as it pertains to denial of exemption under Section 54F(1) of Act to appellant is hereby quashed. In result, appeal is allowed. Sd/- JUDGE Sd/- JUDGE ss Navin Jolly v. Income-tax Officer Ward 11(1), Bangalore
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