The Finance
Bill, 2014 proposes to restrict the benefits under sections 54 and 54F for
investment in purchase or construction of one residential house in India.
Following two changes are proposed in section 54F:
(a)Benefit under section 54F shall be allowed only
for investment in one residential house; and
(b)Such benefit shall not be allowed if investment
is made in purchase or construction of a residential house which is situated
outside India.
Various
Tribunals and High Courts have allowed exemptions to assessee under sections 54
and 54F for investment in multiples houses. The exemptions under sections 54
and 54F were introduced to encourage people to invest in new residential houses
for the purpose of their self-occupation. These exemptions were not
contemplated to incentivize the taxpayers purchasing the residential
accommodations as a part of their investment portfolio. The proposed amendment
would overcome the following legal precedents:
Exemption
under section 54 is available when two flats are purchased and combined to make
them one residential unit. Section 13 of the General Clauses Act was referred
to which states that whenever the singular is used for a word, it is
permissible to include the plural - CIT v. D. Ananda Basappa [2009] 180 Taxman 4 (Kar.).
The
expression 'a residential house' should be understood in a sense that the
building should be of residential nature and 'a' should not be understood to
indicate a singular number - CIT v. Smt. K.G. Rukminiamma [2010]
8 taxmann.com 121/[2011] 196 Taxman 87(Kar.).
Four
residential flats constituted 'a residential house' for the purpose of section
54 of the Act - Dr. Smt. P.K. Vasanthi Rangarajan v. CIT [2012] 23
taxmann.com 299/209 Taxman 628 (Mad.).
The fact
that residential house consists of several independent units cannot be
permitted to act as an impediment to allowance of deduction under section
54/54F of the Income-tax Act - CIT v. Gita Duggal [2013] 30 taxmann.com 230/214 Taxman 51 (Delhi).
Purchase of
2 flats adjacent to one another having a common meeting point would fulfil the
requirement of exemption provisions of section 54 of the Income-tax Act - CIT v. Syed Ali Adil [2013]
33 taxmann.com 212/215 Taxman 283 (AP).
The
Tribunal's decisions on allowability of deductions under section 54F for
investment made outside India:
In Vinay Mishra v. Asstt. CIT [2013]
30 taxmann.com 341/141 ITD 301 (Bang.) it was held that a residential property
acquired outside India is also eligible for exemption under section 54.
However, in Leena J.Shah v. Asstt. CIT [2006]
6 SOT 721 (Ahd.) it was held that for availing of exemption under
section 54 the property acquired/constructed must be within India.
Exemption under section 54EC is proposed to be
limited to Rs. 50 lakh even if investment is made in two different financial
years.
In Smt. Sriram Indubal case it was held that the limit for
investment of Rs. 50 lakhs is with reference to one financial year. Where the
assessee is able to invest within the prescribed time of 6 months but falling
in two financial years, the eligibility for exemption under section 54EC for
both the deposits is satisfied.
However, the Jaipur Bench of ITAT in the case of Asstt. CIT v. Shri Raj Kumar Jain &
Sons (HUF) [2012] 19
taxmann.com 27/50 SOT 213 has
struck a different note by opining that as per section 54EC investment within 6
months is investment for that particular financial year in which transfer has
taken place and said period of six months would not include some part of
subsequent financial year. In other words, an assessee is not eligible to claim
more than Rs. 50 lakhs under section 54EC of the Act as exemption in an
assessment year.
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