In Pr. Commissioner of Income Tax vs. Prakash Chand Modi, the Rajasthan High Court held that Section 54 of the Income Tax Act, 1961 doesn’t define the quantum of Construction residential houses required to be built on a land for availing the benefit of exemption and that the only condition required is that there should be a residential house capable of being used as a residence by any person.
The Court was considering an appeal filed by the Revenue against the order of the Income Tax Appellate Tribunal (ITAT), which had allowed the appeal of the assessee and had granted him exemption under the relevant provision of the Act.
The High Court Bench comprising of Justice Gopal Krishan Vyas and Justice Ramachandra Singh Jhala were in full agreement with the decision of the ITAT that they reproduced the concerned reasonings laid out by the Tribunal.
The Tribunal had held that the assessee was eligible for the benefit claimed under section 54 of the Income Tax Act, 1961 having complied all the essential requirements of the said section. It particularly noted that the section nowhere defined the quantum of construction on the land so as to be eligible to be defined as a residential unit and that the only condition is that there should be a residential house capable of being used as a residence by any person. It even went one more step to clarify that the residence built using the capital gains need not be occupied by the assessee himself and that it could be used as residence even by any other person also.
The High Court Bench also observed that the decision of the Tribunal was in consonance with the adjudication of the Supreme Court in the case of Sanjeev Lal Etc. vs. Commissioner of Income Tax & Anr.
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