The Kolkata Bench of the Income Tax Appellate Tribute ( ITAT ) in ACIT vs. Reshmi P. Loyalka, held that re-investment in three plots for common use of family can avail benefit under Section 54 of the Income Tax Act, 1961.
The assessee with her two sisters-in-law had purchased a land and constructed a house on the said land. In a family settlement, the two sisters-in-law relieved their right on the said property, Thus, the assessee became the absolute owner of the property. she sold the property for a consideration of 84 Crores. Rs.50 lacs were invested in 54EC Capital gain Bond, Rs. 33.5 Crores were set-aside for building new residential property for herself & her family members. The remaining amount was offered to tax.
The assessee purchased 3 adjacent lands and started construction on the three plots simultaneously. The assessee claimed that she thus spent / utilized for construction of the three row houses including the cost of land for use of herself and her family. Even though there were 3 structures/ buildings, all services and facilities were common. The assessee submitted that though there are 3 residential buildings, it is actually one residential house serving the same purpose as the old house did. The assessee claimed exemption u/s 54 of the Act in respect of reinvestment made in 3 new residential houses.
The Assessing Officer (A.O) observed that the legislature in its wisdom had provided exemption u/s 54 of the Act only in respect of reinvestment made in one residential house. Since in the instant case, the assessee had made reinvestment in 3 residential houses, the exemption would be eligible only for one house of the assessee. The AO held that the assessee was allowed to claim exemption u/s 54 of the Act to the tune of Rs 11.68 Crores in respect of one residential house, which bears the highest cost amongst the three houses, and balance claim of Rs 21.77 crores was disallowed and added to the total income of the assessee. The Commissioner of Income Tax (Appeals) (CIT(A)) allowed the appeal of the assessee and held that the assessee would be entitled for exemption u/s 54 of the Act for the entire sum of Rs 33.45 Crores. Revenue appealed before ITAT.
The Bench comprising of Judicial Member A.T. Varkey and Accountant Member M. Balaganesh observed that the modified occupancy certificate has been issued to the assessee considering the entire building as a combined single building.
Dismissing the appeal of the Revenue, the Bench further observed “we hold that prior to the amendment in section 54 of the Act with effect from Asst Year 2015-16 onwards, as long as the investment is made in residential house/(s), then the assessee would be eligible for exemption u/s 54 of the Act for the entire reinvestment subject to the maximum of long term capital gains amount. Only after Asst Year 2015-16, the exemption u/s 54 of the Act would have to be restricted to reinvestment in one residential house only and the said amendment cannot be applied retrospectively.”
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