Case Note & Summary
The Revenue filed an appeal under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT) which had held that the assessee was entitled to exemption under Section 54(1) of the Act in respect of two residential houses purchased out of the capital gains. The assessee, Late Khoobchand M Makhija, had sold a capital asset and invested the proceeds in two residential houses. The Assessing Officer denied the exemption for the second house, but the Commissioner of Income Tax (Appeals) and the ITAT allowed the exemption. The High Court of Karnataka, in this judgment, considered the substantial question of law regarding the interpretation of Section 54(1). The court analyzed the language of the provision, which uses the phrase 'a residential house', and concluded that it refers to only one residential house. The court held that the exemption under Section 54(1) is intended for investment in one residential house, not multiple houses. Consequently, the court allowed the Revenue's appeal, set aside the orders of the ITAT and the Commissioner, and restored the order of the Assessing Officer denying the exemption for the second house.
Headnote
A) Income Tax - Capital Gains - Exemption under Section 54(1) - Interpretation of 'a residential house' - The issue was whether the assessee could claim exemption under Section 54(1) for purchase of two residential houses. The court held that the expression 'a residential house' in Section 54(1) should be interpreted to mean only one residential house, and thus the exemption is not available for multiple houses. (Paras 1-3)
Issue of Consideration
Whether the assessee is entitled to exemption under Section 54(1) of the Income Tax Act, 1961 in respect of two residential houses purchased out of the capital gains.
Final Decision
The High Court allowed the Revenue's appeal, set aside the orders of the ITAT and the Commissioner of Income Tax (Appeals), and restored the order of the Deputy Commissioner of Income Tax denying exemption under Section 54(1) for the second residential house.
Law Points
- Section 54(1) exemption is available only for one residential house
- not multiple houses
- capital gains exemption under Section 54(1) is restricted to investment in one residential house
- interpretation of 'a residential house' in Section 54(1) means one house.
