2013-VIL-661-KAR-DT

KARNATAKA HIGH COURT

IT Appeal Nos. 496 & 516 of 2007

Date: 18.12.2013

COMMISSIONER OF INCOME-TAX

Vs

KHOOBCHAND M. MAKHIJA

For the Petitioner : K.V. Aravind
For the Respondent : Smt. Vani H.

BENCH

N. KUMAR AND MRS. RATHNAKALA, JJ.

JUDGMENT

N. Kumar, J. –

The Revenue has preferred I.T.A.No.496/2007 against the order of the Tribunal holding that the assessee is entitled to exemption under Section 54(1) of the Income Tax Act (for short hereinafter referred to as 'the Act') in respect of two residential houses purchased and also holding that the assessee is entitled to the exemption under Section 54(2) of the Act, to the extent of unutilized deposit in the capital gain account as claimed by them.

2. The assessee filed a return of income for the assessment year 1996-97 on 23.7.1996 declaring a total income of Rs. 3,46,500/-. The same was processed under Section 143(1)(a) of the Act and refund of Rs. 12,859/- was issued. Subsequently, notice under Section 148 was issued on 9.7.2002 after obtaining prior approval of the Additional Commissioner of Income Tax. In response to this notice, the assessee filed a return of income for the assessment year 1996-97 on 28.8.2002 declaring a total income of Rs. 3,46,557/-. Subsequently, notices under Section 142(1) and 143(2) were issued. By that time, the assessee had died. His legal representatives – sons appeared through an authorized representative and furnished all the requisite particulars. The said particulars furnished disclosed that the assessee has sold his self-occupied house during the year for a sum of Rs. 3,73,00,550/-. The cost of the acquisition of the said house was shown as Rs. 88,40,867/-. Therefore, the net capital gain was Rs. 2,84,59,683/-. The assessee invested a sum of Rs. 1,21,38,530/- in acquiring two residential houses. The balance amount unutilized was Rs. 1,63,21,153/-. The assessee deposited a sum of Rs. 1,70,00,000/- before 31.7.1996 in the nationalized banks for investment. The Assessing Authority was of the view that the assessee was entitled to the benefit of Section 54(1) of the Act only to the extent of acquiring one residential house of the value of Rs. 76,91,660/-. He adopted Rs. 200/- per square feet as the basis for calculating the indexed cost and as against the claim of the assessee at Rs. 88,40,867/-, he allowed Rs. 62,49,204/- and held that Rs. 3,06,88,348/- is the capital gains and a sum of Rs. 1,19,16,389/- is the cost of investment in respect of purchase of one residential house and therefore, the long term capital gain is Rs. 1,87,71,959/- which amount, according to him, was not deposited before the due date. Therefore, he levied tax on the said amount. They also denied the benefit under Section 54(2) of the Act. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). The Appellate Authority held that the valuation of the assessee at Rs. 300/- per sq.ft. for the property, which is sold, is correct. Further, it is held that the assessee is entitled to the benefit of Section 54(1) of the Act only to the extent of investment in both the residential houses. It also granted benefit of Section 54(2) of the Act. To that extent, appeal was partly allowed. Aggrieved by the said order, the Revenue preferred an appeal to the Tribunal.

3. The Tribunal after considering the rival contentions has upheld the order passed by the Appellate Authority. It is against the said order, the Revenue is in appeal.

4. The substantial questions of law, which arise for consideration in these appeals, are as under:

"1. Whether the Tribunal committed an error in holding that the assessee would be entitled to claim exemption under Section 54 of the Act in respect of two separate residential houses acquired out of the capital gains, when the Section contemplates exemption in respect of "a" house for the current assessment year?

2. Whether the Tribunal committed an error in holding that the assessee is entitled to the benefit of exemption under Section 54(2) of the Act, insofar as the investment of Rs. 1.70 crores in nationalized banks?"

5. The undisputed facts in this case are that the assessee has sold the house under a registered sale deed dated 7.3.1996 for a consideration of Rs. 3,73,00,550/-. The indexed cost of that old house as claimed and accepted by the authorities below is Rs. 88,40,867/-. Therefore, the capital gain is Rs. 2,84,59,683/-. The assessee had two sons, who were living with the assessee on the date of selling of that property. As both the sons were grown up, married, having children, assessee wanted to invest the said capital gains in purchasing two independent residential houses for the benefit of his two sons. Accordingly, he purchased the property No.623 for a consideration of Rs. 76,91,660/- on 27.5.1996. Prior to that, he also entered into an agreement of sale in respect of property No.739 for a consideration of Rs. 75,00,000/- and paid a sum of Rs. 44,00,606/- on the date of agreement of sale. He paid the balance sale consideration on 28.9.1996 and purchased the said property under a registered sale deed dated 28.9.1996. However, as the capital gains to be eligible for the benefit under Section 54(1) and (2) of the Act had to be deposited on or before the due date prescribed for filing the income tax return under Section 139(1) of the Act, which was 31.7.1996, he deposited a sum of Rs. 1,70,00,000/- within the said due date, though he had to actually deposit only Rs. 1,63,67,417/-. After deposit, he withdrew this balance sale consideration payable and obtained the sale deed on 28.9.1996 after paying the amount to the seller. After purchasing these two houses, deducting the commission rate, a sum of Rs. 82,75,206/- remained as unutilized capital gain. In terms of Section 54(2) of the Act, the said amount was offered for taxation for the assessment year 1999-2000.

6. Now the question for consideration is, whether the assessee was entitled to the benefit of Section 54(1) of the Act in respect of both the residential houses and whether he was justified in offering the unutilized capital gain for tax for the assessment year 1999-2000?

7. The argument of the Revenue is that, in terms of Section 54(1) of the Act, if the assessee has within a period of one year before or two years after the date on which the transfer took place purchased a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which transfer took place, the assessee would be entitled to the benefit conferred under Section 54(1) of the Act. As in this case, assessee has purchased two residential houses, he is entitled to the benefit only in respect of one residential house, which is higher in value and he is not entitled to the benefit of second residential house.

8. It is in this context, the word "a residential house" used in Section 54 (1) is to be considered.

9. The word 'a' is not defined in the Act. When a word is not defined in the Act itself, it is permissible to refer to dictionaries to find out the general sense in which that word is understood in common parlance. However, in selecting one out of the various meanings of a word, regard must always be had to the context as it is a fundamental rule that the meanings of words and expressions used in an Act must take their colour from the context in which they appear. Therefore, when the context makes the meaning of a word quite clear, it becomes unnecessary to search for and select a particular meaning out of the diverse meanings a word is capable of, according to lexicographers. Dictionaries are not dictators of statutory construction where the benignant mood of a law, and more emphatically, the definition clause furnishes a different denotation. A statute cannot always be construed with the dictionary in one hand and the statute in the other. Regard must also be had to the scheme, context and to the legislative history. Words and expressions at times have a 'technical' or a 'legal meaning' and in that case they are understood in that sense. Judicial decisions expounding the meaning of words in construing statutes in pari materia will have more weight than the meaning furnished by dictionaries. (Principles of Statutory Interpretation by Justice G.P.Singh – pages 279 and 280). It is in this background, it is necessary to understand the meaning of the word 'a' in the context in which it is used in the said Section.

10. The words "a" or "an" and "the" are called Articles. They come before nouns. There are two Articles – a (or an) and the "a" or "an" is called the Indefinite Article, because it usually leaves indefinite the person or thing spoken of. "The" is called the Definite Article, because it normally points out some particular person or thing. The indefinite article is used before singular countable nouns. The definite article is used before singular countable nouns, plural countable nouns and uncountable nouns. The indefinite Article is used in two contexts, firstly, in its original numerical sense of one. Secondly, in the vague sense of a certain. It is also used in the sense of any, to single out an individual as the representative of a class. It is also used to make a common noun of a proper noun.

11. In the Strouds Judicial Dictionary of Words and Phrases dealing with this letter 'a', it is said 'a' is sometimes read as 'the' 'a' may sometimes be read as 'some'. But, more frequently 'a' is the equivalent of 'any'. However, it is difficult to read 'a' as 'all'.

12. In the Concise Oxford Dictionary of Current English, dealing with the letter 'a' is stated that, 'a' sometimes called indefinite article, used with apparent plurals of number.

13. Section 13 of the General Clauses Act, 1897 deals with gender and number. It reads as under : -

"13. Gender and number.- In all Central Acts and Regulations, unless there is anything repugnant in the subject or context.-

(1)  words importing the masculine gender shall be taken to include females; and

(2)  words in the singular shall include the plural, and vice versa."

14. This Court in the case of CIT v. Smt. K.G. Rukminiamma [2011] 331 ITR 211/196 Taxman 87/[2010] 8 taxmann.com 121 (Kar.), had an occasion to consider Section 54 of the Act and had held as under:

'For a proper appreciation of the aforesaid contention, it is necessary to have a careful look at Section 54 of the Income Tax Act, which reads as under:

"54. Profit on sale of property used for residence - (1) Subject to the provisions of sub-section (2), where, m the case of an assesses being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of winch is chargeable under the head 'Income from house property' (hereafter in this section referred to as the original asset), and the assesses has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, - ….. ."

9. A reading of the aforesaid provision makes it very clear that the property sold is referred to as original asset in the section. That original asset is described as buildings or lands appurtenant thereto and being a residential house. Therefore, it is not mere "a residential house". The residential house may include buildings or lands appurtenant there to. The stress is on the use to which the property is put to. Only when that asset was used as a residential house, which may consist of buildings or lands appurtenant thereto, the income derived from the sale of such a residential house is chargeable under the head "Income from house property." If the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the aforesaid provisions. In this part of the section also, the words "a residential house" is again used. The said residential house necessarily has to include buildings or lands appurtenant thereto. It cannot be construed as one residential house. In this context, it is useful to refer- to Section 13 of the General Clauses Act, 1897, which reads as under:

"13. Gender and number. - In all Central Acts and Regulations, unless there is anything repugnant in the subject or context -

(1)   words importing the masculine gender shall be taken to include females; and

(2)  words in the singular shall include the plural, and vide versa"

The context in which the expression "a residential house" is used in Section 54 makes it clear that, it was not the intention of the legislation to convey the meaning that it refers to a single residential house. If that was the intention, they would have used the word "one." As in the earlier part, the words used are buildings or lands which are plural in number and that is referred to as a residential house", the original asset. An asset newly acquired after the sale of the original asset also can be buildings or lands appurtenant thereto, which also should be "a residential house." Therefore the letter "a" in the context it is used should not be construed as meaning "singular." But, being an indefinite article, the said expression should be read in consonance with the other words "buildings and lands" and, therefore, the singular "a residential house" also permits use of plural by virtue of Section 13(2) of the General Clauses Act. This is the view which is taken by this court in the aforesaid Anand Basappa's case in I.T.A.No. 113/2004, disposed of on September 20, 2008 CIT v. D. Ananda Basappa [2009] 309 ITR 329 (Kar.)].'

15. That was the case where the assessee gave his property for joint development agreement for putting up flats. Under the terms of the agreement, out of eight flats to be put up, four flats had to be given to the assessee, representing 48%, the consideration for the said four flats was consideration for selling 52% of the site. It was held that, though under the joint development agreement, the assessee received four residential flats, it constituted a residential house for the purpose of Section 54 and therefore, entitled to the said benefit.

16. In the instant case, one residential house is sold. Out of the sale consideration, it was open to the assessee to purchase a big residential house so as to accommodate both his sons, in which event in terms of Section 54 (1), he would have been entitled to the benefit of the said Section. However, instead of purchasing one big house, having regard to the fact that both his sons are grown up, have families and in order to see that in future there won't be any litigation or disharmony, he chose to purchase two small residential houses to accommodate both his sons.

17. It is clear that the assessee was not attempting to evade tax. In fact, after purchasing two residential houses, still there remained unutilized capital gain, which he has offered for tax. Therefore, as held in the aforesaid Rukminiamma's case, the context in which the expression "a residential house" is used in Section 54 makes it clear that it was not the intention of the legislature to convey the meaning that it refers to a single residential house. The letter "a" in the context, which is used, should not be construed as meaning singular, but being a indefinite article, the said expression should be read in consonance with the other words "buildings and lands" and therefore, the singular "a residential house" also permits use of plural by virtue of Section 13(2) of the General Clauses Act.

18. Therefore, we are of the view, in the facts and circumstances of this case, the acquisition of two residential houses by the assessee out of the capital gains falls within the phrase "residential house" and accordingly, the assessee is entitled to the benefit conferred under Section 54(1) of the Act. However, we make it clear that while interpreting this word, the Court or the Tribunal or the authorities have to keep in mind the facts of the particular case. When we have held "a" cannot be read as singular, it also cannot be read as multiples and so as to avoid paying tax under Section 45 of the Act. Therefore, in the facts and circumstances of this case, we answer the first substantial question of law raised in favour of the assessee and against the Revenue.

Substantial question of law No.2:

19. The argument of the Revenue was that, once the assessee purchased the residential house, the remaining unutilized capital gain should have been offered to tax immediately thereafter. The assessee could not have waited for three years and thereafter offered it for tax and therefore, it is submitted that, interpretation placed by the authorities to the proviso to Section 54(2) of the Act is not tenable.

20. In order to appreciate this contention, we have to see what Section 54(2) of the Act says. It reads as under:

"54(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return, such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilized in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilized by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset :

Provided that if the amount deposited under this sub-section is not utilized wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,-

(i)  the amount not so utilized shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and

(ii)  the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid."

21. A reading of the aforesaid provision makes it very clear that the capital gain acquired by sale of a property should be deposited on or before the due date prescribed under Section 139(1) of the Act in the relevant year in which the property was sold. Thereafter, the assessee has to utilize the said amount for purchasing the residential house within two years and if he is constructing a residential house within three years. In the event of the purchase or construction is completed within a year or two, the question is, is he liable to offer the unutilized capital gain immediately thereafter in the said current financial year? The answer is "no" because the proviso to Section 54(2) expressly provides that, if the amount deposited under sub-section (2) of Section 54 of the Act is not utilized wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then the amount not so utilized shall be charged under Section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires. Therefore, the statute prescribes expressly when the capital gain is to be offered to tax. If the said amount is deposited in a nationalized bank as required under law, the entire capital gain or the unutilized capital gain chargeable under Section 45 is to be offered for tax only in the previous year in which the period of three years from the date of the transfer of the original asset expires. Therefore, the contention that immediately after the purchase of the new asset in that relevant year, the unutilized capital gains should have been offered to tax, is untenable. That is precisely what the authorities have held.

22. In that view of the matter, we do not see any substance in the said contention also. Therefore, the second substantial question of law is also answered in favour of the assessee and against the Revenue.

23. In the light of what we have stated above, the connected appeal I.T.A.No.516/2007, which arises on account of re-assessment and being protective assessment, do not survive for consideration.

Accordingly, both the appeals are dismissed.

 

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