For purpose of allowing benefit of deduction under section 54(1), expression ‘a residential house’ includes within its ambit plural numbers as well and, thus, it cannot be construed as one residential house only

  • Vide decision of High Court of Karnataka in Arun K. Thaigarajan Vs Commissioner of Income Tax (Appeals)-II

Facts of the case:

  1. The assessee was the owner of a residential property.
  2. The said property was sold vide registered sale deed dated 9-10-2002 for a consideration of Rs. 2,68,89,375/-.
  3. The assessee filed return of income on 9-7-2003 for Assessment year 2003-04 declaring income of Rs. 1,68,52,920/-, under the head income from salary, house property, capital gains and income from other sources and paid tax of Rs. 49,57,706/.
  4. The assessing officer issued a notice under section 148 of the Act calling upon the assessee to file the return of income disclosing true particulars of income chargeable to tax..
  5. The assessee vide communication dated 31-3-2008 submitted that original return of income be treated as return of income for proceeding under section 148 of the Act.
  6. The assessee declared long term capital gain arising out of the sale of the above property of Rs. 15,44,009/- after claiming deduction towards incidental charges for transfer of property, the cost of acquisition and the deduction admissible under section 54 of the Act in respect of two properties purchased.
  7. The assessing officer by an order dated 24-12-2008 inter alia held that fair market value for the proposes of assessment is to be adopted on the basis of guidance value as prescribed by stamp valuation authorities. It was further held that the guidance value of the property sold was Rs. 4,62,56,000/- and the aforesaid value was adopted subject to valuation report. It was further held that assessee’s claim for deduction under section 54 of the Act in respect of investments made in acquiring two residential properties is not admissible.
  8. Therefore, the assessee’s claim for deduction under section 54 of the Act was restricted to acquiring one residential building and deduction was allowed in respect of higher value of investment i.e., Rs. 97,15,652/-.
  9. Thus, it was held that assessee had deliberately furnished inaccurate particulars in relation to sale consideration of the property sold disregarding the guidance value as required under section 50C of the Act and therefore, the assessee has rendered himself liable for levy of penalty under section 271(1)(c) of the Act.
  10. The assessee filed an appeal before the Commissioner of Income-tax (Appeals).
  11. The Commissioner of Income-tax (Appeals) by an order dated 15-3-2010 inter alia held that Section 50C comes into play only when there is a valuation at a higher value for stamp valuation purposes by the state authority then declared by the assessee concerned in the sale deed.
  12. It was further held that the property was registered for a consideration of Rs. 2,68,89,375/-, whereas, the valuation adopted by the stamp valuation authority is Rs. 4,06,56,735/-.
  13. The appeal was partly allowed.
  14. The assessee approached the tribunal by filing an appeal.
  15. The tribunal agreed with the findings recorded by the Commissioner of Income-tax (Appeals) insofar as it pertains to denial of benefit under section 54 of the Act. In the result, the appeal was partly allowed.
  16. Further, The appeal was filed in the High Court of Karnataka.


The Honorable High court of Karnataka held the case as follows: The order passed by the assessing officer and Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal insofar as it deprives the assessee of the benefit of exemption under section 54(1) of the Act are hereby quashed and the assessee is held entitled to benefit of exemption under section 54(1) of the Act.

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