Capital gains arising on sale of two residential houses invested in two residential houses-Eligibility for exemption
The assessee owned two flats. The first flat was sold by the assesses for a sum of Rs. 1,01,00,000 and the second Flat had been sold for a sum of Rs. 97,79,500. The assessee had thus earned income on account of long term capital gain from sale of two flats in the assessment year 2006-07. The indexed gain in respect of first flat was Rs. 88,55,558 whereas the indexed gain in respect of the second flat was Rs,85,55,508. The assessee invested the gain on sale of flats in two different flats. The total investment in two flats was Rs.1,77,28,988 which was more than the total index gain on sale of two flats of Rs.1,74,17,617. The assessee therefore claimed the entire capital gain as exempt under the provisions of section 54. The AO observed that phrase used in section 54(1) was "Capital gain arises from transfer of a long term capital gain" and that the use of the word 'a' showed that exemption was available only in respect of sale of one capital asset. Similarly the assessee could purchase or construct only one residential house as the phrase used in section 54(1) was a residential house. The case of the assesses was that exemption under section 54 is available In respect of sale of any number of flats with corresponding investment in a residential house whereas the view taken by the authorities below was that exemption can be allowed only in respect of sale of one residential property with corresponding investment in only one residential house. Held: A perusal of provisions of of section 54(1) shows that capital gain arising from transfer of a long term capital asset being a residential house the income of which is chargeable under the head "income from house property" is exempt if the capita! gain is invested in a residential house in the manner prescribed In the said section. There is no restriction placed any where in the section 54 that exemption is available only in relation to sale of one residential house. Therefore, in case the assessee has sold two residential houses, being long term assets, the capital gain arising from the second residential house is, also capital gain arising from the transfer of a long term assets being a residential house. The provisions of section therefore will also be applicable to the sale of second residential house and similarly to a third residential house and so on.-VideRajesh Keshav Pillai v. ITO (2011) 38 (II) ITCL 624 (Mum 'D'-Trib)
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