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Reinvestment benefit on sale of house property

The law continues to be unsettled. It is possible to infer that the use of singular in expression “a residential house” can be understood as including plural vide Sec. 13 of the General Clauses Act, 1897. Such an interpretation is not repugnant to the context of the objective of benefit of rerolling house property sold by way of reinvestment in house property. Board Circular F.No.407/24/76-ITA-II dated March 25, 1971, has clarified that the benefit is available for the seller of more than one residential house. But it does not clarify whether reinvestment is permitted for more than one house in respect of sale of each house. The Tribunal has been taking conflicting views on the subject. The High Court in Shiv Narain Chaudhari v CWT (1977) 108 ITR 104 (All) accepted investment in two flats because they were in the same building though with two different municipal numbers. The Tribunal in ACIT v Mrs. Leela P. Nanda (2006) 286 ITR (AT) 113 (Mumbai) accepted investment in two flats because they were adjacent and both were used for self-occupation by the assessee. A house consisting of four portions was accepted as a single residential house in CIT v Smt. Sunitha Aggarwal (2006) 284 ITR 20 (Del) and by the Tribunal in ITO v Ms. Sushila M. Jhaveri (2007) 292 ITR (AT) 1 (Mum). But none of these decisions have accepted two independent houses for sale of a single house as permissible for relief under Sec. 54. The matter should, therefore, await clarification either from the Board or the Apex Court. Pending such clarification, it can only be assumed in the light of narrower interpretation adopted by the Income-tax Department, it is safer to assume, that more than one unit may qualify only if they could be treated as one residential house with one municipal number with only one kitchen as is understood for purposes of municipal tax and plan approval.

As regards the second part of the query, whether the investment in more than one house property both invested within the time limit would lose exemption, the answer is in the negative. The assessee can choose in such cases the property with higher value so as to get a larger deduction as was decided in K. C. Kaushik v P.B. Rane, Fifth I.T.O. (1990) 185 ITR 499 (Bom).

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