COMMISSIONER OF INCOME TAX Vs. KHOOBCHAND M. MAKHIJA

JUDGEMENT

(1.) 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. 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.

(2.) 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.

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