Bud­get 2019: Devil in the de­tail

The Free Press Journal - - BUSINESS - A N SHANBHAG

When we sat down to an­a­lyse the pro­vi­sions of the re­cent Bud­get, I was re­minded of a cou­plet --

I am the par­lia­men­tar­ian drafts­man, I make the laws

For most of the lit­i­ga­tions, I am the cause.

Sec. 54 deal­ing with long-term cap­i­tal gains aris­ing from sale of hous­ing prop­erty stated “... where, the cap­i­tal gains arises from the trans­fer of a long-term cap­i­tal as­set be­ing ... a res­i­den­tial house, ... and the as­sessee has ... pur­chased a res­i­den­tial house,...”

There were a flood of lit­i­ga­tions re­volv­ing around two prob­lems --i) the mean­ing of ‘a res­i­den­tial house’. Did 'a' mean only one res­i­den­tial house? Or was the func­tion of the let­ter 'a' that of an ar­ti­cle (in gram­mar) just so that the sen­tence was gram­mat­i­cally cor­rect.

Ju­di­ciary pro­nounce­ments were con­tra­dic­tory and in­con­sis­tent with one another. A few de­clared that ‘a’ means one whereas oth­ers claimed that this was just an ar­ti­cle. ii) Se­condly, the si­lence in the sec­tion re­lat­ing to the lo­ca­tion of the prop­erty made it pos­si­ble to claim the ben­e­fit even on a house pur­chased abroad.

The Fi­nance Act 2014 solved both the prob­lems at one stroke by re­plac­ing the phrase ‘pur­chased a res­i­den­tial house’ with ‘pur­chased one res­i­den­tial house in In­dia’.

Yes, the amend­ment did solve two prob­lems but ended up cre­at­ing two more.

1. For claim­ing ex­emp­tion aris­ing from trans­fer of a house, the as­sessee has to pur­chase only one house. What if he sells two houses? Has he has to buy two new ad­di­tional houses or only one?

DCIT v Ran­jit Vithal­das [2012] 23tax­mann.com226 ITAT Mum Bench ‘A’ — If two flats are sold even in dif­fer­ent years and cap­i­tal gains from both flats is in­vested in one res­i­den­tial house, ex­emp­tion will be avail­able for each flat sold pro­vided the time-limit for con­struc­tion or pur­chase of new house is sat­is­fied. Is this HC ver­dict negated by this amend­ment?

2. If ‘a’ is ‘one’ it is also not ‘half ’. Can an as­sessee pur­chase the new house jointly with his wife who has also con­trib­uted a share of the cost? The answer is and also was in the neg­a­tive.

ITO vs Rasik­lal N. Sa­tra 280ITR243 dt 19.9.05 — Own­er­ship of a res­i­den­tial house, means own­er­ship to the ex­clu­sion of all oth­ers. There­fore, where a house is jointly owned by two or more per­sons, none of them can be said to be the owner of that house.

Surely, this is not the in­ten­tion of the leg­is­la­tion.

Now let us ex­am­ine the re­cent amend­ments Self-oc­cu­pied house prop­erty So far, the an­nual value of self­oc­cu­pied prop­erty had to be taken to be nil. The in­ter­est payable on cap­i­tal bor­rowed for ac­quir­ing, con­struct­ing, re­pair­ing, re­new­ing or re­con­struct­ing the prop­erty had a ceil­ing of Rs 2 lakh. In­come tax on no­tional rent is payable if one has more than one self-oc­cu­pied house.

The in­ter­est payable on amount bor­rowed for the sec­ond house, whether self-oc­cu­pied or not is de­ductible with­out any limit. Any un­ab­sorbed loss can be car­ried for­ward for eight years for set-off against in­come from house prop­erty.

Now the Bud­get pro­poses, to ex­empt levy of in­come tax on no­tional rent on sec­ond self-oc­cu­pied house, con­sid­er­ing the dif­fi­culty of the mid­dle class.

Also the Bud­get pro­vides that where the amount of the cap­i­tal gain does not ex­ceed Rs 2 crore, the tax­payer will have the op­tion to pur­chase or con­struct two res­i­den­tial houses in In­dia (in­stead of be­ing lim­ited to the erst­while one house).

Also, this ben­e­fit of hav­ing the fa­cil­ity of rein­vest­ing the cap­i­tal gain in two houses in­stead of one will be only avail­able for any one trans­ac­tion in the life­time of the tax­payer i.e. once for a par­tic­u­lar stream of long term cap­i­tal gain in­come, de­duc­tion has been availed of by in­vest­ing in two res­i­den­tial houses, the same can­not be done again in the en­tire life­time of the tax­payer.

Sec. 54F deal­ing with sale of fi­nan­cial as­sets, other than res­i­den­tial houses such as land, com­mer­cial prop­erty, gold etc. has iden­ti­cal pro­vi­sions with mi­nor dif­fer­ences such as whereas 54 ex­empts tax on if the cap­i­tal gains are in­vested, 54 re­quires the en­tire sale pro­ceeds to be in­vested in buy­ing or con­struct­ing another house within stip­u­lated time frame.

Prob­lem-1: Strangely, this fa­cil­ity of be­ing able to in­vest in two houses has been made avail­able to only to Sec. 54 and not to Sec. 54F. Con­se­quently in Sec. 54F, the tax de­duc­tion is still ap­pli­ca­ble with re­spect to one res­i­den­tial house only. We won­der why this step moth­erly treat­ment meted out to Sec. 54F par­tic­u­larly. Is it an over­sight?

Prob­lem-2: This is more, much more se­ri­ous. The in­ter­est on sec­ond house which was deemed to be rented one and now it is deemed to be self-oc­cu­pied has lost its carry for­ward fa­cil­ity for 8 years.

Next time we shall re­vert with another amend­ment in the Bud­get which could lead to some prac­ti­cal dif­fi­cul­ties for the tax­pay­ers.

The au­thors may be con­tacted at won­der­land­con­sul­[email protected]­hoo.com

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