Whether the phrase “a residential house” in the unamended Section 54(1) permitted exemption for capital gains reinvested in multiple residential properties (here, 7 row houses), or was restricted to a single property

Case Note Analysis: Krishnagopal B. Nangpal v. DCIT 1. Case Overview Citation: 2025:BHC-OS:11546-DB Court: Bombay High Court Bench: Sandeep V. Marne, J. & Chief Justice…

Case Note Analysis: Krishnagopal B. Nangpal v. DCIT

1. Case Overview

  • Citation: 2025:BHC-OS:11546-DB
  • Court: Bombay High Court
  • Bench: Sandeep V. Marne, J. & Chief Justice
  • Key Legal Provision: Section 54(1) of the Income Tax Act, 1961 (pre-2014 amendment)

2. Core Legal Issue

Whether the phrase “a residential house” in the unamended Section 54(1) permitted exemption for capital gains reinvested in multiple residential properties (here, 7 row houses), or was restricted to a single property.

3. Factual Matrix

  • Original Asset: Mumbai flat sold in 1993 (capital gain: ₹1.08 crore).
  • Investment: Proceeds reinvested in 7 row houses in Pune (1995).
  • Tax Authority’s Stance: Exemption denied for 6 houses, allowing only 1 (₹21.78 lakh).
  • Judicial Journey: ITAT upheld partial exemption → Appeal to Bombay HC.

4. Judicial Reasoning

The Bombay HC’s analysis pivoted on:

  1. Textual Interpretation of “a residential house”
    • Held: The term was descriptive (residential vs. commercial), not numerically restrictive.
    • Cited Arun K. Thiagarajan (Karnataka HC): “a” ≠ “one”; plural permissible if context allows.
  2. Legislative Intent & 2014 Amendment
    • Pre-2014: Section 54(1) used “a residential house”.
    • Post-2014: Amended to “one residential house in India”.
    • Court’s Inference: Amendment’s prospective application implied prior law allowed plural units.
  3. Beneficial Construction
    • Section 54 is a welfare provision to promote housing. Ambiguities must favor taxpayers (Mavilayi Co-op Bank precedent).
  4. Precedents Relied Upon
    • For Assessee:
      • Tilokchand & Sons (Madras HC): “a” includes plural unless context forbids.
      • Gita Duggal (Delhi HC): Legislative amendment clarified, not altered, the law.
    • Distinguished by Court:
      • K.C. Kaushik (Bombay HC): Addressed letting-out, not plural investments.
      • Sushila M. Jhaveri (ITAT): Non-binding; overlooked later HC rulings.

5. Decision

  • Allowed the appeal.
  • Full exemption granted for all 7 houses.
  • Quashed ITAT’s restrictive order.

6. Implications

  • Pre-2015 Assessments: Validates claims for plural property investments under old law.
  • Interpretative Clarity: Amendments used as tools to decode legislative intent.
  • Tax Planning: Reinforces that exemption provisions warrant liberal construction.

7. Critical Analysis

  • Strengths:
    • Cohesive alignment with pan-India precedents.
    • Logical use of 2014 amendment as interpretive aid.
  • Limitations:
    • Limited to pre-2014 cases; post-amendment law remains strict.
    • Potential for conflicting rulings if other HCs had taken contrary views (though none cited).

Key Takeaway: The judgment underscores that tax exemptions promoting socio-economic goals (e.g., housing) should be interpreted purposively, not pedantically.

Category: Income Tax Act   Posted on: August 3, 2025
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