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[2009] 180 Taxman 4 (Karnataka)/[2009] 309 ITR 329 (Karnataka)/[2009] 223 CTR 186 (Karnataka) [2009] 180 TAXMAN 4 (KAR.) HIGH COURT OF KARNATAKA Commissioner of Income-tax v. D. Ananda Basappa* K. SREEDHAR RAO AND C.R. KUMARASWAMY, JJ. IT APPEAL NO. 113 OF 2004 OCTOBER 20, 2008 Section 54 of the Income-tax Act, 1961 - Capital gains - Profit on sale of property used for residential purpose - Assessment year 1996-97 - Whether expression 'a residential house' as occurring in section 54(1) should be understood in a sense that building should be residential in nature and 'a' should not be understood to indicate a singular number - Held, yes - Whether when an HUF's residential house is sold and members of HUF, keeping in view future needs in event of separation, invest capital gain in purchasing more than one residential building, benefit of exemption under section 54(1) would be available to HUF - Held, yes FACTS The assessee, an HUF, had sold a residential house and purchased two residential flats adjacent to each other under two different sale deeds. However, the vendor had certified that necessary modifications had been done to the said two flats to make the same as one residential apartment. The assessee claimed exemption under section 54. However, the Assessing Officer allowed exemption to the extent of purchase of one residential flat holding that section 54(1) does not permit exemption on the purchase of more than one residential premises. On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. However, on second appeal, the Tribunal set aside the order of the Commissioner (Appeals) and held that the purchase of two flats by the assessee should be treated as one single residential unit; and that the assessee was entitled for full exemption. On revenue's appeal to the High Court. HELD A plain reading of section 54(1) discloses that when an individual assessee or an HUF assessee sells a residential building or land appurtenant thereto, he can invest capital gain for purchase of a residential building to seek exemption of the capital gain tax. Section 13 of the General Clauses Act declares that whenever the singular is used for a…

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