Mohammadanif Sultanali Pradhan Vs DCIT (ITAT Ahmedabad)
The Ahmedabad Bench of the Income Tax Appellate Tribunal considered the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals)-6, Ahmedabad for Assessment Year 2015-16, arising from an assessment completed under Section 143(3) of the Income Tax Act, 1961. The sole issue before the Tribunal was whether the assessee was entitled to exemption under Section 54F in respect of investment made in two adjoining residential bungalows.
The assessee, an individual engaged in the business of letting out property on rent and earning income from bank time deposits, declared capital gains of ₹23,84,101 after claiming exemption of ₹2,08,00,000 under Section 54F. The assessee contended that the exemption was available because the investment had been made in two adjacent bungalows bearing Nos. 18 and 19 situated in the same society at Survey No. 606/2, TPS No. 92, Sarkhej–Makarba–Okaf-Fatewadi, Mouje Sarkhej, Taluka Vejalpur, District Ahmedabad.
The Assessing Officer held that exemption under Section 54F could be claimed only in respect of one bungalow. Accordingly, the Assessing Officer restricted the exemption to ₹1,43,77,118 and disallowed the balance claim of ₹64,22,882, adding the disallowed amount to the assessee’s total income.
Before the Commissioner (Appeals), the assessee submitted that both bungalows were adjacent, situated in the same society, and together constituted a single residential unit. The Commissioner (Appeals), however, observed that Section 54F had been amended by substituting the expression “a residential house” with “one residential house” with effect from Assessment Year 2015-16, the year under consideration. On that basis, the Commissioner (Appeals) rejected the assessee’s contention and upheld the Assessing Officer’s order.
Before the Tribunal, the assessee reiterated the submissions made before the lower authorities, while the Departmental Representative supported the orders of the Assessing Officer and the Commissioner (Appeals).
The Tribunal observed that there was no dispute regarding the material facts. It identified the issue as whether exemption under Section 54F could be denied where the assessee invested in two adjacent properties that were used as one residential unit. The Tribunal noted that although the properties bore separate numbers and had separate registration documents, they were adjacent to each other and were used as a single residential unit.
The Tribunal observed that Section 54F does not define or prescribe the area or size of a residential property. It noted that an assessee purchasing a large bungalow would be eligible for exemption, whereas denying exemption merely because two adjacent properties were separately registered would lead to an inconsistent result. The Tribunal also observed that an assessee with a large family might require two adjoining properties for residential purposes and that such a person should not be deprived of the statutory benefit merely because the builder executed two separate registration documents. It further noted that it was not the case of either party that the two properties were situated in different geographical areas, observing that the amended provision would appear applicable where two properties are purchased in different areas.
The Tribunal further held that judicial principles regarding the meaning of one residential unit could not be disregarded. In support of its conclusion, it relied upon the judgment of the Karnataka High Court in CIT Vs. Shri D. Ananda Basappa, reported in 180 Taxman 4, wherein it was held that the expression “a residential house” should be understood to refer to the residential nature of the building and not as indicating a singular number.
After considering the facts in their entirety, the Tribunal concluded that the assessee was entitled to exemption under Section 54F. It set aside the order of the Commissioner (Appeals), directed the Assessing Officer to delete the addition of ₹64,22,882, allowed the assessee’s ground of appeal, and allowed the appeal in full. The order was pronounced in open court on 06.01.2020.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)-6, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-6/182/17-18 dated 09/07/2018 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(hereinafter referred to as “the Act”) dated 08/12/2017 relevant to Assessment Year (AY) 2015-16.
2. The assessee has raised the following grounds of appeal:-
1.01. That Learned CIT(Appeal)-6, Ahmedabad has erred in confirming disallowance u/s.54F of the Income Tax Act, 1961 Rs.64,22,882/-.
1.02. That various reasons advanced by Learned CIT(Appeal)-6 Ahmedabad while confirming disallowance of claim are contrary to the facts and circumstances of the case.
1.03. Therefore disallowance of Rs.64,22,882/- u/s.54F of the Income Tax Act5, 1961 confirmed by Learned CIT(Appeal)-9, Ahmedabad deserves to be deleted.
2.00 The appellant craves leave to add, amend, alter, edit, delete, modify any of the grounds of appeal at the time of or before final hearing of the appeal.
2. The only issue raised by the assessee is that the learned CIT(A) erred in confirming the order of the AO by denying the exemption claimed under section 54F of the Act.
3. The facts in brief are that the assessee in the present case is an individual and engaged in the business of letting out property on rent and having income from time deposits with bank. The assessee in the year under consideration has declared income under the head capital gain at Rs. 23,84,101 after claiming the exemption under section 54F of the Act at 21,08,00,000.00. The assessee in support of the exemption claimed under section 54F of the Act contended that he has made investment in 2 bungalows which are adjacent to each other bearing No. 18 and 19 located at survey No. 606/2, TPS No. 92, Sarkhej — Makarba —Okaf-Fatewadi of Mouje Sarkhej , Tal Vejalpur, Distt Ahmedabad.
4. However, the AO was of the view that the assessee can claim the exemption under section 54F of the Act with respect to the investment in one bungalow only. Accordingly, the AO computed the exemption under section 54F of the Act with respect to one bungalow only amounting to 243,77,118.00 and thus, he disallowed the excess claim under section 54F of the Act for 264,22,882.00. The AO accordingly added the excess by the assessee to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT (A).
5. The assessee before the learned CIT(A) submitted that both the bungalows are in the same society, adjacent to each other. As such both the bungalows are one unit for the residential purposes. Therefore, he claimed that he is entitled for the deduction/ exemption for both the bungalows under section 54F of the Act.
5.1. However, the learned CIT(A) observed that there is an amendment under the provisions of section 54F of the Act where the expression previously used “a residential house” has been substituted with one residential house. Such amendment is effective with effect from assessment year 2015-16 i.e. the year under consideration. Accordingly the learned CIT(A) rejected the contention of the assessee and confirmed the order of the AO.
Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us.
6. The learned AR before us reiterated the submissions as made before the authorities below. On the other hand the learner DR vehemently supported the order of the authorities below.
7. We have heard the rival contentions of both the parties and perused the materials available on records. There is no dispute to the facts of the case as discussed above. Therefore, we are not inclined to repeat the same for the sake of brevity. The issue in the present case relates whether the assessee is eligible for exemption under section 54F of the Act against the long-term capital gain for the investment made in the two properties which are adjacent to each other and used as one residential unit. Indeed, the provision of law requires that the exemption will be available to the assessee under section 54F of the Act for the investment in one residential unit.
7.1. Admittedly, there are 2 units bearing separate numbers which were purchased by the assessee out of the long-term capital gain income. Both the units are adjacent to each other and the same are used single residential unit. Thus the question arises, exemption provided under section 54F of the Act can be denied to the assessee merely on the ground that there were two registries of the properties. In our considered view, the answer stands in favour of the assessee in the present facts and circumstances. Under the provisions of the Act i.e. 54F of the Act, there is no definition/clarification provided about the area of the residential property. It means, one assessee can buy huge bungalow/property say thousand square meters and can claim the deduction subject to the conditions. Similarly, the other assessee on the other hand acquired two different residential properties adjacent to each other but both the properties put together has only two hundred square meters but he will be extended the benefit of the exemption with respect to one unit only because of the reason that there are two different properties based on registry documents.
7.2. There can be a situation that the family of the assessee is quite large, comprising of several members in the family and therefore he needs two properties adjacent to each other to accommodate his family members. So from the point of view of the assessee, it is single property but he got two different properties registered as per the requirement of the builder. Thus in our considered view, the assessee cannot be deprived of the benefit conferred under the statute merely on the reasoning that there were two different registries of the buildings/properties.
It is also not a case of the revenue/assessee that both the properties purchased by the assessee were located in different graphical area. In such a situation the law amended under section 54F of the Act appears to be applicable where the assessee buys two properties in two different areas.
7.3. Moreover, the principles laid down by the courts cannot be just brushed aside on the aspect of defining the one residential unit. In this regard we find support and guidance from the judgment of Hon’ble High Court of Karnataka in the case of CIT Vs. Shri D. Ananda Basappa reported in 180 Taxman 4 wherein it was held as under:
“6. The contention of the revenue is that the phrase “a” residential house would mean one residential house and it does not appear to the correct understanding. The expression “a” residential house should be understood in a sense that building should be of residential in nature and “a” should not be understood to indicate a singular number. The combined reading of sections 54(1) and 54F of the Income-tax Act discloses that, a non-residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to section 54 of the Income-tax Act, lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gains tax, when he invests the capital gain in purchase of additional residential building.”
7.4. In view of the above and after considering the facts in totality, we are of the view that the assessee is entitled for the exemption provided under section 54F of the Act in the present facts of circumstances. Hence, we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Thus, the ground of appeal of the assessee is allowed.
8. In the result, the appeal of the Assessee is allowed.
This Order pronounced in Open Court on 06/01/2020
