Commercial property cannot be treated as a residential property for mere showing rent income as Income from House Property

S. 54F Exemption denial by treating Commercial Property as residential property for showing rent income as Income from House Property

Issue– In the return of income, the assessee had claimed deduction under section 54F of the Act. During the course of assessment, the assessee disclosed that apart from property purchased at Kodaikanal for Rs. 1,14,88,000/- , the assessee owns residential house at Sidharth Heights and commercial property at Raahat Plaza, Chennai. The assessee had purchased property at Kodaikanal from the sale proceeds received from sale of land measuring 16.96 cents at Kazura Garden, 1st Main Road, Nilankarai. The Assessing Officer rejected the claim of the assessee under section 54F, on the ground that the assessee is owner of two properties one residential house property at Sidharth Heights and another commercial property at Raahat Plaza. For claiming exemption under section 54F it is essential that on the date of transfer the assessee does not own more than one residential house property other than the new asset. The Assessing Officer was of the view that the term ‘residential property’ and ‘commercial property’ have not been defined under the provisions of the Income-tax Act. The residential  property can be converted into commercial property and commercial property can be converted into residential property by virtue of its use. The Assessing Officer rejected the claim of the assessee, as the assessee failed to satisfy the condition in the proviso (a)(i) to section 54F(1).

Held :- The Hon’ble Karnataka High Court in the case of CIT Vs. Bhoopalam Commercial Complex & Industries (P) Ltd. reported as 262 ITR 517 (Kar), in the facts and circumstances of the case held that rental income from commercial complex is liable to be assessed under the head “income from house property”. Thus, in the instant case the Commissioner of Income Tax (Appeals) has erred in holding that since the income from commercial property is assessed under the head “income from house property” the property is residential. The impugned order passed by the Commissioner of Income Tax (Appeals) is set aside and the deduction claimed by the assessee under section 54F of the Act on account of investment in new residential house at Kodaikanal is allowed.

INCOME TAX APPELLATE TRIBUNAL, CHENNAI

ITA No.232/Mds/2013 – (Assessment Year : 2009-10)

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