Merely because the new house is constructed on a plot of land owned by the mother of the assessee will not disentitle the assesee for claim of deduction u/s 54F of the Income Tax Act.
The claim of deduction u/s 54F of the Act was denied by the authorities below on primarily on two grounds that the work carried out by the assessee is not a reconstruction of the house and secondly on the ground that the property on which the assessee claimed to have constructed house is owned by the mother of the assessee and not by the assessee. As regards the property is owned by the mother of the assessee we are of the view that if the assessee has constructed a new on the plot of land which is owned by the mother of the assessee then, the investment made by the assessee in construction of new house is eligible for deduction u/s 54F of the Act. A residential house is not a personal effects but it is meant for residential purpose of the family. Therefore, the investment made by the assessee for purchase or construction of house even in the name of the mother is eligible for deduction u/s 54F.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal by the assessee is directed against the order dated 27.03.2017 of ld. CIT(Appeals) for the assessment year 2013-14. The assessee has raised the following grounds:-
“1. Under the facts and circumstances of the case the Learned CIT(A) has erred in confirming the action of the Learned Assessing Officer in disallowing claim u/s 54F of the Income Tax Act, 1961 for Rs. 60,63,980/-.
2. The assessee craves your indulgence to add amend or alter al l or any grounds of appeal before or at the time of hearing.”
2. The assessee is an individual and proprietor of Shri Chawla Sweets & Hotel Chawla’s. The assessee filed its return of income on 30.09.2013 declaring total income of Rs. 98,25,330/- comprising income from rent, capital gain and interest. During the year under consideration the assessee sold a piece of land and disclosed long term capital gain of Rs. 89,07,273/- in the return of income. The assessee while computing the capital gain has claimed deduction u/s 54F of the Act of Rs. 60,63,980/- on account of construction of house property on plot No. C-105, Taneja Block, Adarsh Nagar, Jaipur. The Assessing Officer disallowed the claim of deduction u/s 54F on the ground that the assessee did not construct any house property but had done only renovation of the existing house. The assessee challenged the action of the AO before the ld. CIT(A) and contended that the assessee has constructed a new house after demolition of old house. However, the ld. CIT(A) did not accept the contention of the assessee as well as claim of deduction u/s 54F of the Act and confirmed the action of the AO. The ld. CIT(A) further held that the house property where the construction was stated to have made belongs to the mother of the assessee Smt. Thakri Devi Chawla. Aggrieved by the impugned order of the ld. CIT(A) the assessee filed the present appeal.
3. Before us the ld. AR of the assessee has referred to the provisions of section 54F of the Income Tax Act and submitted that this provisions stipulated that deduction in respect of capital gain shall be allowed to the assessee on transfer of any capital asset except residential house inter alia if the assessee constructed residential house within a period of 3 years from the date of transfer of the existing capital asset. The ld. AR has thus contended that the provisions of Section 54F do not stipulate anywhere that the house property should be purchased or constructed by the assesee in his own name. The ld. AR as contended that there is no dispute that the assessee has construacted the house at C-105 Taneja Block, Adarsh Nagar, Jaipur within a period of 2 years from the date of transfer of long term capital asset making investment of Rs. 60,63,980/. The assessee was residing at the same place for last 20 years although the house property stood in the name of his mother Smt. Thakri Devi but for all practical purpose the assessee was having usufructuary ownership over the house property. The ld. AR has explained that this property bearing No. C-105 Taneja Block, Adarsh Nagar, Jaipur was measuring 600 square yards and the mother of the assessee had already gifted1/2 share of the property to her daughter-in-law Smt. Vibha Chawla who was widow of the elder brother of the assessee. The remaining 300 square yards was in the possession of the assessee and the assessee was living with his family and enjoying all the rights as an owner. The ld. AR has further submitted that the assessee were only two brothers and assessee has constructed the new house on the 1/2 shares of the property belonging to the assessee as the mother of the assessee gave a declaration of her no objection in this regard. He has referred to the copy of declaration dated 03.02.2011 at page 19 of the P.B. and submitted that it was in this back ground that the house property stood in the name of the mother and that the asseee was having usufructuary ownership on it. The ld. AR has then referred to ledger accounts at page 22 to 36 of the P.B. as well as vouchers of purchase of building material at page 37 to 145 of the P.B. and submitted that the assessee has produced the evidence of investment in the construction of the house property of Rs. 1,08,64,061/- as per provisions of Section 54 of the Income Tax Act. Since, the deduction is allowable for construction of the house property during the period of 3 years from the date of transfer of the capital asset, therefore, the investment made in construction of the house after the date of transfer i.e. 30.05.2012 has been claimed by the assessee and the same is in order and deserved to be allowed. The ld. AR of the assessee has submitted that the asseee in possession and living at the same place for last about 20 years and the mother of the assessee gave no objection of demolition and reconstruction of the house and to substantiate this fact the mother of the assessee has also executed a gift deed dated 26.07.2013 at page 146 to 154 of the P.B. He pointed out that the assessee submitted all documentary evidence of construction of new house but the authorities below have disregarded the evidence produced by the assessee while deciding this issue and denied the claim of the assessee only on conjectures and surmises. The ld. AR has further submitted that during the course of construction work a labour died on account of accident and the police case was registered vide FIR dated 01.02.2011 a copy of which filed at page 155 of the P.B. Further, the notice was issued by the Commissioner of Municipal Corporation regarding construction of new house after dismantling of old one. A copy of the notice dated 01.02.2011 issued by the Commissioner Municipal Corporation, Jaipur is filed at page 156 of the P.B. In this letter the Municipal Commissioner has very clearly mentioned that the assessee was getting constructed a new house property after dismantling an old house. Therefore, the assessee produced irrefutable evidence to prove that the assessee has constructed a new house after demolition of old house. The ld. AR then referred to the lease deed in respect of Flat No. 101 which was taken by the assessee on rent for his residential purpose during the period of construction of new house from 01.04.2011 to 28.02.2012. The ld. AR then referred to the agreement under which the assessee received Rs. 60,000/- from the contractor who demolished the existing structure and submitted that all these evidences make it clear that new construction was carried out after demolition of old structure. The copies of the cite plan of new house are placed at page 175 to 179 of the P.B. Thus, the ld. AR has contended that the once the assessee established that a new house was constructed then the deduction u/s 54F is allowable. In support of his contention he has relied upon the following decision as under:-
Thus, the ld. AR has submitted that the Hon’ble Delhi High Court in case of CIT vs. Kamal Wahal (supra) has held that there is nothing in section 54F to show that the assessee should have purchased/constructed a residential house in his own name. A similar view has been taken by the Hon’ble jurisdiction High Court in case of Shri Laxmi Narayan vs. CIT (Supra) wherein the Hon’ble High Court after considering the earlier decision in case of kalia Vs. CIT 251 CTR 174 has held that the land purchased in law name of his wife is eligible for deduction u/s 54B of the I.T. Act.
4. On the other hand, ld. DR has submitted that there is no dispute that the assessee was residing at the same property which is fully constructed house since, the last more 20 years. The said constructed house was owned by the mother of the assessee namely Smt. Thakri Devi Chawla and was gifted by the mother vide gift deed dated 26.07.2013 whereas the assessee has claimed to have constructed house in the year 2011-12 which is contrary to the facts. The ld. Dr has further submitted that the bills produce by the assessee for incurring expenditure are in the name of Chawla Sweets or unnamed whereas the bills to the labour contracture payment was self made vouchers which are not verifiable. The ld. DR has pointed out that the labour bills which has been paid by the assessee on daily basis of Rs. 19,500/- to avoid the provisions of section 14A(3) of the Act because all the payments were in cash and bill amount is less than Rs. 20,000/-.Thus in the absence of the complete details the self made vouchers cannot be verified. He has further contended that all the nature of entire expenditure incurred by the assesse show that the assessee has done renovation work of the premises and not construction a new house as claimed by the assessee. The assessee has failed to produce the bills of the entire expenditure claim as investment for construction of the house u/s 54F of the Act. In the ledger the assessee has claimed to have incurred Rs. 57,53,799/- for renovation from the period 01.04.2012 to 31.03.2013 but no proof of the remaining amount was produced by the assessee. The ld. DR has further contended that in the return of income the assesee claimed deduction u/s 54 and not u/s 54F whereas the assessee has not sold residential house and therefore, the assessee has made a claim of exemption u/s 54F without filing the revised return. The AO has specifically given a finding that the assessee has failed to produce the supporting evidence for Rs. 18,00,000/- of the expenditure claim for construction of house. He has relied upon the orders of the authorities below.
5. We have considered the rival submissions as well as relevant material on record. The claim of deduction u/s 54F of the Act was denied by the authorities below on primarily on two grounds that the work carried out by the assessee is not a reconstruction of the house and secondly on the ground that the property on which the assessee claimed to have constructed house is owned by the mother of the assessee and not by the assessee. As regards the property is owned by the mother of the assessee we are of the view that if the assessee has constructed a new on the plot of land which is owned by the mother of the assessee then, the investment made by the assessee in construction of new house is eligible for deduction u/s 54F of the Act. A residential house is not a personal effects but it is meant for residential purpose of the family. Therefore, the investment made by the assessee for purchase or construction of house even in the name of the mother is eligible for deduction u/s 54F as held by the Hon’ble Delhi High Court in case of CIT vs. Kamal Wahal (supra) in paras 7 to 10 as under:-
“7. We have no hesitation in agreeing with the view taken by the Tribunal. Apart from the fact that the judgments of the Madras and Karnataka High Courts (supra) are in favour of the assessee, the revenue fairly brought to our notice a similar view of this Court in CIT v. Ravinder Kumar Arora 342 ITR 38/ 203 Taxman 289/15 taxmann.com 307. That was also a case which arose under Section 54F of the Act. The new residential property was acquired in the joint names of the assessee and his wife. The income tax authorities restricted the deduction under Section 54F to 50% on the footing that the deduction was not available on the portion of the investment which stands in the name of the assessee’s wife. This view was disapproved by this Court. It noted that the entire purchase consideration was paid only by the assessee and not a single penny was contributed by the assessee’s wife. It also noted that a purposive construction is to be preferred as against a literal construction, more so when even applying the literal construction, there is nothing in the section to show that the house should be purchased in the name of the assessee only. As a matter of fact, Section 54F in terms does not require that the new residential property shall be purchased in the name of the assessee; it merely says that the assessee should have purchased/constructed “a residential house”.
8. This Court in the decision cited alone also noticed the judgment of the Madras High Court (supra) and agreed with the same, observing that though the Madras case was decided in relation to Section 54 of the Act, that Section was in pari materia with Section 54F. The judgment of the Punjab and Haryana High Court in the case of CIT v. Gurnam Singh 327 ITR 278/ 170 Taxman 160 in which the same view was taken with reference to Section 54F was also noticed by this Court.
9. It thus appears to us that the predominant judicial view, including that of this Court, is that for the purposes of Section 54F, the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. It is moreover to be noted that the assessee in the present case has not purchased the new house in the name of a stranger or somebody who is unconnected with him. He has purchased it only in the name of his wife. There is also no dispute that the entire investment has come out of the sale proceeds and that there was no contribution from the assessee’s wife.
10. Having regard to the rule of purposive construction and the object which Section 54F seeks to achieve and respectfully agreeing with the judgment of this Court, we answer the substantial question of law framed by us in the affirmative, in favour of the assessee and against the revenue.”
Further, the Hon’ble jurisdiction High Court in case of Laxmi Narayan vs. CIT(supra) while considering this issue of investment made by the assessee in the name of his wife has held in para 7 to 7.5 as under:-
“7. We have heard counsel for the parties.
7.1 on the first issue of sec. 263 in view of the decision o f Malabar Industrial company Ltd. (Supra) Sec. 263 provisions are taken only on the ground of prejudicial and interest loss of the revenue to the Government. Merely change of opinion will not give anyright u/s 263 hence, the issue regarding Sec. 263 is required to be answered in favour of the assessee and against the department.
7.2 On the ground of investment made by the assessee in the name of his wife, in view of the decision of Delhi High Court in Sundeam Auto Ltd. and other judgments of different High Courts, the word used is assessee has to invest it is not specified that it is to be in the name of assessee.
7.3 it is true that the contentions which have been raised by the department is that the investment is made by the assessee in his own name but the legislature while using language has not used specific language with precision and the second reason is that view has also been taken by the Delhi High Court that it can be in the name of wife. In that view of the matter, the contention raised by the assessee is required to be accepted with regard to Section 54B regarding investment in tubewell and others. In our considered opinion, for the purpose of carrying on the agricultura l activity, tubewel and other expenses are for betterment of land and therefore, it will be considered a part of investment in the land and same is required to be accepted.
7.4 In view of the above, all the issues are answered in favour o f the assesee and against the department.”
Accordingly, in view of the binding precedent we hold that merely because the new house is constructed on a plot of land owned by the mother of the assessee will not disentitle the assesee for claim of deduction u/s 54F of the Income Tax Act.
6. As regards the issue whether it is a construction of new house after demolition of the existing house or it is only a renovation work carried out by the assessee the same is purely factual matter and can be ascertain from the proper physical enquiry conducted at the site itself. The assessee in support of his claim has produced the copies of vouchers, copies of FIR, copy of notice issued by the Municipal Corporation, Jaipur regarding unauthorized construction. So far as the copies of FIR and notice issued by the Municipal Corporation it is not a conclusive proof of what kind of work was carried out whether construction of house or renovation of house. The assessee has also produce a copy of lease deed under which the assessee has hired a house for residential purpose during the period of construction however, this itself cannot be considered as an evidence for construction of new house because even if the assessee has carried was a substantial renovation work then, the assessee had to vacate the house and reside in the alternative accommodation. On examination the detail of the nature of expenditure incurred by the assessee we find that the assessee has installed elevator in the property and the other expenditure incurred prima facie reveals that construction of the property may not be entirely a residential house and some commercial construction or conversion of the property into commercial cannot be ruled out. However, before into the controversy and expressing any view on this issue it requires a proper verification of the facts at the ground. Accordingly, to ascertain whether the assessee has constructed a new house or only renovated the existing house a proper investigation and enquiry is required to be conducted by physical verification of the property as well as the experts opinion may also be taken in this respect because the alleged demolition and reconstruction is without any permission from the Municipal Corporation. Therefore, in the absence of sanctioned site plan or completion certificate the evidence produce by the assessee cannot be considered as conclusive proof to establish the nature of construction carried out by the assessee at the property in question. According, in the facts and circumstances of the case, we set aside this issue to the record of the Assessing officer for proper verification and investigation of the fact regarding the nature of construction and also whether the new building is only residential or commercial or residential-cum-commercial. After ascertain the fact the AO to decide this issue afresh. Needless to say the assessee be given an opportunity of hearing.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 25/01/2018