Brief of the Case
ITAT Jaipur held In the case of Seema Singh Beniwal vs. DCIT that there is no restriction that what percentage of the size of flat should be used for residential purposes under the Income Tax Act. It is clarified by the CBDT that purchase of plot of land is a part of residential house for claiming of deduction U/s 54F. The revenue itself has admitted that it is a habitable as a servant quarter, which in other words, was habitable for human being either servant or master or any employee.
Facts of the Case
The assessee is a Director of M/s Oriental Autotech Pvt. Ltd from which she has received remuneration. The assessee had also shown interest income from banks and on loans advanced to private parties. The assessee had also declared income of Rs. 18,736/- u/s 44AF.The assessee had filed her return for A.Y. 2008-09 on 31/3/2009 declaring total income of Rs. 5,91,910/-, which was subsequently revised on 31/3/2010 declaring total income of Rs. 5,66,910/-.The case was scrutinized u/s 143(3). The assessee did not file the return in terms of provisions of Section 139(1) and therefore revised return filed by her cannot be accepted by the Assessing Officer.
The assessee had also not shown the income under the head long term capital gain in her original return of income, which had been claimed as exempt u/s 54/54EC . The assessee had also not mentioned any details in respect of sale of immovable properties in the original return of income. In the revised return of income, she had shown to have sold two flats for Rs. 22,38,000/- and Rs. 19,51,000/- totaling Rs. 41,89,000/-. The assessee had shown the cost of acquisition at Rs. 3,58,886/- and resultant, long term capital gain was shown at Rs. 38,30,114/-. This income had been claimed exempt in terms of provisions of Section 54 by way of investment of Rs. 12,22,900/- in purchase of house property and an amount of Rs. 30.00 lacs were deposited in capital gain account scheme. The Assessing Officer found assessee’s claim was not eligible u/s 54F by observing that one house was not a finished house, other on the ground that the assessee had purchased land and constructed a small room on it. The Assessing Officer has not considered this investment as residential house Accordingly, AO rejected the claim u/s 54 of the assessee and make addition on account of capital gain.
Contention of the Assessee
The ld counsel of the assessee submitted that CIT(A)’s observation that original purchaser of flat of Rajasthan Housing Board and the Krishna Beniwal made the payment by 15.04.2006 i.e. 17 months prior, is legally and factually wrong. The law u/s 54 requires to purchase a new house and since legally speaking, the purchase took place within one year only, the assessee was confident of getting the claim.
The objection made by the Assessing Officer that the payment of house was made out of loan and not out of the sale consideration, is a misconception because the fact of payment out of the loan is not relevant. Moreover, it is impossibility because complete payments were already made by 15.04.2006 whereas the flats were sold on 15.03.2008 and the law permits one year backward. The construction expenses were duly supported by the bill dated 31.7.2007 raised by the contractor bearing complete name, address and signature of the contractor which prima facie proved the cost incurred and it was for the AO to bring contrary material by making inquiries or otherwise.The photographs clearly show it is a complete residential house. Therefore, he prayed to allow the deduction U/s 54 of the Act on Pratap Nagar house.
In respect to second house , the ld counsel of the assessee submitted that the observation made by the ld Assessing Officer as well as by the CIT(A) that room constructed in the plot was not habitable. The findings of both the authorities are baseless and nothing more than suspicions. Infact it was a complete residential unit itself having all the basic facilities/amenities which required for human habitation. By own admission of Revenue, the construction was habitable even if it was capable of housing a servant. In other words, it was habitable for a human being be it a servant/master/any other employee for that reason.
He relied on the decision in the case of Shiv Narain Chaudhari vs. Commissioner of Wealth Tax (1977) 108 ITR 104 (All), wherein it has been held that building for human habitation, especially a dwelling
place has considered as house. In the case of ACIT vs. Narendra Mohan Uniyal (2009) 34 SOT 152 (Del) wherein it has been held that when the land is purchased and building is constructed thereon, it is not necessary that such construction should be on the entire plot of land. In the case of Prem Prakash Bhutani v/s ACIT (2007) 110 TTJ 440 (Del) wherein it has been held that it is nothing in the law to construct the building in a particular manner. The only requirement is that it should be for the residential use as contrasted with commercial use. It is no longer the requirement that the assessee should reside in the house.
Further he relied on the decision in the case of B.B. Sarkar vs. CIT, West Bengal-IV(1981) 132 ITR 150 (Cal) wherein the Hon’ble High Court has held that the main purpose of the statute is to give relief for the acquisition of a new residential house whether it is partly constructed or partly purchased. In the case of CIT & Anr. vs. Dr. R. Balaji (2014) 111 DTR 288 (Kar) wherein it has been held that deduction U/s 54F could not be denied on the ground that property was not suitable for residence of assessee.
In Section 54 and Section 54F, there was never intended to be interpreted as one or single residential house. He further relied on the decision in the case of CIT vs. Khoobchand Makhija (2014) 223 TAXMAN 0189 (Karnataka) wherein it was held that a “residential house” is used in section 54 makes it clear that it was not intention of legislature to convey the meaning that it refers to a single residential house. Letter “a” in context, which is used, should not be construed as meaning singular, but being a indefinite article. “A
residential house” also permits use of plural by virtue of section 13(2) of General Clauses Act, therefore acquisition of two residential houses by assessee out of capital gains falls within phrase “residential house”. In the case of CIT vs Smt. K.G. Rukminiamma (2011) 331 ITR 211 (Kar.) wherein the Hon’ble High Court has held that “a residential house” used in s. 54 should be understood in a sense that the building should be of residential nature and “a” should not be understood to indicate a singular number; assessee was entitled to claim exemption under s. 54 in respect of four residential flats acquired by her.”
He further argued that from A.Y. 2015-16, an amendment has been made wherein word “a” has been replaced by the word “one”, however this amendment has made effective from AY 2015- 16 onwards. The amendment is substantive and not being clarificatory, therefore cannot be applied retrospectively.
Contention of the Revenue
The ld counsel of the revenue supported the order of CIT (A). He has further drawn our attention on Board Circle No. 672 dated 16/12/1993 wherein allotment of flat under the self financing scheme of DDA treated construction for the purposes of Section 54 and 54F. The Hon’ble Delhi High Court in the case of CIT Vs. R.L. Sood (2000) 108 Taxman 227 (Delhi) has held that any payment made in the self financing scheme by the allotee, this payment is to be treated cost of construction for the purposes of capital gain, which was also considered by the Hon’ble Bombay High Court in the case of CIT Vs. Mrs. Hilla J.B. Wadia (1993) 69 Taxman 114 (Bom) wherein similar views has been expressed by the Hon’ble Bombay High Court. Therefore, he argued that flat purchased from the Rajasthan Housing Board is not entitled for deduction U/s 54F of the Act being a construction of house.
The ld CIT(A) has given detailed finding on nature of property claimed to be residential house, which also verified by the Ward Inspector. The photograph submitted by the assessee cannot be a conclusive evidence to demonstrate that the construction made on that flat was really a residential house. The assessee was also not residing there, therefore, it is a device to evade tax. He further relied on the decision of Hon’ble Mumbai ITAT Bench in the case of Kishore H. Galaiya Vs. ITO (2012) 24 Taxmann.com 11 (Mum) wherein it has been held that booking of flat with a builder was a case of construction and not purchase of residential flat. Therefore, he prayed to confirm the order of the ld CIT(A).
Held by CIT (A)
CIT (A) confirmed the addition by observing that the assessee can claim deduction U/s 54 only in respect of one house and that too after fulfilling the necessary conditions. Whereas the assessee has claimed deduction U/s 54 in respect of two properties. The first property was at 64/108, Pratap Nagar, Jaipur and second property was at C-114, Hanuman Nagar, Jaipur. He further relied on the decision of Special Bench of Mumbai in the case of ITO Vs. Sushila M Jhaveri 292 ITR AT 001 and held that considering this decision, the claim of the appellant is liable to be restricted to the investment in one house only.
Further held that the appellant had sold her first flat on 20/10/2007 and second flat on 15/03/2008. Thus even if the date of sale of first flat was taken into consideration, the entire payment for purchase of house had been made by 15/04/2006 Since complete payments had been made by Smt. Krishna Beniwal 17 months prior to the date of sale of first flat, the appellant by all means would fail to satisfy the condition of making payment within one year prior to the sale. The series of events do show that the appellant tried to add her name as a joint owner just for claiming deduction U/s 54.
Further held that without prejudice to the above finding, since the entire investment was made out of loans borrowed from bank, the appellant in any way was not entitled to deduction U/s 54 in view of decisions of Hon’ble Mumbai Tribunal in the case of Milan Sharad Ruparel Vs. ACIT 121 TTJ 770. Further it has been held that the claim of expenditure of Rs. 65,000/- on the finishing of this house was also not substantiated with the proper bills/supporting. The appellant had submitted some plain sheets of paper wherein certain narration was given and it did not constitute proper evidence in the eyes of law.
In respect of deduciton on account of second house, it was held that the field enquiries conducted by the Assessing Officer showed that it was never used for residential purpose by the assessee. Plot was very small size where watchman can stay and occupied only 6% of total area of plot.As per ld CIT(A), it was a garage, which was not habitable, which can be used for store purposes or maximum for choukidar to care the safety of land. There is no evidence that the appellant had used the said structure as her residence at any point of time for which he relied on the decision in the case of Sunita Oberoi Vs. ITO 126 TTJ 745. He further held that the assessee did not put sufficient material on record and had not demonstrated that house was used as residence of the assessee for which he relied on the decision of Hon’ble Delhi High Court in the case of D.P. Mehta Vs. CIT 251 ITR 529, Hon’ble Punjab & Haryana High Court decision in the case of Dr. A.S. Atwal Vs. CIT 277 ITR 462 and Pawan Kumar Garg Vs. CIT 311 ITR 397. Finally confirmed the order of the Assessing Officer and not allowed the deduction U/s 54 of the Act.
Held by ITAT
With respect to first house, It is clear that the possession of house was taken by Smt. Krishna Beniwal and appellant jointly in November, 2006. The assessee filed an application before Rajasthan Housing Board on 31/5/2007 to add her name, which has been accepted by it. The registration letter for lease deed was issued in the joint name of Smt. Krishna Beniwal and the appellant. All the payments were made 17 months prior to the date of sale of first flat i.e 20/10/2007. Perpetual lease was executed on 23/6/2007, in which name of Smt. Krishna Beniwal and Smt. Seema Singh Beniwal had been shown.
As held by the various courts that purchase of constructed house in self financing scheme from any authority would be treated construction not purchase of residential house. The decision of Hon’ble Delhi High Court as well as Hon’ble Bombay High Court are squarely applicable, therefore we uphold the order of the ld CIT(A) on first exemption claim U/s 54F of the Act. Therefore, we are not giving any finding on additional expenditure incurred on finishing of the house.
It is undisputed fact that from the order of the Assessing Officer that the assessee had deposited the sale proceeds in the capital gain account at Rs. 30 lacs in SBI, Hatwara Road, Branch, Jaipur in capital gain tax account No. 30427064659 on 29/07/2008 whereas the assessee filed the return belated on 31/3/2009, which was revised on 31/3/2010. As per assessment order the assessee purchased a plot of land at C-114, Hanuman Nagar, Jaipur for a sum of Rs. 28 lacs on 25/1/2010 out of such deposit. Thereafter, the assessee further invested Rs. 1,10,250/- on construction of residential unit which was completed on 15/3/2010.
Whether constructed area of size 10×20’ i.e. 201 sq.ft can be treated a residential house or not
It is clarified by the CBDT that purchase of plot of land is a part of residential house for claiming of deduction U/s 54F of the Act. The revenue itself has admitted that it is a habitable as a servant quarter, which in other words, was habitable for human being either servant or master or any employee. There is also no restriction that what percentage of the size of flat should be used for residential purposes either under the Income Tax law but there is a restriction of maximum construction by the local authorities of the respective states. As per the JDA law a room with toilet, kitchen and electric connection is sufficient compliance of construction of house on plot allotted by the JDA.
It is also admitted fact that the assessee electric connection in the constructed premises and the first flat was sold by the assessee on 20/10/2007 and second flat was sold on 15/3/2008 whereas the assessee constructed room at plot No. C-114, Hanuman Nagar, Jaipur up to 15/3/2010 which is within three years from the date of sale of first flat i.e. 20/10/2007. Thus, the assessee is entitled to deduction U/s 54F of the Act on second investment at Hanuman Nagar property at Rs. 29,37,200/-. Accordingly, we reverse the order of the ld CIT(A) on this point.
Accordingly appeal of the assessee partly allowed.