Natta Suryarao Vs ITO (ITAT Visakhapatnam)
The issue under consideration is whether the assessee would be entitled for deduction u/s 54F if construction of house is commenced prior to the transfer of the asset?
the Act does not prescribed any condition as to the date of commencement of construction of new house property and only condition is that construction of house property should be completed within three years from the date of transfer of original asset. The date of commencement of construction is irrelevant and the construction may be commenced even before the date of transfer of original asset. A similar view has been expressed by the Hon’ble Delhi High Court, in the case of Bharathi Mishra (supra). Respectfully following the view taken by the Tribunal, ITAT hold that even if the construction was commenced prior to the date of transfer of capital asset, the assessee would be eligible for deduction u/s 54F. However, in the instant case, as per the detailed observations made by us, it is established that the residential unit was constructed after the transfer of capital asset, hence the case law relied upon by the assessee is only of academic interest and has no relevance to the assessee’s case. Accordingly, the appeal of the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], Rajamahendravaram in ITA.No.10194/2016-17/CIT(A)/RJY dated 20.03.2019 for the Assessment Year (A.Y.) 2009-10.
2. All the grounds of appeal are related to the deduction claimed u/s 54F of the Income Tax Act, 1961 (in short ‘Act’). The assessee is an individual and filed the return of income in response to the notice issued u/s 148, declaring total income of Rs.11,530/-. During the year under consideration, the Assessing Officer (AO) noticed that the assessee has sold certain properties in nine documents for a consideration of Rs.36,26,500/-, with a market value of Rs.40,01,000/- and claimed the deduction u/s 54F of the Act. The AO issued show cause notice asking the assessee, as to why the sale consideration should not be treated as income under the head ‘business ’ as per provisions of section 45(2) of the Act and as to why the exemption claimed u/s 54F should not be disallowed? Since, the assessee did not satisfy the conditions for allowing the deduction u/s 54F of the Act. In response there to, the assessee filed a letter stating that he is an agriculturist and not having any residential house, sold the agricultural lands and with the advances/sale proceeds received from the vendees, constructed the residential house at Tanuku for a sum of Rs.36,14,170/- and maintained the books of accounts for the construction. The assessee further submitted that he has not carried on any business, therefore, requested to accept the income returned. The AO did not accept the contention of the assessee that he is not engaged in the real estate business and did not carry on any business. As the assessee has converted the agricultural land into plots and sold in bits and pieces, such conversion of plots and sales was considered business activity.
3. With regard to second contention of the assessee that he did not own any residential house and constructed the house with the advances received from the vendees, the AO observed that the assessee had already constructed the house before transfer took place and he has only constructed the upstairs and hence, viewed that the assessee is not eligible for exemption u/s 54F of the Act. Accordingly, the AO taxed the entire receipt under the head ‘long term capital gains’ and allowed the cost of acquisition and cost of improvement and the balance amount of Rs.31,64,190/- was brought to tax.
4. Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) dismissed the appeal of the assessee.
5. Against the order of the Ld.CIT(A), the assessee filed appeal before this Tribunal. During the appeal hearing, the Ld.AR submitted that the assessee owns agricultural land in Tanuku admeasuring 82.5 cents in Survey No.330, 335/1 of Tanuku and he had applied for conversion of agricultural land into non-agricultural purposes which was approved by Revenue Divisional Officer, Kovvuru by his order dated 22.12.2007 in R.C.C.No.1323/2007(K). The above agricultural land was remained as agricultural land till 31.03.2008. The proposals of lay out was made by the municipal committee, Tanuku by its letter dated 09.04.2008 in ROC No.545/2008/G1 and by its letter dated 06.08.2008 in ROC No.545/2008/G1 which were approved by the Regional Deputy Director of Town and Country Planning, Rajahmundry by his letter dated 14.08.2008 in Lr.D.Dis No.504/2008/R2. It is submitted that proposal for lay out as well as approval by concerned authorities were made subsequent to 31.03.2008 and the assessee cultivated the land till 31.03.2008 as agricultural land and the said agricultural land was divided into plots after the receipt of approval from the Town Planning Authority subsequent to 31.03.2008. The assessee stated to have incurred about Rs.2,81,250/- towards conversion charges, fees, travellings of land, cost of soil, transport charges and labour charges etc., in the month of September 2008 and the assessee has sold the converted plots during the year under consideration in nine documents for a sum of Rs.36,26,502/- as per the details given below :
