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Case Law Details

Case Name : K.V. Vijayaraghavan v. DCIT (ITAT Chennai)
Appeal Number : I.T.A. NOS. 455 & 456 (MDS.) OF 2014
Date of Judgement/Order : 30/11/2016
Related Assessment Year : 2004-05 & 2005-06

The moot question before us is whether the assessee will be entitled for the benefit of deduction U/s. 54F of the Act if he demolished the new asset being the residential house purchased by him within the period of three years from the date of purchase in violation to Section 54F(3) of the Act.

The prime argument advanced by the Ld. A.R before us is that the provisions of Section 54F(3) of the Act only provides that the new asset should not be transferred in terms of Section 2(47) of the Act within the period of three years from the date of purchase and does not specify a situation where the new asset is demolished.

He relied on the case laws cited by him supra in support of his arguments. It is pertinent to mention here that the Hon’ble Bench of the Mumbai Tribunal in the case of Manhar Parikh, cited by the learned Authorized Representative, had remitted back the matter to the file of the learned Commissioner of Income Tax (Appeals) to decide the identical issue in the light of the decision rendered by the Hon’ble Madras High Court in the case CIT v. Pradeep Kumar [2007] 290 ITR 90 wherein it was held that “. . . . . . construction must be real one. It should not be a symbolic construction.” Therefore, the decision relied by the learned Authorized Representative in fact, supports the decision of the learned Assessing Officer.

Further, the decision of the Hon’ble Apex Court in the case Vania Silk Mills (P.) Ltd. v. CIT [1991] 191 ITR 647  the issue was with respect to the insurance amount received by the assessee towards destruction of its machinery due to fire, wherein the Revenue held it to be taxable under section 45 of the Act. In that situation, the Hon’ble Apex Court had held that “capital gains tax was attracted under section 45 by transfer and not merely by extinguishment of rights howsoever brought about. Whatever the mode by which the transfer was brought about, the existence of the asset during the process of transfer was a precondition: unless the asset existed in fact there could not be a transfer of it. The extinguishment of a right or rights should in any case be on account of its or their transfer in order to attract the provisions of section 45. If it was not and was on account of the destruction or loss of the asset, it was not a transfer and did not attract the provisions of section 45 which related to transfer and not to mere extinguishment of a right. Hence, an extinguishment of right not brought about by transfer was outside the purview of section 45.” On identical situation the Hon’ble jurisdictional Madras High Court in the case Neelamalai Agro Industries Ltd. v. CIT [2003] 259 ITR 651  had followed the aforesaid order of the Hon’ble Apex Court.

However, in the present case before us, the issue is with respect to claiming of deduction under section 54F of the Act. The Parliament in its wisdom had enacted Section 54F of the Act in the Finance Act, 1982 with a view to encourage housing construction. Thus the intention of the legislation was not for destruction of residential building but for promoting the construction of the residential housing units. If the benefit of section 54 is extended where the new residential building is demolished without constructing another residential building within the time limit prescribed under the Act, then the purpose of the Act is defeated.

Further, as rightly pointed out by the learned Commissioner of Income Tax (Appeals), the Hon’ble jurisdictional Madras High Court in the case V. Pradeep Kumar (supra), it has been categorically held that “the burden is on the assessee to prove that he had actually constructed a new residential house for the purpose of the exemption under section 54F. Section 54F emphasizes construction of residential house. The construction must be a real one. It should not be a symbolic construction. Mere construction by way of extension of the old existing house would not mean constructing a residential house as contemplated under section 54F.”

In view of intentions of the Act, decisions of the Hon’ble Jurisdictional High Court and the facts and circumstances of the case, we do not find it necessary to interfere with the order of the learned Commissioner of Income Tax (Appeals) on this issue wherein he has held that in the case of the assessee exemption under section 54F cannot be granted since he has demolished the newly acquired residential house instantly for the purpose of construction of a six floored shopping complex.

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