Case Law Details
ITO Vs Smt. Saida Mohammad (ITAT Jodhpur)
In the instant case, the assessee has sold an old asset and realized the consideration for acquiring a new asset. The new asset is in the nature of a residential house which is quite evidenced from the purchase deed filed by the assessee. Hence the assessee is entitled for deduction u/s 54F of the Act. Accordingly the ld. CIT(A) deleted the addition made by the ld. CIT-(A). We observe that the provisions of section 54F will apply if the property is of residential nature. Its subsequent or past use is not material for claiming requisite deduction.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal filed by the Revenue is directed against the order of the ld. CIT(A), Bikaner dated 20.05.2016 pertaining to A.Y. 2012-13.
2. The sole grievance raised by the revenue in this appeal relates to the deletion of addition of Rs. 78,93,656/- made by the Assessing Officer on account of disallowance of exemption u/s 54F of the Income-tax Act, 1961 [hereinafter referred to as the Act].
3. Brief facts pertaining to this case as emanating from the order of the ld. CIT(A) derived from the order of the Assessing Officer are that the AO denied the deduction u/s 54F amounting to Rs. 78,93,565/- The assessee is an individual and filed her return of income for the year under consideration on 13-03-2013, declaring the total income at Rs. 86,650/-, which comprises incomes of Rs. 21,000/- and Rs. 69,452/- under the head “house property” and “income from other sources” respectively. The return so filed was processed u/s. 143(1) of the Act. Thereafter, the assessee’s case was selected for scrutiny and notice u/s 143(2) of the Act was issued.
4. During the course of assessment proceedings, the AO noted that in the return of income filed for the year under consideration, the assessee had shown long term capital gain of Rs. 78,93,565/- on account of sale of agricultural land, which was further claimed as exempt / deduction u/s. 54F of the Act. The AO further noted that the assessee had sold an agricultural land situated at village Karmisar for total consideration of Rs. 86,40,000/- on 05-05-2011 against which she has had long term capital gain of Rs. 78,93,565/-. Subsequently, on 30-08-2011, the assessee purchased a property situated at Gajner Road, Bikaner for total consideration of Rs. 1,05,10,300/-, which according to her was a residential property. Therefore, she claimed deduction u/s. 54F of the Act on account of investment in residential property. In order to ascertain the assessee’s claim, deputed an ) Inspector to visit and carry out necessary enquiry in respect of the said property. The Inspector submitted his report dated 02-02-2015 stating therein that said property is admeasuring around 4000 sq. ft., which is surrounded by boundary wall and having tin shed.
5. It was also reported by Inspector that said property had been given on rent for monthly rent of Rs. 10,000/- to one Sh. Sadique Mohd., who is running his business on the said property. Inspector: „ specifically reported that there was no facilities/amenities which could indicate that the said property was being used for residential purpose. The assessee was also confronted with the Inspector’s report. The assessee furnished her reply before the AO wherein she tried to convince, that she had fulfilled all the condition prerequisite to be eligible for claiming deduction u/s. 54F. It was contended by the assessee before the AO that Inspector’s report was not based on correct facts. The assessee also relied on decision of N. Revathi vs. ITO (2014) 45 taxman.com which held that “if the building has been constructed for residential use with all amenities, which are necessary for a residential accommodation, then exemption u/s. 54F cannot be refused only because it is being used as a school subsequently”.
6. After considering the assessee’s reply, the AO did not find any substance in the assessee’s claim. The AO pointed out that in the agreement executed between the assessee and Sh. Sadique, it was specifically mentioned that said property was being let out for the business of iron. Therefore, the property cannot be said to be a residential property. The AO also reproduced clauses of this agreement in the assessment order. The AO further directed the Inspector to submit his specific report whether after construction done by the assessee on this property, the same can be termed as a residential property. Inspector submitted his report dated 23-02-2015 along with colour photographs of the said property, which clearly established that the assessee had constructed only the boundary wall on the said property and there were no available amenities such as, Kitchen, Bathroom, Water connection, Sewerage etc. For this reason, it was mentioned that decision of Hon’ble Hyderabad ITAT in the case of N. Revathi (supra) is not applicable to the assessee’s case. On the contrary, the AO referred to the decision of Hon’ble PEtH High Court in the case of Ashok Sayal vs. CIT (2012) 209 Taxman 376, which held that “Mere construction of room without amenities like boundary wail, kitchen, toiletelectricity, water and sewerage connection etc. cannot be held to be house, hence benefit of sec. 54 cannot be granted”. The Assessing Officer further referred to the decision of Pushpa vs. ITO (2012) 79 DTR 218 wherein the Hon’ble Kerala High Court held that “Mere construction of sunshade is not construction of new house hence not eligible for exemption”. In the light of these decisions, the AO held that assessee is not eligible for claim of deduction u/s. 54F of the Act.
7. Further, the AO pointed out that the assessee had purchased this property by taking unsecured loan of Rs. 10 Lacs from her two sons and after that the said property was given on rent for iron business to firm M/s. Kishan Iron and Timber Store, wherein her two sons are partners. And whatever construction was done on this property was with a motive to run business, which clearly prove that this property was not intended to be a residential house. The AO also pointed out that the assessee failed to produce evidence of having water connection on this land. In fact, assessee’s claim of applying for water connection could not be established in absence of any documentary evidence. The AO further mentioned that the assessee was residing in her husband’s house and there was no need of water connection on this land. In fact, the assessee had taken electricity connection for commercial use, which definitely proved the intention of the assessee. On the strength of the above facts, the AO held that the investment in the said property cannot be termed as investment in house property and this was purely investment in commercial property. To further emphasize, the Assessing Officer reproduced the scanned/ coloured photographs of the said property, which clearly revealed that commercial activity was being carried out on this property. Meanwhile, the assessee moved an application u/s. 144A before the Jt. CIT, Range-1, Bikaner, who while disposing this application and after making his observations, directed the AO to examine the assessee’s claim in the light of the sec. 54F of the Act. In compliance, the AO quoted the sec. 54F and mentioned that the assessee had not constructed any residential house on the said property. Accordingly, the AO held that the assessee did not fulfill essential condition as prescribed in law to be eligible for deduction u/s 54F. Consequently, the AO disallowed the assessee’s cla. -1 of deduction of Rs. 78,93,565/- and added the same to the total claim income of the assessee.
8. Aggrieved, the assessee went in appeal before the ld. CIT(A) and submitted as under:
“All of first I would like to submit the provisions of deduction u/s 54F. The conditions for allowing the deduction u/s 54F ore as under
“(Provided that nothing contained in this sub-section shall apply where –
(a) the assessee, –
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original assets ; or
(ii) purchase any residential house, other than the new asset, within a period of one year after the date of transfer of the original assets; or
(iii) construct any residential house, other than the new asset, within a period of three years after the date of transfer of the original assets ; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “income from house property”)
If the assessee fulfill the conditions as laid down in proviso of section 54F(1), the assessee is entitled to claim deduction u/s 54F of the Income Tax Act, 1961. The proviso of the Sub-Section (1) is laid down the conditions in which the assessee is entitled for deduction u/s 54F. The assessee fulfilled all the conditions laid above, she is not having any residential house on the date of purchase of this house under question, she has not purchased any other house other than this till now and also not constructed any residential house till now. The only house in the name of the assessee is the purchased house under consideration. Therefore, she is entitled for deduction u/s 54F. Now 1 would like to bring your kind attention towards the Page 8 Para second last of the assessment order in which the assessing officer interpreted the provisions of section 54F, he mentioned that the prime condition for deduction u/s 54F is constructed a residential house. He himself accepted that as per the revenue record the property is residential. The basis for denial the claim on is that the assessee has not constructed a residential house on that property within the time period allowed. In this connection I would like to submit that when the property so purchased is itself a residential house then what is necessity of the construction of residential house, which is already there. He has not considered the section in totality. I would like to reproduce the Section 54F for your ready reference as under
“[Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.
54F. (1) 2 [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family]. the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ;
(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:
[Provided that nothing contained in this sub-section shall apply where—
(a) the assessee,—
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset: or
(ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset: or
(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property”.] “
From the reading of the section your good self will find that the main conditions for deduction are to purchase a new residential house or construct a residential house. The Ld. Assessing officer focused only on the construction not on purchase, here the word or used by the legislature between purchase and construct. Therefore, only one thing has to be complied with for deduction under this section. The assessee complied with the first part i.e. purchase, therefore, she is entitled for the deduction u/s 54F of the Income Tax Act, 1961. In this connection 1 would like to rely the judgment of Hon’ble Delhi Tribuanl in case of Mahavir Prasad Gupta V/s CIT reported in 5 SOT Page 353 (Delhi) in this connection the Hon’ble Tribunal was of the view that mere non residential use would not render a property ineligible for the benefit under section 54F. The requirement of section 54F is that the property should be a residential house. The use of the property is not the relevant criterion to consider the eligibility for benefit under section 54F. What is required is investment in residential house. In this connection I would like to rely on the judgment of Hon’ble Income Tax Appellate Tribunal Chennai in case of V.A. Tharabai V/ s DCIT (2012) reported in 14 ITR (Trib.) Page 15. In this case it was held by the Hon’ble Bench that in case of purchase of land only the deduction U/s 54F cannot be denied, because the land is prime requirement for construction of house. From the above order it is very much settled that only use of property as non-residential, the deduction Ws 54F cannot be denied. The copies of the above orders are attached herewith for your ready reference. Hence, it is hereby requested that the claimed deduction is correct and legal and should be allowed.”
9. The Id. CIT(A) after considering the submissions of the assessee held that as regards notice dated 25.22.2011, the Assessing Officer had noted in the assessment order as under:.
“I have considered the facts of the case and the submission made and I find that the AO denied the claim of deduction u/s. 54F by stating that property against which deduction was claimed is not residential house. To justify his action, the AO quoted the Inspector’s report, relevant section and various judicial pronouncements. The appellant has vehemently contested the action of the AO. The appellant quoted the sec. 54F and stated that the main conditions for deduction are to purchase a new residential house or construct a residential house and since the assessee had invested sale consideration in purchase of new residential house, she is eligible for deduction u/s 54F. It was also emphasized by the appellant that subsequent use of property is immaterial while allowing the deduction u/s. 54F. In support of her claim, the appellant relied on various judicial decisions. It is fact that that the appellant had sold an agricultural land situated at village Karmisar for total consideration of Rs. 86,40,000/- on 05-05-2011 against which she had had long term capital gain of Rs. 78,93,565/ -. Subsequently, on 30-08-2011, the assessee purchased a property situated at Gajner Road, Bikaner for a total consideration of Rs. 1,05,10,300/ -, which according to her was a residential property. It is also a fact that the property against which deduction u/s. 54F has been claimed was being used for commercial purpose. Hence, in the instant case I find that the crux of the issue to be decided whether deduction u/s. 54F can be denied if a residential property subsequently is put to use for commercial purposes. I find that there is no definition of residential house in the Income-tax Act. As far as the appellant’s case is concerned, in the purchase deed, the property under consideration is mentioned and registered as residential property. In the report of the Inspector it is clearly mentioned that there was some construction on the said property along with electricity connection. This clearly suggests that the property had adequate facility to be used for the purpose of residence. Upon plain reading of sec. 54F as quoted supra, there is no such condition in the section, which suggest that for claiming rebate U/s. 54F the appellant must reside in the house. The only condition is that the house should be a residential house. In this regard, I am guided by the judgement in the case of Amit Gupta Vs. Dy. CIT (2006) 6 SOT 403 in which the honourable Delhi Bench of ITAT have held as under:-
“Since the basement was capable of being used as residence, the fact that the assessee did not actually use the same for his residence will not disentitle him from claiming exemption U/s. 54F. It is further submitted by the appellant that the requirement of law is that the property should be a residential house. The expression residential house has not been defined in the Act. The popular meaning of word is a place or building used for habitation of people. It is not necessary that a person should reside in the house to call it a residential house. If it is capable of being used for the purpose of residence than the requirement of section is satisfied. “
Regarding the second objection of the A.O. that the property was on rent. I find that the past and subsequent use of the property can not form the basis for rejecting the claim of the assessee. What is paramount here is that the nature of the property should be residential, it is immaterial whether it is given on rent or used by the appellant himself. In this regard, I am suitably guided by the decision in the case of S.K. Loothra Vs. ITO (2007) 11 SOT 646 in which the honourable Mumbai Bench of ITAT have observed that ‘There is no condition that the assessee must stay there immediately. The only condition specified in section 54F is that the consideration received on sale of the old asset is not diverted but used for acquiring or constructing a residential property.
There may be a situation where the assessee has later on, after purchase of the property put the property for commercial use. That may be a violation of the rules governing Housing Co operative Societies or the Apartment Rules. It has no direct bearing with the provisions of the Income-tax Act. Therefore, there is no sanctity in probing into the intention of the assessee in purchasing the residential property. A residential property today may be a commercial property tomorrow and the commercial property of the present day may be a residential property tomorrow. What the law required U/s. 54F is that the sale consideration of the old property must be used by the assessee to acquire or construct, a new asset in the form of a residential property within the specified period. The two conditions are important; application of fund and the new asset in the nature of residential property. “
Further as regards the AO’s other observation no amenities were available on the said property, I find there is no such condition in the Income-tax Act that the residential property purchased by the assessee must he in a hahitable condition. The only condition to be satisfied is that the property should be a residential property. The pendency of work does not preclude the assessee from availing of the rebate U/s. 54F. In this regard, 1 may refer the following decisions:-
In the case of C.1.T. Vs. Sardarmal Kothari reported in (2008) 302 1TR 286, the Hon’ble Madras High court have held that ‘in order to get the benefit u/s. 54F the assessee need not complete the construction of the house and occupy it, and it was enough if the assessee established the investment of the entire net consideration within the stipulated period.”
a. CIT Vs. Sambandam Uday Kumar reported in (2012) 345 ITR 389 (Karnataka H.C.).
The Honble ITAT, jodhpur bench in the case of ACIT Vs. Mahabir Prasad dated 11.02.2013, held that “As per settled law, the nature of the property at the point of time of its purchase has to be considered and not its subsequent user. Accordingly we confirm the action of the learned CIT (A) in this regard also.”
After considering the Factual matrix of the case and legal precedents on this in hand, I am of the considered opinion that subsequent developments or past events are not crucial in deciding the matter. In the Present Case, the assessee sold an old asset and realised the consideration and applied the consideration for acquiring a new asset. The new asset is in the nature of a residential house as is quite evident from the purchase deed filed by the appellant. The case law cited by the A/R for the appellant are fully applicable to the facts of the present case. Therefore, the assessee has satisfied the provision contained in section 54F and hence the assessee is eligible foe rebate of Rs. 78,83,565/-. The AO is directed to delete the addition made on this account. The ground of appeal is allowed.”
10. We have heard the rival submissions and have perused the relevant material on record. We find that in the instant case, the assessee has sold an old asset and realized the consideration for acquiring a new asset. The new asset is in the nature of a residential house which is quite evidenced from the purchase deed filed by the assessee. Hence the assessee is entitled for deduction u/s 54F of the Act. Accordingly the ld. CIT(A) deleted the addition made by the ld. CIT(A). We observe that the provisions of section 54F will apply if the property is of residential nature. Its subsequent or past use is not material for claiming requisite deduction. Facts have already been analyzed in detail by Assessing Officer wherein it is verified that the assessee has sold an old asset and realized the consideration for acquiring a new asset. The new asset is in the nature of a residential house which is quite evident from the purchase deed filed by the assessee. We find that the decisions relied upon by the ld. A.R. of the assessee support the case of the assessee. Accordingly, we find no merit in the argument of the ld. D.R. and delete the ground raised by the Revenue on this count. We uphold the relief granted by the ld. CIT(A). Accordingly, the ground raised by the Revenue stands dismissed.
11. In the result, the appeal of the Revenue is dismissed. Order pronounced in the Open Court on 22.05.2017.
