THE DCIT, CENTRAL CIRCLE-3, VADODARA vs. SMT. SHRUTI ATUL SHROFF, VADODARA

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ITSSA 416/AHD/2019Status: DisposedITAT Ahmedabad05 July 2023AY 2015-166 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal dismissed the appeal filed by the Revenue. The Tribunal held that the assessee was eligible for the deduction under Section 54F. The reasoning was twofold: firstly, the property in Vadodara was an industrial shed let out for commercial use, and therefore, it could not be considered a 'residential house' within the meaning of Section 54F. Secondly, the property was owned by the CC Patel Trust, of which the assessee was only a 20% beneficiary, and thus, it could not be said that the assessee owned this property as a residential house. The Tribunal also noted that the Department had not challenged the investment in the new residential property within the stipulated time. The Tribunal relied on the decision in Navin Jolly (117 taxmann.com 323) (Karnataka) where it was held that the usage of the property is crucial in determining whether it is residential or commercial, and properties used for commercial purposes cannot be treated as residential apartments. The CIT(A)'s order was upheld.

What were the facts?

The Revenue is in appeal against the order of the CIT(A) for Assessment Year 2015-16. The assessee claimed a deduction of Rs. 12,28,62,196/- under Section 54F on the purchase of a new residential property. The Assessing Officer (AO) disallowed this claim, stating that the assessee owned more than one residential house property as on the date of purchase of the new property. The assessee argued that she owned one property in Vadodara and a second property, an industrial shed, which was owned by CC Patel Trust. The assessee was a 20% beneficiary of this trust, and the shed was let out for commercial use. The CIT(A) allowed the assessee's appeal, holding that the industrial shed was not a residential house and that the assessee was not the sole owner of it.

What were the issues?

1. Whether, on the facts and in the circumstances of the case and in law, the assessee owned more than one residential house property on the date of purchase of the new residential property, thereby disentitling her from the deduction under Section 54F of the Income Tax Act, 1961. The Revenue contended that the assessee owned more than one residential house property. The assessee argued that the second property was an industrial shed owned by a trust in which she was a beneficiary, and it was used for commercial purposes, thus not qualifying as a residential house. 2. Whether the industrial shed owned by the CC Patel Trust, in which the assessee is a 20% beneficiary, can be considered as a residential house owned by the assessee for the purpose of Section 54F. The Revenue argued it could be. The assessee argued it could not be, as it was owned by the trust and used commercially.

Which sections of the Income-tax Act were involved?

Section 54F,Section 24(b),Section 153A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH

Before: Ms. Annapurna Gupta & Shri Siddhartha Nautiyal

For Appellant: Shri Amrin Pathan, A.R
For Respondent: Shri Sudhendu Das, CIT-D.R

आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-

This is an appeal filed by the Revenue against the order of the ld. Commissioner of Income Tax, CIT(A)-12, Ahmedabad, in proceeding u/s. 250 vide order dated 24/06/2019 passed for the assessment year 2015-16.

2.

The Revenue has taken the following grounds of appeal:-

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“1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the disallowance of claim of deduction of Rs. 12,28,62,196/- u/s 54F of the I.T. Act made by the A.O.

2.

It is, therefore, prayed that the order the Ld. CIT(A)-12, Ahmedabad may be set aside and that of the AO may be restored to the above extent.

3.

The appellant craves leave to add, alter, amend and/or withdraw any ground(s) of appeal either before or during the course of hearing of the appeal.”

3.

The brief facts of the case are that in the year under consideration the assessee had transferred shares and offered net capital gains of � 5,96,05,968/- to tax and claimed deduction under section 54F of the Act against the aforesaid capital gains on purchase of new residential house property at Santa Cruz, Mumbai. During the course of assessment, the AO disallowed the claim of deduction under section 54F on the ground that as on the date of purchase of new property at Santa Cruz, Mumbai, the assessee owned more than one residential house property and therefore is not eligible for claim of deduction under section 54F of the Act.

4.

In appeal before Ld. CIT(Appeals), the assessee submitted that she owned one property at Vadodara and the second property was an industrial shed which was owned by CC Patel Trust (Trust), wherein industrial activities were carried out by a propriety concerned named Uni Fab Engineers. In this regard, letter from GIDC, Baroda was furnished by the assessee which shows that the aforesaid shed is allotted to Uni Fab Engineers. Further the assessee submitted that it was the Trust which was in

I.T(SS).A No. 416/Ahd/2019 A.Y. 2015-16 Page No. 3 DCIT vs. Smt. Shruti Atul Shroff

receipt of rental income and the assessee being 20% beneficiary in the Trust offered her share of income as beneficiary to tax in her return of income. Therefore, while the total rental income of the Trust was � 4,20,000/-, the assessee’s share in the aforesaid rental income was � 63,937/- only, being a beneficiary of the aforesaid Trust, which was offered to tax by the assessee in her return of income. Accordingly, the assessee submitted that she is eligible for claim of deduction under section 54F of the Act on the ground firstly, that the aforesaid property was an industrial shed let out for commercial use and hence did not qualify as “residential house” within the meaning section 54F of the Act and secondly, the aforesaid property was owned by CC Patel Trust, of which assessee was a 20% beneficiary, and hence it cannot be said that the assessee owned more than one residential house property as on date of purchase of new residential house property at Santa Cruz, Mumbai. In light of the above facts, Ld. CIT(Appeals) allowed the appeal of the assessee with the following observations:

“5.2 Apart from the summary letter as on 05.05.2016 from GIDC which shows dues against the Shed No.A-2/207 GIDC, Makarpura, Vadodara, it is seen from the computation of total income U/S.153A for A.Y. 2015-16 that appellant is offering income of Rs.44,756/- @ 20% of ownership share from tenant named, C.C. Patel Trust and claiming interest of Rs.2,00,000/- u/s.24(b) of the Act on account of self-occupied property - House No. 108, Bhaili Road, Raipura, Vadodara. From the copy of the submission dated 13.12.2018 filed before the DCIT, Central Circle-3, it is seen that C.C. Patel Trust has income of Rs.4,20,000/- by way of building rent and that the share of the appellant, Smt. Shrutiben A. Shroff @ 20% is Rs. 63,937.40. From this, it is clear that the appellant was owning a self-occupied residential property and was having share in income from Industrial Shed through a trust. As per the provisions of Section-54F, the deduction on account of capital gain on transfer of certain long term

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capital assets, not being a residential house is available to an individual if the assessee within a period of one year before or two years after the date on which transfer of said assets took place, purchased or has within a period of three years after the date, constructed one residential house in India. As per the proviso, the deduction will not be applicable if the assessee owns more than one residential house, other than the new assets on the date of transfer of the original assets. In this regard, it is seen that the accrual of Long Term Capital Gain on sale of shares and the purchase of new asset at Santacruz, Mumbai being a residential flat is not disputed by the AO. The only issue is that the AO has treated the Industrial Shed as the 2nd residential house of the appellant on the date of transfer of the original assets. There cannot be any dispute that the Industrial Shed belongs to the Trust in which, the appellant has 20% share and that even if the appellant is treated as the owner of the Industrial Shed, the said Shed cannot be treated as a residential house which could have precluded the appellant from claiming deduction u/s.54F as done by her in the return of income.”

5.

The Department is in appeal before us against the aforesaid order passed by Ld. CIT(Appeals) allowing the claim of deduction under section 54F of the Act. Before us, the DR placed reliance on the observations made by the assessing officer during the course of assessment proceedings, and reiterated that as on the date of investment in the new residential house, the assessee owned more than one residential house property and hence is not eligible for claim of deduction under section 54F of the Act. In response, the counsel for the assessee placed reliance on the observations made by Ld. CIT(Appeals) in the appellate order.

6.

We have heard the rival contentions and perused the material on record. In our view, there is no infirmity in the order of Ld. CIT(Appeals) so as to call for any interference in the instant set of facts. Firstly, section 54F

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uses the term “owns more than one residential house”. In the instant case, neither was the assessee the owner of the property situated at Vadodara, and the ownership lay with CC Patel Trust, of which the assessee is a 20% beneficiary and, secondly, the property at Vadodara is an industrial shed which has been let out for commercial use. Accordingly, the same cannot qualify as “residential house” within the meaning of section 54F of the Act. Further, the Department has never challenged that the assessee had made investment in new residential house property at Santa Cruz, Mumbai within the permissible time as mandated under section 54F of the Act. In the case of Navin Jolly117 taxmann.com 323 (Karnataka), the Hon'ble High Court held that assessee's claim for deduction under section 54F(1) was to be allowed where two apartments owned by him even though had been sanctioned for residential purpose, yet same were in fact being used for commercial purpose as service apartments. The High Court made the following relevant observations in this regard:

The usage of the property has to be considered for determining whether the property in question is a residential property or a commercial property. It is not in dispute that the aforesaid two apartments are being put to commercial use and therefore, the aforesaid apartments cannot be treated as residential apartments. The contention of the revenue that the apartments cannot be taxed on the basis of the usage does not deserve acceptance in view of decisions of Kerala, Delhi, Allahabad, Calcutta and Hyderabad High Courts with which we respectfully concur.

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6.1 In view of the above, we are of the considered view that Ld. CIT(Appeals) has correctly upheld the claim of deduction under section 54F of the Act, in the instant set of facts.

7.

In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 05-07-2023

Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 05/07/2023 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद

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