Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, DELHI BENCH: ‘F’ NEW DELHI
Before: SHRI R.K. PANDA & SHRI K.NARASIMHA CHARY
Aggrieved by the order dated 23.10.2018 passed by the learned Commissioner of Income Tax (Appeals)-14, New Delhi (“Ld. CIT(A)”) in the case of Sh. Yash Suneja (“the assessee”), for the assessment year 2015-16, assessee preferred this appeal.
Brief facts of the case are that the assessee owns two properties, namely, 94, Deepali Enclave, Pitampura, Delhi- 110034 - Self Occupied Property and L82, Shastri Nagar, Delhi – 110054 and claims to have been running business of trading and manufacturing of Hosiery Products since 1992 in the name of S L Industries from the premises L-82, Shastri Nagar, Delhi- 110054. During the financial year 2014-15, assessee earned long term capital gain of Rs.36,50,569/- in sale of shares and claimed exemption u/s 54F of the Act by investing an amount of Rs.95,95,960/- in a residential property - South City 1, Gurgaon, Haryana.
For the Assessment year 2015-16, assessee filed his return of income declaring total income of Rs.26,63,820/- on 29.09.2015 which include business income of Rs.25,35,505/-. Learned Assessing Officer opined that both of the above properties are residential properties and, therefore, assessee is not justified to claim of deduction u/s 54F of the Income Tax Act, 1961 (for short “the Act”). Assessee pleaded that he is the owner of two properties - one residential house situated at Deepali Enclave, Delhi and the other commercial property situated at Shastri Nagar, Delhi; that the commercial property situated at Shastri Nagar was originally acquired as residential property, but in the year 2008 the assessee got that property converted into commercial property as per the rules and regulations of Municipal Corporation of Delhi (MCD) and as per the Master Plan 2021 applicable to the properties of Delhi; that the conversion charges as per directives of the MCD were paid and the assessee started using the property as commercial property for the purpose of his business; and that part of the property after conversion was let out on rent to a business unit for carrying out business and rental income so earned from that business unit has been declared in the return of income, and the other part of the property is being used by the assessee for his business of hosiery items.
According to the learned Assessing Officer though the assessee claims to have converted Shastri Nagar residential property into commercial property under MCD rules, no certificate from MCD is produced establishing property as commercial. Further, though the assessee claims to have made payment of ‘charges of conversion into mixed land use’ to MCD and submitted challan payments, on which, it is written no where the word “commercial”; that the assessee can have Retail shop in the residential premises up to maximum 25 percent of the ground floor coverage, or 50 square meters of floor area, whichever is less, only on ground floor or Professional offices up to 25 percent of FAR or 100 square meters, whichever is less, on any floor, but the assessee has not submitted any evidence that any commercial activity has been started in the above house; and that as per the Mixed use policy of DDA, after paying the mixed use charges, the residential house owner can use part of the residential house for commercial activity, but, that does not change the nature of the property which remains residential in nature”. Learned Assessing Officer accordingly, held that the property is the residential property and accordingly made the disallowance of exemption of Rs.36,50,569/- claimed by the assessee u/s 54F of the Act in the assessment order passed u/s 143(3) of the Act.
Aggrieved by the order of the learned Assessing Officer, assessee filed an appeal before the Ld. CIT(A). Ld. CIT(A), by way of impugned order observed that, in respect of the property at Shastri Nagar, only 25% of ground floor was permitted to be used for commercial purpose and the remaining property, namely, the 3 floors and the 75% of the ground floor remains residential house, as no other use was permitted; that the assessee himself was showing the income from this property under the head house property and 1 floor was actually claimed to have been rented; that the property was not capitalised as business asset and no depreciation was claimed in respect of the same; that the proviso (b) to section 54F (1) of the Act defines residential property as the one, income from which is chargeable under the head house property; and that the entire building is claimed to be having only one electricity connection, and even if it is a commercial connection to 2 permitted 25% use of ground floor for the commercial purpose, it does not change the character of the remaining building. According to the Ld. CIT(A) the decisions of Hon’ble Jurisdictional Delhi High Court in the cases of Sanjeev Puri 160 ITR 213 (del) and Arjun Kapoor 70 ITD 161 (Delhi) have no obligation to the facts of the case. Holding so, Ld. CIT(A) confirmed the disallowance of exemption claimed by the assessee u/s 54F of the Act. Hence the assessee is now before us in this appeal.
6. Ld. AR submitted that it remains an undisputed fact by the learned Assessing Officer as well as the Ld. CIT(A) that the assessee is running his hosiery business from the same premises which is considered by learned Assessing Officer as the residential property. Further that, that the learned Assessing Officer during the course of assessment proceedings deputed the Inspector to visit the premises of the assessee, who found that the assessee has been conducting business in such premises. He further submits that the fact as to whether the relevant property is residential or commercial has to be determined by the usage of the property as held by the Hon’ble Karnataka High Court in the case of Shri. NavinJolly C/O Navin Architect Private Limited vs. ITO 2020 (6) TMI 514 - KARNATAKA HIGH COURT - dated 18/6/2020.
Per contra, Ld. DR placed reliance on the orders of the authorities below.
We have gone through the record in the light of the submissions made on either side. It is an undisputed fact that the inspector who was deputed to visit the premises of the assessee at Shastri Nagar reported that, -
"As directed by ACIT, Cir-42(1), I visited the premises L-82, Shastri Nagar, Delhi-52 on 10.08.2017. It’s a four floor building in which an officer is running at the Ground Floor and rest of the building is used as a godown for keeping stock of stocks in the brand name of Y&S. Sh. Akhil Hans who is brand incharge of the product as well as incharge of the building informed that this property i.e. L-82 belongs to SL Group (SL Industries) which is a proprietary concern of Sh. Yash Suneja. There is no rent agreement available in respect of said property and premises is used only for the purpose of keeping stock of finished goods which belong to Sh. Yash Suneja.”
8.1. In the case of Navin Jolly (supra), the Hon’ble Karnataka High Court held that,-
From close scrutiny of Section 54F(1) of the Act, it is 8. evident that in order to attract Section 54F(1) of the Act, the conditions stipulated in clauses (a) and (b) of proviso to Section 54F(1) have to be complied with as the legislature has used the expression 'and' at the end of clause (a) of proviso to Section 54F(1) of the Act. It is pertinent to note that under Section 22 of the Act any income from any buildings irrespective of which the use which has to be treated under the head 'income from house property'. It is well settled legal proposition that a provision in a taxing statute providing incentive for promoting growth and development has to be construed liberally so as to advance the object of the Section and not to frustrate it. [SEE:'CIT VS. STRAWBOARD MFg. CO. LTD.', (1989) 177 ITR 431 (SC) AND 'BAJAJ TEMPO LTD. SUPRA]. A bench of this court in SAMBANDAM UDAY KUMAR SUPRA while interpreting Section 54F of the Act has held that provisions of Section 54F is a beneficial provision for promoting construction of residential houses and has to be construed liberally. Kerala, Delhi, Allahabad, Calcutta and Hyderabad High Courts have taken a view that usage of the property has to be considered in determining whether it is a residential property or a commercial property and Madras High Court in C.H.KESVA RAO supra has held that expression 'residence' implies some sought of permanency and cannot be equated to the expression 'temporary stay' as a lodger.
In the backdrop of aforesaid well settled legal principles, 9. the facts of the case in hand may be examined. Learned counsel for the revenue have fairly submitted that out of nine apartments, seven flats have been sanctioned for commercial purposes. Therefore, the dispute only survives in respect of two apartments, which have been sanctioned for residential purposes and are being used for commercial purposes as serviced apartments. 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.
8.2. The Hon’ble Court has also referred to the judgment of Hon’ble ITAT Delhi in the case of Sanjeev Puri vs. DCIT [2016] 160 ITD 213- Dated: - 11 July 2016 wherein it was held as under:-
8.7 There is no dispute on fact that the property E-575A, GK-II, New Delhi owned by the assessee was being used as his office during the relevant period but only dispute between the assessee and Revenue remained about the entitlement of deduction of sec. 54F of the Act on the basis of actual user of the property i.e. office use and not merely on the basis of the municipal showing the property meant for residential use or in the sale deed shown as residential type. The ratios laid down in the above cited decisions, support the stand of the assessee that for availing deduction under sec. 54F of the Act, the property though shown as residential on the record of the municipality but the test will be actual user of the premises by the assessee during the relevant period. In other words it does not make difference whether the property has been shown as residential house on the record of the government authority but actual user thereof by the assessee will be considered while adjudicating upon the eligibility of deduction under sec. 54F of the Act claimed by the assessee. In the present case, for denial of the claimed deduction under sec. 54F of the Act, the Assessing Officer should not have considered the property E-575A, G.K.II, New Delhi as residential on the basis of municipal record ignoring the actual user thereof, as held in the above cited decisions. The authorities below were thus not justified in denying and upholding the denial of the claimed benefit to the assessee by way of deduction under sec. 54F of the Act on the basis that the assessee was owning more than one residential house (i.e. inclusion of E-575A, GK-II, New Delhi) on the date of transfer of the original assets. We thus setting aside the orders of the authorities below in this regard direct the Assessing Officer to allow the claimed deduction under sec. 54F of the Act. The ground No.1 is accordingly allowed 8.3. In Rajeev Malhotra vs. ACIT-2, AGRA - 2018 (4) TMI 704 - ITAT AGRA- Dated - April 9, 2018, the relevant observations of the Tribunal are that, -
We find that the observation of the CIT(A) in the case of the assessee 21. that as per law, an individual should not own more than one residential house property other than the new asset on the date of transaction and since the assessee was holding two residential houses in his name, so he is not entitled for the deduction under section 54F of the Act., is not conformity with the facts of the case and the provisions of the law. The action of the CIT(A) cannot be justified in holding both these properties as residential houses merely on the basis of their location in Jaipur House residential colony, Agra without appreciating the material facts regarding the purpose for which the properties were used; the house no. 273 in particular which was used for business purpose as it was let out by the assessee to M/s Client Technology Ltd. Agra for godown purpose. It is clear that although on the day of transfer of original asset, assessee had in his possession two residential houses i.e. 273, Jaipur House and 293, Jaipur House, however, the house no. 273 was let out to M/s Client Technology Ltd. Agra for business purpose and therefore, assessee is legally entitled for deduction under section 54F of the Act.
In the case of ‘Sanjeev Puri Vs. Dy. CIT’, (Supra), the property was 22. owned by the assessee, in the records of municipality which was being used by himself as his office during the relevant period. Admittedly, in the present case, the property was used by the assessee for business purpose by way of lease out to M/s Client Technology Pvt. Ltd. for commercial purpose of stocking of electronic items duly supported with commercial electricity connection for the period relevant. The ld. DR has not brought on record any material evidence in rebuttal to the contention of the assessee.
In view of the above, we accept the grievance of the assessee as 23. genuine on this issue and allow his claim of the exemption of ? 21,69,260/- u/s 54F of the Act. Accordingly, Ground No.2 is allowed.
8.4. It is not in dispute that the assessee has paid mixed land use conversion charges. The word "Mixed use " is defined in the MPD-2021 regulations to mean that the provision for non- residential activity in the residential areas.”, and, therefore, the payment of land use conversion charges itself certifies that the payment is made for converting the property from residential to commercial. The Mixed-use charges were paid to use the property as commercial and the nature of property for the purpose of exemption under section 54F is to be ascertained only with respect to the usage of the property. Further the property is being used for the commercial purposes was found to be a fact by the inspector as stated in the Inspector’s report. There is no reason for the authorities below to brush aside the report of the inspector. So also the authorities below did not record any adverse inference on the sales tax registration certificate of the invoices relating thereto.
8.5. It is relevant to at this juncture to note that in the case of Ifthiqar Ashik vs. ITO in by order dated 11/6/2013, the Chennai Bench of Tribunal held that the Income Tax Act does not create any distinction between rental income from house property and the rental income from commercial building inasmuch as in both cases how to make assessment under section 22 of the Act under the head “income from house property” subject to certain exceptions. We deem it necessary to extract the relevant observations for the sake of completeness.
“5. ……The Income Tax Act does not create any distinction between rental income from house property and rental income from commercial building. Rental income from residential and/or commercial building has to be assessed under section 22 of the Act under the head "Income from House Property" subject to certain exceptions.
The provisions of section 22 relating to charging of income under the head "income from house property" are reproduced herein below:-
"22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income- tax, shall be chargeable to income-tax under the head "Income from house property".
7. A perusal of section 22 shows that the term used in section is 'building', it is not qualified by the word 'residential'. There has been several decisions where the income from letting out of commercial buildings/warehouses/factory premises were held to be assessable under the provisions of section 22. This view has been affirmed by the Hon'ble Supreme Court of India in the case of Shambhu Investment P. Ltd. Vs. CIT reported as 263 ITR 143(SC). The Hon'ble Karnataka High Court in the case of CIT Vs. Bhoopalam Commercial Complex & Industries (P) Ltd. reported as 262 ITR 517 (Kar), in the facts and circumstances of the case held that rental income from commercial complex is liable to be assessed under the head "income from house property". Thus, in the instant case the Commissioner of Income Tax (Appeals) has erred in holding that since the income from commercial property is assessed under the head "income from house property" the property is residential.
8.6. Appeal against the said order was dismissed by the Hon’ble Madras High Court.
8.7. In the circumstances, we are of the considered opinion that going by the uses of the property and respectfully following the decision of the Hon’ble Karnataka High Court in the case of Naveen Jolie (supra), we hold that the assessee is entitled to exemption under section 54F of the I.T. Act, 1961 and consequently the orders of the authorities below cannot be sustained. In view of our finding on grounds No. 4 to 8, we are of the opinion that any discussion on grounds No. 2 and 3 would be academic.
In the result, appeal of the assessee is allowed.
Order pronounced in the Open Court on this the 04th day of January, 2022.