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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
आदेश / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order of the
Commissioner of Income Tax (Appeals)-12, Chennai, dated 31.01.2019 and
pertains to assessment year 2015-16.
The assessee has raised the following grounds of appeal:
The order of the Commissioner of Income Tax (Appeals), in so far as it is against the appellant, is contrary to law erroneous and unsustainable on the facts of the case. Exemption claimed u/s 54: 2. The Commissioner of Income Tax (Appeals) erred in confirming the Assessment Order as regards claim u/s 54. 3. The Commissioner of Income Tax (Appeals) has failed to appreciate that the appellant had satisfied conditions required for claiming exemption u/s 54 and the "new property" in
ITA No.419/Chny/2019
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respect of which deduction u/s 54 was claimed is in fact and truth a residential property, capable of harmonious habitation and peaceful dwelling.
The Commissioner of Income Tax (Appeals) further failed to appreciate that notwithstanding the apparent nature of the building which has "approval as cottage industry" and "commercial" for electricity supply, it is factually correct to note that none of those activities as a matter of fact, were carried on and having due regard to the fact that the income arising therefrom was assessable under the head "income from property", there was no justification for rejecting the appellant's claim.
The Commissioner of Income Tax (Appeals) has erred in relying upon the categorization, in the Municipal Tax Records, as this by no means describes the actual character or usage of the building.
The Commissioner of Income Tax (Appeals) has ignored the fact that although saree business was carried on in the premises that was sold, the income from the same had been admitted under the head "property".
The Commissioner of Income Tax (Appeals) ought not to have ignored the fact that the entire sale proceeds obtained on transfer of old asset is invested in the construction of New Asset and hence the appellant is clearly entitled to the deduction claimed u/s.54 of the Act.
The Commissioner of Income Tax (Appeals) has given a grand goby to the several judicial pronouncements in this regard and hence, the order is wholly unjustified.
The Commissioner of Income Tax (Appeals) has failed to appreciate that if two views are possible regarding the allowability of claim u/s.54, the one that favours the subject is to be preferred, this being the considered view of the Apex Court.
In any view of the matter denial of exemption u/s.54 in entirety is uncalled for and totally unjustified.
The brief facts of the case are that the assessee filed its return of
income for the AY 2015-16 on 31.08.2015 declaring total income at
Rs.3,02,608/-. During the previous year relevant to the AY 2015-16, the
assessee has sold a property at Chennai on 17.12.2014 for a consideration
of Rs.1.03 Crs. and computed long term capital gains of Rs.99,09,344/-
after claiming indexed cost of acquisition. The assessee had also claimed
deduction u/s.54F of the Act, for construction of new residential house
property. During the course of assessment proceedings, when the AO
called upon the assessee to justify the claim of deduction u/s.54F of the
Act, the assessee has filed various details, including plan approval from the
competent authority and housing loan taken from M/s.CAN Fin Homes Ltd.
ITA No.419/Chny/2019 :: 3 ::
The AO, on the basis of information submitted by the assessee noted that
the new house property constructed by the assessee, is a commercial one,
which is not meant for residential purpose. Therefore, the assessee cannot
claim deduction u/s.54F of the Act. According to the AO, the plan approval
from the competent authority is for residential purpose. Further, the
assessee has taken approval for running a cottage industry. The assessee
had also taken loan from bank for construction of commercial property.
Therefore, he opined that the assessee is not entitled for deduction u/s.54F
of the Act and thus, rejected the arguments of the assessee and made
additions of Rs.99,09,344/-.
Being aggrieved by the assessment order, the assessee preferred an
appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assessee had
reiterated her arguments made before the AO. The Ld.CIT(A) after
considering the relevant submissions of the assessee and also taken note
of provisions of Sec.54 of the Act, observed that the assessee has invested
sale consideration received from transfer of original asset for construction
of commercial property, which was used for running a cottage industry,
which is evident from various evidences filed by the assessee, including the
plan approval for the building, Tax paid receipt and loans sanctioned letter
by M/s.CAN Fin Homes Ltd. Therefore, opined that there is no error in the
reasons given by the AO to reject the deduction claimed u/s.54F of the Act.
Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before
us.
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The Ld.AR for the assessee submitted that the Ld.CIT(A) erred in not
appreciating the fact that the assessee is satisfied the condition prescribed
for claiming exemption u/s.54F of the Act, by investing sale consideration
received from transfer of original assets for construction of new house
property, the income from which is assessable under the head ‘income from
house property’. The Ld.AR for the assessee referring to various
documents, including order of the Ld.CIT(A) in deleting penalty levied by
the AO u/s.271(1)(c) of the Act, argued that although, the Ld.CIT(A) has
confirmed the additions made by the AO, but while deleting penalty levied
u/s.271(1)(c) of the Act, very clearly observed that though, the assessee
was constructed house by taking plan sanction for commercial purpose, but
2/3rd of the house has been occupied for residence and only 1/3rd of the
house has been let out for commercial purpose. The Ld.CIT(A) has
observed that the assessee never used the property for running a cottage
industry. Therefore, from the above, it is very clear that although,
documents shown house property is commercial in nature, but in reality,
the house has been used for residential purpose and thus, the assessee is
entitled for deduction u/s.54F of the Act.
The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A),
submitted that evidences brought on record clearly indicate that the
assessee has constructed new commercial house property, which has been
used for running a cottage industry and further, let out for commercial
purpose. The assessee has failed to file any evidence to prove that the
ITA No.419/Chny/2019 :: 5 ::
house is used for residential purpose. Therefore, the AO and the Ld.CIT(A)
have rightly rejected the claim of the assessee and their orders should be
upheld.
We have heard both the parties, perused the materials available on
record and gone through orders of the authorities below. The provisions of
Sec.54F of the Act, provides exemption for long term capital gains derived
from transfer of property, in case, capital gains is invested in
purchase/construction of residential house property. As per the provisions
of Sec.54F of the Act, the condition precedent for claiming deduction is that
sale consideration received from transfer of original asset, should be
invested in purchase or construction of new residential house property. The
term house property has not been defined under the Act, but various Courts
have interpreted house property, as per which, house property means a
property, the income from which is chargeable to tax under the head
‘income from house property’. If you go by the meaning assigned by various
Courts, there is no differentiation between property which is used for
residential purpose and property which is used for commercial purpose, but
only condition for claiming exemption is that the new house property,
should be constructed within specified period for the residential purpose.
In this case, the claim of the assessee was that although, the documents
including the plan approval from the competent authority shows the new
house property is for commercial purpose, but in reality said property has
been used for residential purpose. The assessee has taken support from
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the order of the Ld.CIT(A)-12 dated 09.04.2019 in dealing with the penalty
levied by the AO u/s.271(1)(c) of the Act, where the Ld.CIT(A) very
categorically and candidly admitted that the assessee has used 2/3rd of the
property for residential purpose and 1/3rd house property for letting out to
commercial purpose. The Ld.CIT(A) further noted that there is no cottage
industry running in the premise as claimed by the AO. The Ld.CIT(A) had
also considered an Affidavit filed by Mr.N.Ranga Swamy. As per which, the
assessee was ill-advised to get approval for running a cottage industry for
the sake of obtaining quick loan from the bank. Otherwise, it was
established from the facts that the house property was partially used for
residential purpose and partially used for let out purpose and income from
house property is chargeable to tax under the head ‘income from house
property’. From the above, what is clear is that although, the evidences
gathered during the course of assessment proceedings prove the fact that
the house is commercial one, but in reality the house property has been
predominantly used for residential purpose of the assessee. Therefore, on
the basis of evidences, the deduction claimed by the assessee cannot be
rejected. Further, the provisions of Sec.54F of the Act, is a beneficial
provision, which is meant for encouraging investments in housing sector.
As per the said provision, the assessee is allowed to claim deduction
towards long term capital gains derived from sale of properties, if such long
term capital gains is invested for construction of another house property.
As per the said provision and also from the interpretation by various Courts,
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the only condition precedent for claiming deduction is investment of sale
consideration received from transfer of original asset for construction of
new house property. In this case, the assessee has invested capital gains
derived from transfer of original asset for construction of house property,
which has been used for residential purpose as well as commercial purpose.
Since, provisions of Sec.54F of the Act, is a beneficial provision, we are of
the considered view that merely for the reason that the assessee has used
part of house property for commercial purpose, the benefit of deduction
u/s.54F of the Act, cannot be denied.
In this view of matter and considering facts and circumstances of the
case, we are of the considered view that the assessee is entitled for
deduction u/s.54F of the Act, towards capital gains derived from transfer of
original asset. Hence, we direct the AO to delete additions made towards
disallowance of deduction claimed u/s.54F of the Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on the 28th day of April, 2022, in Chennai.
Sd/- Sd/- (वी. दुगा� राव) (जी. मंजूनाथा) (G. MANJUNATHA) (V. DURGA RAO) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 28th April, 2022. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to:
ITA No.419/Chny/2019 :: 8 :: 1. अपीलाथ�/Appellant 4. आयकर आयु�/CIT 2. ��यथ�/Respondent 5. िवभागीय �ितिनिध/DR 3. आयकर आयु� (अपील)/CIT(A) 6. गाड� फाईल/GF