HARIDAS (HUF),CHENNAI vs. ITO NCW 1(3), CHENNAI

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ITA 1570/CHNY/2019Status: DisposedITAT Chennai29 November 2019AY 2015-168 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the investment in Plot No. 31 is not eligible for exemption under Section 54F. The reasoning was that land appurtenant must be an indivisible part of the building, used for its enjoyment and not for any other use. Plot No. 31, being vacant land, could not be considered an indivisible part of the building constructed on Plot No. 32, nor was it necessary for the enjoyment of that property. The building on Plot No. 32 could be enjoyed independently. Therefore, the CIT(A)'s order on this issue was upheld, and the assessee's grounds failed. Regarding the restriction of exemption to one unit, the Tribunal found that the basic facts were not properly examined and therefore remitted this issue back to the Assessing Officer for fresh consideration. The assessee was directed to furnish all supporting materials, and the AO was to conduct an enquiry, provide an opportunity to the assessee, and pass an order accordingly. The issue of whether the construction constituted one or multiple residential units was left undecided by the Tribunal and remanded for fresh examination.

What were the facts?

The assessee, M/s. Haridas (HUF), appealed an order of the CIT(A)-2, Chennai, for AY 2015-16. The assessee purchased two adjacent plots (31 and 32), totaling 4800 sq.ft., on 04/07/2014. Plan approval was obtained for construction on Plot No. 32 (2400 sq.ft.). The Assessing Officer (AO) restricted the exemption under Section 54F, holding that the investment in Plot No. 31 was ineligible as plan approval was only for Plot No. 32. The AO also disallowed exemption for Plot No. 31 based on Smt. Asha George Vs. ITO. Furthermore, the AO restricted the exemption to one residential unit, citing the Finance Act, 2014 amendment effective from 01.04.2015, despite the assessee claiming construction of four units. The CIT(A) upheld the AO's decision regarding Plot No. 31 and the restriction to one unit, relying on CIT vs. Smt. V.R. Karpagam.

What were the issues?

1. Whether the investment in Plot No. 31, contiguous to Plot No. 32 where a residential building was constructed, is eligible for exemption under Section 54F, considering it was purchased via a single sale deed and treated as a single holding, and whether it qualifies as land appurtenant to the residential house. - Assessee's contention: Plot No. 31 should be considered land appurtenant to the house built on Plot No. 32, forming part of a single holding and eligible for deduction. - Revenue's contention: Plot No. 31 is a separate plot, kept vacant, and not an indivisible part of the building or necessary for its enjoyment, thus not eligible for exemption. 2. Whether the assessee is eligible for exemption under Section 54F for multiple residential units constructed, or only for one unit, in light of the amendment to Section 54/54F effective from 01.04.2015. - Assessee's contention: Only one residential building was constructed, comprising a stilt floor for parking, a first floor for living, and a headroom on the terrace (shown as a second floor), and the HUF members reside as a single household. - Revenue's contention: The AO found four independent dwelling units based on the building plan and property tax assessment, warranting restriction of exemption to one unit.

Which sections of the Income-tax Act were involved?

Section 54F,Section 54

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI

Before: SHRI DUVVURU RL REDDY & SHRI S. JAYARAMAN

For Respondent: Shri Sailendra Mamidi, PCIT, &, Shri J. Pavitran Kumar, JCIT
Hearing: 09.09.2019Pronounced: 29.11.2019

PAN: AADHH 9168M (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/ Appellant by : Shri S. Suresh Kumar, Advocate ��यथ� क� ओर से /Respondent by : Shri Sailendra Mamidi, PCIT, & Shri J. Pavitran Kumar, JCIT सुनवाई क� तार�ख/Date of Hearing : 09.09.2019 घोषणा क� तार�ख /Date of Pronouncement : 29.11.2019 आदेश / O R D E R PER SHRI S. JAYARAMAN, ACCOUNTANT MEMBER:

The assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-2, Chennai in 18 dated 28.03.2019 for the assessment year 2015-16.

2 - 2. M/s. Haridas, the assessee, a HUF, purchased two adjacent plots of land at Kumarankudil, Okkiyam, Thoraipakkam bearing Plot numbers 31 and 32 on 04/07/2014 vide a single Sale Deed No.4646 of 2014 registered at Sub Registrar’s Office, Neelankarai. The total extent of both the plots together was 4800 sq.ft. The assessee obtained plan approval for construction of building for stilt plus two floors. The Karta of the assessee – HUF, Shri Haridas, applied for plan approval only for the land area pertaining to Plot No.32 alone i.e. to the extent of 2400 sq.ft. In the assessment made for the assessment year 2015-16, the Assessing Officer restricted the quantum of exemption in two modes, firstly the Assessing Officer held that since the plan approval for construction was obtained only for Plot No.32, the proportionate cost of investment in Plot No.31 should not be considered for exemption, and secondly, the Assessing Officer relying on the case of Smt. Asha George Vs. ITO reported in (2013) 30 taxmann.com 334 (Kerala), further held that land admeasuring 2400 sq.ft. in Plot No.31 was also not eligible for the exemption U/s.54F. Further, the Assessing Officer held that the assessee has constructed four independent dwelling units, however it is eligible for exemption of 3 - only one unit, as per the amendment inserted by the Finance Act, 2014 w.e.f. 01.04.2015.

2.1 Aggrieved against that order, the assessee filed an appeal before the CIT(A). Before the ld.CIT(A), relying on the ITAT decision in the case of DCIT v. Kalyanaraman Nataraja , [2017] 165 ITD 307, the assessee contended that Plot No.31 has to be considered as land appurtenant to the house property built on Plot No.32 at Kumarankudil. The ld.CIT(A) examined the assessee’s claim and dismissed the corresponding grounds. With regard to the restriction of quantum of exemption for the one unit, the ld.CIT(A) held that till assessment year 2014-15, such claim was valid as per the jurisdictional High Court decision in the case of CIT vs. Smt. V.R. Karpagam, 373 ITR 127 (Mad). However, the Income Tax Act, was amended from 01.04.2015. Consequently, the deduction U/s.54 / 54F is applicable to only one residential house in India from assessment year 2015-16 onwards. After referring to the Jurisdictional Hon’ble High Court decision in the case of CIT vs. Smt. V.R. Karpagam and following the jurisdictional High Court’s decision, he held that the Assessing Officer is right in restricting the benefit claimed by the assessee to only one residential 4 - house, in view of the amendment made to Section 54 & 54F for assessment year 2015-16. Aggrieved, the assessee filed an appeal before this Tribunal.

3.

The ld.AR submitted that the ld.CIT(A) erred in upholding the view that the investment in contiguous plots by the assessee was not fully eligible for deduction U/s.54F without appreciating the fact that the plot was bought, held and treated as single holding and form part of and appurtenant to the residential house built thereon. The ld.CIT(A) erred in not directing the Assessing Officer to grant exemption U/s.54, treating the investment in the entire land (consisting of 2 plots) on which the independent residential building was erected as eligible investment as per law. Taking us through the copies of certain photographs, the ld.AR made an endeavor to support his stand. Further, the ld.AR submitted that the ld.CIT(A) erred in confirming the erroneous finding of the Assessing Officer that the assessee constructed four residential units and thereby restricted the exemption U/s.54F to one-fourth of cost of investment in land and one-fourth of the cost of construction. The ld.CIT(A) erred in not appreciating the material fact that the assessee had constructed only one residential 5 - building which consisted of stilt flour (used for car parking) and first floor (used as living space) and the headroom in the terrace (shown as second floor). Therefore, the ld.AR pleaded to allow the cost of construction of building for the purpose of deduction U/s.54 / 54F holding it as “one residential building”.

4.

Per contra, the ld.DR submitted that the ld.CIT(A) clearly distinguished the cases relied on by the assessee by recording a finding that the land acquired by the assessee are two different plots, although contiguous, there are two separate lands involved in the assessee’s case, “land appurtenant thereto” to a building is generally a land that is a indivisible part of a building and is used for the enjoyment of the building and not to put to any other use. In the assessee’s case, the assessee only constructed the house on one plot whereas the other plot was kept vacant. This itself shows that the second part of the land could be considered neither as an indivisible part of the building constructed nor it is necessary for the enjoyment of the property. Therefore, the ld.CIT(A) restricted the exemption claimed U/s.54 / 54F to the plot on which the assessee constructed the building. Inviting our attention to the copies of the photographs relied 6 - on by the ld.AR, the ld.DR supported the view taken on by the lower authorities.

4.1 With regard to the restriction of quantum of exemption to one unit, the ld.DR submitted that the officer found from the building plan that the building consisted of four independent dwelling units and therefore held that proportionate cost of investment in three dwelling units should not be considered for exemption and relied on the property tax assessment of the new property. But however, the assessee contended before the ld.CIT(A) that it had obtained the plan approval for two floors but only one floor was constructed. According to the assessee, the members of HUF are residing in the new property as single household and the property tax assessment considered the entire house as one unit, apart from the electricity charges connection being common. In the facts and circumstances, the assessee’s claim before the Hon’ble Tribunal requires examination and hence, the ld.DR submitted that appropriate decision may be taken.

5.

We heard the rival submissions and gone through the relevant material. Though the assessee purchased two adjacent plots of land 7 - with 4800 sq.ft., in a single sale deed, the plan approval is bearing Plot Nos.31 & 32. The assessee obtained plan approval for construction only for Plot No.32, having 2400 sq.ft., area. Constructed the house on one plot, keeping the other plot as vacant. As held by the ld.CIT(A), the land appurtenant thereto is a land which should be an indivisible part of a building, it should be used for enjoyment of the building and it should not be put to any other use. From the material furnished by the assessee including the photographs, it is clear that Plot No.31 i.e., presently the vacant land, cannot be considered as an indivisible part of the building constructed in Plot No.32 nor it is necessary for enjoyment of the property. The Plot No.32, wherein the building is constructed is an independent unit which could be enjoyed separately, on its own, without using the area in the adjacent plot i.e., Plot No.31. Therefore, the order of the ld.CIT(A) on this issue is in order and hence, the corresponding grounds of the assessee fails.

5.1 With regard to the restriction of exemption on the units constructed in Plot No.32, since the basic facts are not properly examined, we are of the view that the issue requires fresh consideration and hence, we remit back this issue to the Assessing 8 - Officer for a fresh examination. The assessee shall lay all materials in support of its contention before the Assessing Officer and comply with the requirements of the Assessing Officer in accordance with law. The Assessing Officer is also free to conduct appropriate enquiry as deemed fit, however, he shall furnish due opportunity to the assessee on the materials etc., to be used against the assessee and on due consideration of the assessee’s clarification / explanation shall pass the order in accordance with law.

6.

In the result, the assessee’s appeal is treated as partly allowed for statistical purpose.

Order pronounced in the Court on 29th November, 2019 in Chennai.

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