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Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’
PER SHRI N.V VASUDEVAN, JUDICIAL MEMBER :
This is an appeal by the assessee against the order dated 24/6/2016 of Commissioner of Income-tax (Appeals) – 5, Bangalore relating to asst. year 2012-13.
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The only issue that arises for consideration in this appeal is as to whether the CIT(A) was justified in allowing deduction u/s 54F of the Income Tax Act, 1961 (Act) to the assessee.
The facts and circumstances under which the deduction u/s 54F of the Act was claimed by the assessee are as follows:- The assessee is an individual. He sold a property and derived long term capital gain (LTCG)on sale of property of Rs.75,41,185/-. Under the provisions of section 54F of the Act, a deduction while computing long term capital gain has allowed, if the long term capital gain arises on transfer of long term capital asset not being a residential house, if within 2 years from the date of transfer, the assessee has purchased a residential house. In the present case, there is no dispute that the Assesse sold a long term capital asset not being a residential house. The Assessee claimed that it had purchased a residential house at survey No.3/1, PID No.10-04-3/1, situated at 2nd Cross Road, Lorry stand, Godown Street, Yeshwantpur, Bangalore, by utilizing the long term capital gain and therefore it is entitled to a deduction of the whole of the long term capital gain.
The AO perused copy of the registered sale deed under which the assessee claimed to have purchased a residential house property. He noticed what assessee was purchased was only a vacant land. He also noticed that there was a constructed shed measuring 100 sq.ft. of ACC sheet roofing and there was no electricity and water. The AO, therefore, was of the view that the condition required to be satisfied u/s 54F of the Act, viz., viz., purchase of residential house was not complied with by the assesse. According to the AO, a small 100 sft AC sheet roof, with four walls which was in the nature of a shed cannot be construed as residential house because it was not habitable. According to the AO, residential house must be habitable and only then deduction u/s. 54F of the Act can be allowed. The AO deputed Inspector to make physical inspection of the property.
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The Inspector reported that watchman was employed to look after the property and he was residing in the shed. The AO was of the view that since the property in question was not habitable, the assessee was not entitled to deduction u/s 54F of the Act. The AO in this regard has also made reference to the decision of the Hon’ble Karnataka High Court in the case of MB Ramesh Vs. ITO (2010) 320 ITR 451 in which the question for consideration was with regard to deduction u/s.54 of the Act. U/s.54 of the Act, a deduction while computing long term capital gain has allowed, if the long term capital gain arises on transfer of long term capital asset being a residential house. The question before the AO in that case was whether the property sold by the Assessee fitted into the description of a residential house. The revenue authorities and Tribunal found that what was sold by the Assessee was a mud structure not worthy of being called residential house. The Hon’ble High Court refused to admit the Assessee’s appeal by holding that no question of law arises for consideration and the finding of fact cannot be challenged in appeal u/s.260A of the Act. For all the above reasons, AO denied the benefit of deduction u/s 54F of the Act to the assessee
On appeal by the Assessee, the first appellate authority viz., CIT(A), allowed claim of the assessee for deduction u/s.54F of the Act. The CIT(A) firstly held that the decision in the case of MB Ramesh(supra), rendered by the Hon’ble Karnataka High Court was dismissal of appeal on the ground that a finding of fact cannot be challenged in appeal u/s.260A of the Act. The CIT(A) found that Khate issued by the BBMP mentions the description of the property as residential property and determined annual value at Rs.780/-. The CIT(A) also found that the description of the property as mentioned in the sale deed was site with 100 sq ft AC sheet shed and not just a vacant land. The CIT(A) found that in a decision of the Hon’ble Dehi ITAT in the case of Amit Gupta Vs. DCIT (2006) 6 SOT 403 (Delhi) the Tribunal took the view that to claim deduction u/s.54F of the Act, it is not a condition that some person should reside in a property to call it residential
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house and that it was enough if the property was capable of being used as a residential house and need not be actually used as a residence. The CIT(A) also found that the ITAT Bangalore Bench in the case of Dr. R. Balaji vs DCIT the Hon'ble ITAT Bangalore which was confirmed by the Hon’ble Karnataka High Court as reported in (2014) 222 Taxman 305 (Karn) wherein the question was whether a house of 200 sq.ft. RCC with cement floor and civic amenities on the said property could be said to be “a residential house” for the purpose of allowing deduction u/s.54F of the Act. The Hon’ble High Court approved the findings of the Tribunal and held that the assessee fulfilled conditions for grant of exemption under section 54F of the Act.
The CIT(A) found that there was no dispute that there was a constructed shed of 100 Sq.ft. with ACC sheet roofing with walls of brick and mortar and cement flooring and the Assessee's employee has been staying to look after the property. He was of the view that a structure can be considered habitable even in the absence of Electricity and water supply. He was of the view that since in the case under consideration there was a person already living in the structure, it can be said that it was in a habitable condition even though basic amenities such as Electricity and water supply was not there. He was of the view that sections 54 and 54F of the Act are beneficial provisions for promoting construction of residential house and requires to be construed liberally in achieving that purpose. The CIT(A) relied on the decision of the Hon'ble Supreme Court held in the case of Bajaj Tempo Ltd. Vs CIT 196 ITR 188(SC) wherein it was held that a provision in taxing statue granting incentive for promoting growth and development should be construed liberally, the restriction on it too has to be construed so as to advance objective of the provision and not to frustrate it. For all the above reasons the CIT(A) directed the AO to allow the claim of the Assessee for deduction u/s.54F of the Act.
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Aggrieved by the order of the CIT(A), the revenue has preferred the present appeal before the Tribunal. We have heard the submissions of the learned DR and the learned counsel for the Assessee. The learned DR reiterated the stand of the AO as reflected in the order of the assessment. According to him the structure existing of the land purchased by the Assessee was not habitable and the requirement of Sec.54F of the Act for grant of deduction is construction of “a residential house” which by implication puts a condition that the structure should be habitable otherwise it cannot be termed as residential house. According to him a structure which is not habitable is not residential house because nobody can reside in such structure. The learned counsel for the Assessee relied on the order of the CIT(A).
We have given a very careful consideration to the rival submissions. The provisions of Sec.54F of the Act, reads thus:
'54F. Profit on sale of property used for residence:- (1) 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 a long-term capital asset, not being a residential house,(hereinafter 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 (hereinafter in this section referred to as the new asset), the cpital gain shall be dealt with in accordance with the following provisions of this section that is to say,- 9. The question that arising for consideration in this appeal is as to whether the Assessee can be said to have purchased “a residential house”. 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 the word is a place or building used for habitation of people. It is used in contradistinction to a place which is used for the purpose of business, office, shop,
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etc., 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 then the requirement of section is satisfied. The fact that civic amenities were not available in the building constructed cannot be the basis to hold that the property in question is not a residential house. It was capable of being used as a residential house de hors these facilities. These facilities could come in due course and make the property more habitable. The section does not lay down any standards of habitation like existence of civic amenities etc. Besides the above, the undisputed factual position is that there was a constructed shed of 100 Sq.ft. with ACC sheet roofing with walls of brick and mortar and cement flooring and the Assessee's employee has been staying to look after the property. Since there was a person already living in the structure, it can be said that it was in a habitable condition even though basic amenities such as Electricity and water supply was not there. The Khate issued by the BBMP mentions the description of the property as residential property and determined annual value at Rs.780/-. Keeping in mind the above facts, we are of the view that the CIT(A) was justified in directing the AO to allow deduction u/s.54F of the Act to the Assessee. The order of CIT(A0 does not call for any interference. Consequently, the appeal by the revenue is dismissed.
In the result, appeal by the Revenue is dismissed.
Order pronounced in the open court on 2nd May, 2018.
Sd/- Sd/- (JASON P BOAZ) (N.V VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore Dated : 2/5/2018 Vms
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Copy to :1. The Assessee 2. The Revenue 3.The CIT concerned. 4.The CIT(A) concerned. 5.DR 6.GF By order
Sr. Private Secretary, ITAT, Bangalore
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Date of Dictation …………………………… 2. Date on which the typed draft is placed before the dictating Member ……………………. 3. Date on which the approved draft comes to Sr. P. S.……………………….. 4. Date on which the fair order is placed before the dictating Member ……………….. 5. Date on which the fair order comes back to the Sr. P.S. ………………….. 6. Date of uploading the order on website…………………………….. 7. If not uploaded, furnish the reason for doing so ………………………….. 8. Date on which the file goes to the Bench Clerk ……………….. 9. Date on which order goes for Xerox & endorsement………………….. 10. Date on which the file goes to the Head Clerk ……………. 11. The date on which the file goes to the Assistant Registrar for signature on the order ………………………………. 12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order …………………………. 13. Date of Despatch of Order. ……………………………………………..