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Facts
The assessee, a Non-Resident Indian (NRI), failed to file an income tax return for the Assessment Year 2015-16. The AO noted receipts of Rs. 58 lakhs from property sale and interest, initiating proceedings under section 148A(b) and subsequently issuing a notice under section 148. The assessee eventually filed a return declaring a total income of Rs. 1,71,990/-, but the AO disallowed the claim for exemption under section 54F and added back the returned income under capital gains.
Held
The Tribunal held that the assessee is, in principle, entitled to a deduction under section 54F for investment in a property even if it consists of multiple units, provided it is constructed as a single residential house. However, the assessee had not filed relevant evidence before the AO to substantiate the cost incurred on the new residential house. Therefore, the issue was remitted back to the AO for quantification.
Key Issues
Whether the assessee is entitled to deduction under section 54F for a property constructed with multiple units, and the requirement of evidence substantiating the cost of the new residential house.
Sections Cited
148A(b), 148, 54F, 45, 147, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI SOUNDARARAJAN K.
PER SOUNDARARAJAN K., JUDICIAL MEMBER:
This appeal by assessee is directed against the order of ITO (International Taxation), Ward-1(2), Bangalore dated 2.1.2024 for the assessment year 2015-16.
Even though the assessee had raised several grounds before this Tribunal, ld. A.R. restricted her plea to ground No.3 only and also made an endorsement to the effect that the other grounds are not pressed and the same are dismissed as not pressed except ground No.3 of the appeal, which is taken up for adjudication.
Facts of the case are that the assessee is a NRI and he has not filed the return of income for the assessment year 2015-16. The ld. AO had found that the assessee had received a sum of Rs.58 lakhs by way of sale of immovable property and interest received of Rs.1,63,645/-. Therefore, the ld. AO issued a notice u/s 148A(b) of IT(IT)A No.252/Bang/2024 Balusa Venkata Muralikrishna, Bangalore Page 2 of 6 the Income Tax Act, 1961 (in short “The Act”) for which the assessee had not filed his reply and therefore, the ld. AO passed an order u/s 148A(d) of the Act on 31.3.2022 and a notice u/s 148 of the Act was issued. Thereafter, the assessee filed his return of income on 10.2.2023 and declared a total income of Rs.1,71,990/-. The ld. AO sought for the details about the sale consideration received by him and proposed to levy long term capital gain tax by disallowing the claim of exemption made by the assessee u/s 54F of the Act. The ld. AO had not considered the return of income as valid since the same was not filed in time and the same has been filed only after the notice u/s 148 of the Act was issued on 31.3.2022. Therefore, the ld. AO rejected the claim of exemption and added back the returned income under the head “capital gain” u/s 45 of the Act. A draft assessment order was passed on 28.8.2023 against which the assessee filed objections before the Dispute Resolution Panel (“DRP”), Bangalore and the ld. DRP after getting the remand report from the ld. AO had rejected all the grounds raised by the assessee and therefore the ld. AO had confirmed his proposal and passed the assessment order u/s 147 r.w.s. 143(3) of the Act on 2.1.2024.
3.1 Against the said order of the ld. AO, the assessee filed this appeal by contending that the claim of deduction u/s 54F of the Act is in order since he had utilized the entire sale consideration received by way of sale of immovable property for the construction of the new house within the stipulated period and therefore no capital gain would be attracted in this case. The assessee also filed a paper book enclosing various documents including the bank statement and the receipts showing the property tax paid to the newly constructed house and the rental agreement in support of his case that the entire sale consideration was invested in constructing new building, which was also duly assessed by the local municipal authority.
IT(IT)A No.252/Bang/2024 Balusa Venkata Muralikrishna, Bangalore Page 3 of 6 4. We have heard the rival submissions and perused the materials available on record. As seen from the various documents submitted in the paper book, it seems that the contention of the assessee requires a further consideration and therefore we are of the view that, if the assessee was able to prove that he has constructed whether a flat in apartment or independent building/bungalow having different floors, with single door number to be considered as single unit and if it is in the form of apartment, having different flats with different electricity meter numbers and water connections, then it is to be treated as different unit subject to production of relevant evidences by the assessee before the ld. AO and then he could be entitled for exemption u/s 54F of the Act, if it is a single unit. The Assessing Officer has to satisfy himself the fulfilment of other conditions laid down in Section 54F of the Act for granting the deduction u/s 54F of the Act. This should be ascertained by the ld. AO by verifying the documents furnished by the assessee in order to appreciate the contentions raised by the assessee. Further, it is noted that in the case of Shri Lakshminarasimha Vs. ITO Ward-4(1), Bangalore, the Tribunal vide dated 18.2.2020 held as follows: “7 In principle, we are in agreement with the contention of the learned Authorised Representative that the assessee is entitled for exemption u/s. 54F of the Act and all flats situated in single building to be considered as one residential house and deduction u/s. 54F is to be granted. This issue was considered by this Tribunal in the case of Chandrashekar Veerabhadraiah Vs. ITO in ITA No.2293/Bang/2019 dt.07.12.2020 wherein it was held in paras 9 to 13 as under: “9. We have heard both the parties and perused the material on record. Section 54F of the Act reads as follows:
“54F. (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 any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or 74[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 (hereafter in this section referred to as the new asset); the capital gam shall be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the new assets is not less
IT(IT)A No.252/Bang/2024 Balusa Venkata Muralikrishna, Bangalore Page 4 of 6 than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45”.
9.1 Now the contention of DR is that the building is having multiple residential units. The assessee is entitled for deduction in respect of only one residential unit.
We have gone through the case records. Actually, this was the single piece of property bearing Sy.No.47/8 (Eastern Portion), Doddabommasandra, Chamundeshwari Layout, Vidyaranyapura, Yelahanka Hobli. The area of land is East to West 25ft, North to South 93ft, totally 2,325 sq.ft. The assessee constructed residential building consisting of the following: “The building is having Ground, First & Second Floor. Ground floor consists of a parking area with 2 BHK of 2 units. First floor consists of a 2BHK of 3 units. Second floor consists of a 1BHK of 5 units. All the units are Rented out except first floor is fully occupied by the owner.”
According to the DR, there are multiple residential units w.e.f. 01.04.2015, the assessee is entitled for deduction to the extent of value of only one residential unit. The claim of the assessee is that the assessee invested in single residential unit and is eligible for deduction under section 54F of the Act on the entire value of the building and relied on judgment on judicial High Court in the case of K. G. Rukminiamma 331 ITR 211 wherein it was held that the phrase “a” residential house would mean “one” residential house is not correct. The expression “a” residential house should be understood in a sense that building should be of residential house in nature and “a” and should not be understood to indicate a singular number. Section 54/54F uses the expression “a residential house” and not “a residential unit”. Section 54F requires the assessee to acquire “a residential house” and so long as the assessee acquires the building, it may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently, used as an independent residence, the requirement of Section should be taken to have been satisfied. There is nothing in these Sections which requires a residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in this Section which requires that the residential house should be in built in a particular manner, it seems to us that the Income Tax Authorities cannot insist upon that requirement. A person may construct a house according to his plans, requirements and compulsions. A person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post retirement. One may build a house consisting of four bedrooms (all in same or in different floors) or in such a manner than an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay IT(IT)A No.252/Bang/2024 Balusa Venkata Muralikrishna, Bangalore Page 5 of 6 there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. The physical structuring of the new residential house, whether it is lateral or vertical, cannot come in the way of considering the building as a residential house. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction u/s 54/54F. It is neither expressly nor by necessary implication prohibited.
We are therefore of the opinion that the assessee in principle, is entitled for deduction under section 54F in respect of investment made in impugned property subject to production of other relevant evidence by the assessee before the A.O. In the present case, the assessee has not filed relevant evidences for incurring the cost on new residential house before the A.O. Hence, we inclined to restore the issue to the file of A.O. for quantification purpose the deduction u/s 54F of the Act. The assessee is directed to produce all relevant evidences in support of the claim of deduction u/s 54F of the Act.
In the result, appeal of the assessee is allowed for statistical purposes.” In view of the above judgment, we are of the opinion that, in principle, the assessee is entitled for deduction u/s.54F of the Act in respect of investment made in multiple flats subject to production of relevant evidence by the a. before the Assessing Officer. Accordingly, the assessee shall furnish all the evidence in support of the claim of deduction u/s. 54F of the Act. The Assessing Officer has to satisfy himself the fulfilment of other conditions laid down in Section 54F of the Act for granting the deduction u/s. 54F of the Act and ordered accordingly.
In the result, the assessee's appeal is allowed for statistical purposes.”
4.1 Accordingly, in the light of above order of the Tribunal, we inclined to set aside the order of ITO (International Taxation) dated 2.1.2024 and remit the entire matter to his file to consider the issue de-novo and pass orders in accordance with the provisions of the Act for fresh consideration. We also make it clear that the assessee can file further documents, if any required in deciding the issue before the ld. AO and should cooperate in completing the assessment proceedings.
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