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Income Tax Appellate Tribunal, Hyderabad ‘B‘ Bench, Hyderabad
Before: Shri R.K. Panda, Vice- & Shri Laliet Kumar
ORDER Per Laliet Kumar, J.M This appeal filed by the Revenue is directed against the order dated 27.02.2020 of the learned CIT (A)-6, Hyderabad relating to A.Y.2013-14.
The Revenue has raised the following grounds:
“1. On the facts and in the circumstances of the case, the order of the learned Assessing Officer is contrary to law and facts of the case. 2. The learned Assessing Officer erred in disallowing the claim made u/s 54F at Rs.5,47,20,000/-, on surmises and conjectures. 3. The learned Assessing Officer erred in assuming that the assessee has no title in respect of the plot of land on which the construction of the house property is made to claim the deduction u/s 54F of the IT Act, whereas, the property devolved upon the assessee by way of gift (hiba) which need not be registered and it is one of the modes of transfer of property as per Muslim Personal Law.
The learned Assessing Officer erred in assuming that just because the assessee could not get sanction from the Municipal Authorities, for the construction of the house property, the construction period from September 2012 to July 2013 is doubtful and assessee is not eligible for the deduction u/s 54F.
5. The learned Assessing Officer disallowed the claim u/s 54F, only on surmises and conjectures and not on any facts proved against the assessee during the course of assessment proceedings.
6. The learned Assessing Officer erred in disallowing business loss claimed at Rs.36,10,070/- 7. The appellant craves to add to/alter amend/substitute/omit and modify all or any of these grounds.”
2.1 The Revenue has raised the following additional grounds: “1. Whether the learned CIT (A) misinterpreted the concept of residential house as appearing in section 54F?
2. Whether the learned CIT (A) erred in permitting a proportionate disallowance u/s 54F which is not provided for in the statute?”.
Facts of the case, in brief, are that the assessee filed his return of income for the A.Y 2013-14 electronically on 31.03.2014 admitting total income of Rs.1,73,88,852/. The case was selected for scrutiny through CASS under section 143(2) and notice was issued on 04.09.2014 and the same was served on assessee. Further, notices u/s 142(1) have been issued from time to time calling for certain information, in response to which the A.R of the assessee appeared before the Assessing Officer from time to time and furnished the requisite information called for.
3.1 The assessee has offered long term capital gains for the assessment Year 2013-14, besides house property income and business loss. With regard to the claim of capital gains exemption, the Assessing Officer noted that the assessee has sold two properties during the F.Y. 2012-13 at Hafeezpet, Serilingampally mandal for a consideration of Rs. 2,14,90,500/- (1953 sq yds) and Rs.6,76,97,000/- (6154 sq yds). As per the details furnished by the assessee, the assessee has acquired Acre 3.11 guntas which equals to 15,851 sq yds , in the year 1981. The assessee said to have acquired the land in the year 1981 and due to disputes incurred the legal expenses incurred from time to time and finally the land was received as family settlement by the Hon'ble High Court of Andhra Pradesh in the year 2010 and got registered vide document No. 3939/2010. The assessee has claimed exemption u/s 54F of IT Act against the cost of acquisition.
3.2 The assessee has claimed exemption of Rs. 5,47,20,000 u/s 54F of IT Act. The assessee is said to have constructed a building in Sultan Shahi, Moghalpura area of Hyderabad. The assessee was asked to submit the details of land holding and the evidence for municipal approval for construction of the above building and submit details of evidence for expenditure claimed. In response, the assessee submitted a copy of will said to have been given by his mother in the year 2003 which was not registered nor the title deeds of the land are in the name of the assessee. Further, the assessee has submitted a plan which was not approved by the Municipal authorities. The above facts go to understand that the assessee has not taken any municipal permission but said to have constructed Ground plus three floors buildings in the above area before the due date for filing the return of income. According to the Assessing Officer, this Page 3 of 17 contention of the assessee is also doubtful that a building with an area of 9692 sq ft of Ground plus three floors could be constructed in a period between September 2012 to July 2013 i.e 10 months.
4. The contention of the learned DR that the Assessing Officer vide order dated 31.3.2016 disallowed the deduction claimed u/s 54 of the I.T. Act for the reasons mentioned in his order vide para 5.1 to 5.1.3 which are to the following effect:
The learned DR drew the attention of the Bench to Paras 7.1 to 7.6 of the order of the learned CIT (A) which are to the following effect:
Feeling aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the learned CIT (A) who granted partial relief to the assessee. Hence the Revenue is in appeal before us.
The contention of the learned DR is that the assessee had claimed deduction u/s 54 of the Act in respect of the property which is in the nature of Mosque and therefore, the assessee is not entitled to the relief u/s 54 of the I.T. Act. The learned DR also drew the attention of the bench to the detailed written submissions filed in this regard which read as under:
The learned DR further submitted that the Municipal application filed by the assessee for the purposes of regularization was for the Mosque only and for those purposes, the learned DR drew our attention to the application filed before the GHMC and at page 5 of the application filed by the assessee, dated 31.12.2015, the nature of the usage of the property being used for “Madrasa activities and Mosque” only. The learned DR also submitted that the assessee filed an application with the Property Tax Department of the State and as per the same document the property is not assessed to tax being the exempt property. On the basis of the above, it was submitted that the property being constructed by the assessee was in the nature of Mosque and therefore, the assessee has not fulfilled the condition/criteria laid down for grant of deduction u/s 54 of the Act and therefore, the assessee is not entitled to deduction u/s 54 of the Act. Additionally, it was submitted that there is no provision for grant of pro-rata deduction under section 54F of the Act, hence the learned CIT (A) was wrong in granting pro-rata deduction for 1st, 2nd and 3rd floors of the property.
Per contra, the learned AR submitted that the inspection of the premises was carried out by the officials of the Revenue and during the course of inspection, a report was prepared and as per the said report, top floor of the property was used for residence of the assessee and therefore, the order of the learned CIT (A) granting pro-rata benefit u/s 54F was in accordance with law.
We have heard the rival contentions of both the parties and perused the available material on record. During the course of argument, the learned Counsel for the assessee was confronted Page 11 of 17 whether the assessee had taken permission for construction of the property before starting the construction in accordance with the law or not. In reply thereto, the learned Counsel for the assessee submitted that the construction raised by the assessee was in the nature of unauthorized construction and no permission was taken by the assessee from the GHMC. However, the learned AR submitted that subsequently the assessee filed an application for regularization of the construction and in the application filed on 31.12.2015, the nature of the construction was mentioned as “Mosque, Orphanage School and Staff quarters”. Admittedly, the assessee was required to construct the residential house as per section 54F of the Act within the period stipulated in the Act. Though the definition of residential house has not been given under the Act, however, the judicial precedents with respect to the residential house and definition of the residential house as available in various dictionaries makes it abundantly clear that the residential house is a “house constructed for the purpose of residence having provision for kitchen and toilet etc.,” Admittedly, the assessee had mentioned that the property is consisted of Mosque, Orphanage School and Staff Quarters in the application dated 29.12.2015. During the course of assessement proceedings, the assessee had not provided any evidence of raising any construction in the premises. In the assessment order in para 5.1 the Assessing Officer has doubted the raising construction within a period of 10 months with a constructed area of 9662 sq. ft with 9+3 floors in the building.
The learned CIT(A) in the appellate proceedings had directed the Assessing Officer to inspect the premises and in para 7.1 the learned CIT (A) mentioned that the Inspector had visited Page 12 of 17 the premises. In this regard the Assessing Officer submitted a remand report on 26.07.2017 which is to the following effect:
Further, there is a report dated 12.7.2018 where the Officer of the Jt. Director of the I.T Department in the report has mentioned as under: “3. As per the factual report submitted now, ground floor of the premises is being used for Madrasa activities and Mosque is being maintained on first floor. Even the Municipal approved plan is also for Mosque only”.
The learned CIT (A) in Para 7.3 has given the report of the Inspector and the Inspector brings out the following salient points: a) Ground floor consists of family graves, mass dining, preaching of Quran to children and prayer hall. b) First floor consists of infidel rooms and mostly unoccupied. c) Second floor is an open hall uses for residence of children. d) Third floor consists of residence of the assessee.
There is yet another report dated 2.4.2018 in the form of verification report and in para 8 and 9 of the order, it was mentioned as under: “8. The DIT (I&CI) has directed to re-submit the report after obtaining factual report. Accordingly, photograph of the premises was taken and color printout is enclosed herewith, where in- the door No. was clearly mentioned in name board of the building. However, local enquiries revealed that in the ground floor Madrasa is running i.e teaching Khuran both reading and writing of Urdu and Arabic. First floor is set out for prayer hall i.e Mosque. As per the information obtained from the ACIT, circle 14(1), Hyderabad, it is observed that the municipal plan was also approved for construction of mosque. Now the only question left with reference to the facts of the case is whether such prayer hall cum study room can be termed as residential to allow the claim of 54F is to be viewed. Though there is no definition in the flat a residential house is to be in a form, but it should be in a living accommodation of human being with attached kitchen, hall and bed room and toilet facility etc. In the instant case, the assessee invested in construction of mosque though it was named as Manjil. 9. However, the subject issue of eligibility of the claim is pending for adjudication before the learned CIT(Appeals) -6, Hyderabad against the order passed by the ACIT, circle 14(1), Hyderabad in the instant case for the same year under consideration and wherein the AO disallowed the claim of 54F on the same ground that Mosque is not a residential house.”
The learned CIT (A) had relied upon the report of the Inspector dated 20.07.2008, which in our view should be 20.07.2018. However, the said report cannot be relied upon by the learned CIT (A) as what is required to be seen is whether the assessee has constructed house within the period granted u/s 54F i.e. 3 years from the date of capital gain arose to him. In the present case the A.Y under consideration is 2013-14, therefore, the report of the Inspector dated 20.07.2018 cannot be the basis for grant of exemption u/s 54F of the Act. In our view, the closest report/document available on record is the application for regularization filed by the assessee on 31.12.2005 by virtue of which the property was used for Mosque, Orphanage School and Staff Quarters.
The sum and substances of the various inspections carried out by the officials of the Revenue leads to a conclusion that the property is predominantly being used for religious purposes namely Mosque, Orphanage School and Staff quarters and therefore, in our opinion, it does not fit within the definition of the residential house as contemplated u/s 54F of the I.T. Act. However, there is a report stating that the 3rd floor of the property is being used for residential purposes being used for the residence of the assessee. In our view, the report suggesting 3rd floor being residential, is contrary to the statement of the assessee filed before the GHMC seeking regularization of the property wherein it was submitted that the property was being used for Mosque, Orphanage School and residence for the staff. The above said statement clearly shows that the assessee has not used the property for the residential purpose within the time granted by the statute and further there is no evidence to show that the assessee has invested in raising of the construction of a residential house, therefore, in our opinion, the assessee is not entitled to any relief u/s 54F. We have examined the provisions of section 54F which is the enabling provision for grant of deduction. The literal reading of section 54F makes it abundantly clear that there is no scope of grant of pro-rata deduction, more particularly when no provision Page 16 of 17 of residence can be made in a Mosque. Accordingly, the grounds of appeal of the Revenue are allowed and the order of the Assessing Officer is upheld.
In the result, appeal filed by the Revenue is allowed.