ATUL GOVINDJI SHROFF,VADODARA vs. THE DCIT, CENTRAL CIRCLE-3, VADODARA

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Smt. Annapurna Gupta, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member

ITA No. 1443/Ahd/2019 Assessment Year 2017-18

Atul Govindji Shroff. The Deputy 1028, Village Raipura, Commissioner of At Post Raipura, Vs Income Tax, Vadodara Central Cirlce-3, Gujarat-391410 Vadodara PAN: AACPS7330R (Respondent) (Appellant)

Appellant by : Shri Milin Mehta, A.R. Respondent by : Shri Kamlesh Makwana, CIT/DR Date of hearing : 17-04-2024 Date of pronouncement : 05-07-2024 आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-

The present appeal has been filed by the Assessee against the order dated 07.08.2019 passed by the Commissioner of Income Tax (Appeals)12, Ahmedabad, as against the Assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2017-18.

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3 The brief facts of the case is that the assessee is an individual and Director in few companies deriving income from salary and other sources. There was a search action u/s. 132 of the Act was conducted in Banco Products Group of cases including the case of the assessee on 02.08.2016. Pursuant to the search, the assessee was required to furnish the return of income for the assessment years 2011-12 to 2016-17. The present assessment year before us is the year of search namely assessment year 2017- 18. During this assessment year, the assessee had transferred shares of Excel Corp Care Ltd. and Transpek Industris Ltd. for a consideration of Rs. 15,77,30,705/- and offered net capital gain of Rs. Nil as the assessee has reinvested the consideration in a residential property at Colaba, Mumbai u/s. 54F of the Act of Rs. 14,14,55,783/-. On verification of the claim of the assessing officer held that the assessee already owned two residential properties namely (i) House no. 1028, Bhaili Road, Raipura, Vadodara (“the Raipura House”) and (ii) Vishubaug Farm property at Kharakhadi (“the Farm”).

3.1. The assessee claimed that the Farm property is an agricultural land used for carrying out agricultural activities wherein there is a Manager’s office, storehouse for farm equipments and agricultural produce stored there. Further the farm property also has a cow shed with 66 cows. The milk from these cows is sold and income is from generated the same. Thus the farm is exclusively used for agricultural purposes and it’s not a residential building and the employees of the assessee are carrying out the agricultural

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activities. The assessee also claimed that he is one of the co-owners of the above land along with his wife and daughter. Thus the farm is exclusively used for agricultural purposes and it’s not a residential building and the employees of the assessee are carrying out the agricultural activities. Thus the assessee claimed that the reinvestment in new residential property at Colaba Mumbai is eligible for deduction u/s. 54F of the Act.

3.2. To verify the details, the A.O. deputed Inspector of the Income Tax Department to conduct enquiry of the residential properties owned by the assessee. As per Inspector’s Report, the Vishubag property comprised of separate residential houses/out houses, store houses, cow shed and various other structures along with the separately built, beautiful residence – a “bungalow” surrounded with all around verandah and covered boundary and was equipped with all furniture/ furnishings, befitting of a house of an elite/rich person like that the assessee. The photographs of the above Vishubag properties were reproduced by the Assessing Officer in his assessment order at page nos. 7, 8 & 9.

3.3. The second argument of the assessee was that as he was only 1/3rd of the share in Vishubaug property and following the Madras High Court in the case of CIT vs. Dr. Smt. P.K. Vasanthi Rangarajan reported in [2012] 23 taxmann.com 299, claimed that joint ownership of a property could not be held to stand in the way of claiming exemption u/s. 54F of the Act.

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5.7. However on the basis of facts and details acquired through inquiries the claim of the assesse is outrightly incorrect. The first claim of the assessee that Vishubaug property consists of one building only, separate portion of which is being used as outhouses, cattle shed and office la rue. The Vishubaug property consists residential residential houses outhouses for the two families permanently residing there Attached behind their outhouses (where two servant families reside), the assessee has a storage/garage for tractor and agriculture implements. Further, unattached with the outhouses/store, a cow shed is constructed at a distance of 50 let away the outhouse. The Cowshed is having a separate boundary, shed and open area for cattle presently existing there. The office of the manager of the farm house Mr. Sangram Singh Bharvad is also constructed separately from cowshed and outhouses and is in sound and perfect condition. None of these mentioned constructed buildings are in a dilapidated condition and are all separate entities. The office is mad the entrance gate of the property and is around 50 to 100 feet away men other properties existing in the farm house. Most important of all, which makes the calm of the Assessee outrageously incorrect la the fact that apart from these three properties the Assessee is having a separately built beautiful residence, a Bungalow, surrounded with all around verandah and covered boundary. It is situated inside the Vishubaug property and is more than 50 to 100 feet away from all other three constructed buildings mentioned above. Not only this Banglow is aesthetically built and in a sound condition but has all the furniture/furnishings befitting of a house of an

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elite/rich person like the Assessee. The House/bungalow is about more than twenty years old. Though it is not being frequented by the Assessee lately, as told by the workers/caretakers present there, but it is not due to the reason of the bunglow being unlivable. It is due to the fact that the permanent residence of Assesses at 108 Ralpurs too is only 25-30 Kms away and after using the house for daytime the assesse returns back to his permanent residence at 1028 Raipura for the night. Moreover it was further gathered from the local enquiry and from the workers/caretakers of the Vishubaug property that the "Malkin” i.e. Assessee's wife had not been keeping well recently so they prefer to remain near the town at their second residence At 1028 Raipura. The photographs of each of these four separate constructions/buildings are being reproduced which establishes that not only these properties are all separate buildings but are also in a perfectly sound and livable condition and definitely not dilapidated an all. Thus the Assessee has deliberately tried to cook up a story of a dilapidated house to avail the non-allowable deduction with the help of painting a picture similar to the facts of ITAT Mumbai case of Smt. Anjali Mehra quoted by him above.

58 The second argument of the use is that he is the owner of only one residential house situated at 1028, Ralpura, Vadodara. As per his claim the her property even if treated as residential house at Vishubaug karkhadi, he is only a co-owner and not the full owner of the second residence. Thus, as per his own admittance, there is no controversy regarding existence of residential house at 1028, Raipura Vadodara in the ownership of the assessee. The assessee has only denied the existence and the sole ownership of another residential property at Vishubaug property. The assessee has tried to paint a picture of existence of a dilapidated building being used for all the activities of tow shed, outhouse, office etc. However on the basis of on-spot Inquiry the false assertion of the assessee have come to force.

5.9 Further, in the reply to the show cause the assessee has mentioned that the property at Vishubaug is a 22 acres land which is jointly owned by him, his wife and daughter. Thus, he claims that he does not have an exclusive right on Vishubaug property as he is only 33.33% shareholder in the land building of Vishubaug karkhadi. On the basis of such assertion it is being claimed that he being only a co-owner with a family members, therefore he has fulfilled the conditions stipulated in section 547 of the Act as he had only one residential house at Raipura, Vadodara. In support of his claim the assessee has quoted another case-law CIT Vs Dr. Smt. P.K. Vasanthi Rangarajan [2012] 23 taxmann.com 299 (Mad) where it has born

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held that "joint ownership of a property could not be held to stand in her way of claiming exemption u/s. 54F of the Act". However, the case of the assessee is distinguishable from the quoted case in that case the assessee had not owned any property in status of any individual, as on date of transfer. She was only a joint owner in one property. Thus the quoted case law is not at all applicable to the facts of the assessee's case. In the proviso of section 54F the claim of deduction barred the person who punt more than one residential house, other than the new asset Harmonious reading of the section 54F(1) with the proviso (1) clearly indicates that the assessee who owns more than one house, that means if an assessee already owning a residential house in his separate capacity, holds even a miniscule percentage of share in second/another property that makes it more than one residential house. Thus it means that it is not necessary to be the hundred percent owner of second house to get barred for deduction u/s 54F. After possession of one residential house the assessee has a joint ownership of second residential house irrespective of share ownership in that second house, the proviso debarring the deduction u/s.54F being ownership of more than one residential house, is fulfilled, Since, the assessee has himself admitted of hundred percent ownership of 1028, Raipura house and one-third ownership of the residential house at Vishubaug karkhadi property, the assesses car claim the deduction u/s.54 F of the Act.

5.10 Thus, on the basis of above discussion/revelations and production of evidences of facts of the case, it is conclusively proven that the assessee la owner of more than one house which is one of the conditions of proviso of section 54F to debar the person for claim of deduction u/s 54F. Further, the efforts of the assessee has also been effectively and conclusively foiled by the field inquiry conducted which revealed the false hood of his cooked up story regarding non-existence of another residential house at Vishubaug karkhadi on the date of acquisition of the new asset. He also tried to create a falsehood of mentioning a robust and perfectly sound and livable group of four buildings including a bungalow as only one dilapidated building which was effectively proven to be untrue by the report of the inspector and the photographs available of the separately constructed buildings in the Vishubaug katkhadi building on the date of acquisition new asset, being a residential house at Colaba, Mumbai.

5.11 Therefore, the amount of is. 14,14,55,780/-claimed an exemption u/s 54F of the IT Act is hereby disallowed and added to the total income of the assessee. Since the assessee under repotting the Income which is in

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consequence of misreporting of facts, penalty proceedings u/s 270A of the 1.T. Act are also being initiated.

5.6 The thrust of appellant's arguments are that - a. The Farm is not a residential house and is only used for carrying out agricultural activities and commercial activities. b. The income, if any, from the building on the Farm would not be— chargeable to tax under the head "Income from House Property" and hence, proviso to section 54F is not applicable. c. The Appellant is not personally carrying out any agricultural activity and he is not required to reside at the Farm and therefore he does not reside at the Farm. d. The Appellant has made heavy investment in constructing his elegant bungalow at Raipura and the same is mainly for residential purpose and it cannot be assumed that the Appellant would reside at the Farm instead of the House at Raipura. e. Without prejudice to above, the Appellant in any case is a joint owner of the land and hence proviso to section 54F is not applicable to the Appellant. 5.7 From the description of the property Vishubag at Kharkhadi in the assessment order based on the Inspector's report, it is clear that the property is an agricultural land spread over 22 acres and on one third portion of land there are various structures like cow sheds, equipment shed, houses for the workers, house for the managers and a "bungalow" for the Shroff family. The appellant has asserted that the property at Vishubag is a "Farm" and has interestingly and altogether avoided calling it a "Farm house". "Farm", "Farm house" and "Residential house" are not defined in the Income Tax Act. These can be either taken as commonly and generally understood or as per the laws of the local bodies i.e. the Municipality and the Development Authority.

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5.8 If the land is agricultural land, no residential properties can be legally constructed there. If the land is approved as a farm or a farm house, construction can be only upto a given percentage (typically 5% of the land area). Even if the property Vishubag is treated as a "farm house" and the alleged said "bungalow for the Shroff family" at the property at Vishubag is held as a "residential house", the issue is whether it is capable of being treated as residential house for the purpose of Section-54F. 5.9 In this regard, reference is made to Section 54F dealing with the deduction which is the subject matter of the appeal and Section-2(lA) which defines the agriculture income. As per the proviso to Section-54F, an assessee shall not be entitled for deduction u/s.54F if he has more than one residential house on the date of transfer [Clause (a)(i) of the Proviso] and income from such residential house is chargeable under the head 'income from house property' [Clause (b) of the Proviso]. One thing is unambiguously evident that if the property is a commercial property and not a residential house, the assessee will not be hit by the Proviso to Section-54F. The income from house property chargeable to tax u/s.22 is the annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purpose of any business or profession carried on by him the profits of which are chargeable to Income-tax. 5.10 As per Section-2(1 A), the agriculture income among other things also means (c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on: Provided that - if the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building and the land is either assessed to, land revenue in India or is subject to a local rate assessed and collected by the Officers of the Government or where the land is not so assessed is situated in any area which is comprised within the jurisdiction of the Municipal Corporation or in any area within the specified distance from the local limits of any Municipality. 5.11 No dispute has been created by the AO as to 22 acres of land not being agricultural land. Thus it may be presumed that the land is agricultural land and is situated well beyond the prescribed limits outside the Municipal Corporation of Baroda. However, in the submission made during the assessment proceedings, the claim has been made that the property at Vishubag is used as farm for milk production (there are 66 cows in the shelter on the farm) and cultivation of vegetables and that the

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appellant carries out milking activity and sells milk and milk products using the land. 5.12 In this regard, it is seen from the income-tax return for A.Y. 2017-18 filed in the paper book as pages 1 to pages 7 that the appellant has shown income from salary, income from house property, income from capital gain, income from other sources, special rate income (dividend income u/s 115BBDA and also exempt interest from PPF) but there appears to be no mention of any agricultural income or any income from sale of milk or other dairy products. Thus the claim of the appellant that there is sale of milk and vegetables in the farm is not supported by the return of income. It has also been noted by the AO that it was nowhere revealed that the appellant had carried out a commercial activity as claimed. 5.13 Otherwise also income from dairy farming is not an agricultural income. In State of Orissa Vs Ramchandra Chaudhary 46 ITR 246 (Orissa) it has been held that "dairy farming will not be an agricultural operation and income from dairy farming will also not be agricultural income. Therefore income from milk derived from milk pouch maintained by the assessee, is not agricultural income". 5.14 Even if agricultural and diary activities claimed by the appellant is conceded, it is admitted by the appellant that he does not do these activities himself but they are done by the employees engaged by him. Thus the appellant has failed to establish that agricultural or commercial activities are carried out at the Vishubag property and therefore it cannot be subscribed that the "bungalow" reported by the Income Tax Inspector is a dwelling unit which can be treated as covered u/s 2(1A) of the Income Tax Act. Therefore it has to be construed that the bunglow at the Vishubag property is a residential property which could deprive the appellant from the benefit of section 54F. The AO has already held that the joint holding of the Vishubag property does not rescue the assessee from suffering the consequences because the appellant is not protected by the case laws relied upon in this regard because the appellant also has a full-fledged residential property (1028, Raipura). I am also of the considered view that sec.54F allows only one residential property and the benefit ceases if the assessee has more than one residential property and the appellant definitely has more than one residential property. 5.15 In the facts and circumstances of the case the appellant is found to be-owner of more than one residential house other than the new asset (residential property at Colaba, Mumbai) on the date of transfer of the original asset (shares). I find no basis to interfere with the assessment order impugned in the appeal by the appellant. The addition is confirmed and the related grounds are dismissed.

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The assessee’s claim of agricultural activity and dairy activity is not substantiated with proof of evidence and not declared in the Return of Income filed by the assessee. In the absence of the same, the assessee’s claim of Vishubag Farm property as a commercial property cannot be accepted. The Hon’ble Orissa High Court in the case of State of Orissa vs. Ramchandra Chaudhary 46 ITR 246 has held that “dairy farming will not be an agricultural operation and income from dairy farming will also not be agricultural income. Therefore income from milk derived from milk booth maintained by the assessee, is not an “agricultural income”. Thus assessee failed to prove and disclose the agricultural income in his Return of Income. Therefore the assessee’s claim of commercial activity is not properly established wherein the Bungalow is also situated is to be treated only as a second residential property of the assessee. Therefore the lower authorities are correct in denying the exemption u/s. 54F of the Act.

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in the case of State of Orrisa vs. Ramchandra Chaudhary 46 ITR 246 has held that “dairy farming is not an agricultural operation and income from dairy farming will also not be an agricultural income. Therefore income derived from milk booth maintained by the assessee is not an agricultural income. Further, we observe that Ld. CIT(A) has also specifically observed that from perusal of the Income Tax Return for the impugned assessment year, the assessee has shown income from salary, income from house property, income from capital gain, income from other sources, special rate income (dividend income) and interest income, but there is no mention of agricultural income or any income from sale of milk or other dairy products. Thus, the claim of the assessee is that there is a sale of milk and vegetables in the farm is not supported by the return of Income as well. Further, the Ld. CIT(A) has also given specific finding that the assessee has failed to establish that any agricultural or commercial activities are carried out at the Vishubaug property and therefore, the said property is not covered u/s. 2(1A) of the Act. Accordingly, in our view, the findings of the assessing officer for A.Y. 2018-19 do not have a bearing on the present assessment year, since complete set of facts of the assessee have not been analyzed by the assessing officer in the assessment year for assessment year 2018-19.

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deduction u/s. 54F of the Act, the assessee should be exclusive owner of the property and joint ownership in the property would not disentitle the assessee from claim of deduction u/s. 54F of the Act. In our view, certain points in this regard are noteworthy. Firstly, it has not been denied by the assessee that the entire investment in the property at Vishubaug was made by the assessee himself and only for the purposes of registration that the property had been jointly registered in the name of his wife and his daughter. Accordingly, in our view, the case laws cited by the assessee would not come to the rescue of the assessee for the simple reason that if the entire investment is made by the assessee, then simply by putting the name of other co-owners being the close relatives say wife, daughter, son, etc., would not take away the case from the purview of the restrictions imposed under the provisions of Section 54F being that the assessee should not be owner of more than one immovable property at the time of purchase of new property. The assessee has made investment in the aforesaid property with his own funds, then simply because the assessee has registered the property jointly with his wife, son or any other close relative, should not, in our view take away the case of the assessee from the restrictions/conditions imposed u/s. 54F of the Act. If this view were to be accepted as correct then the assessees would conveniently register the property in joint names and take the case outside the purview of the restrictions imposed u/s. 54F of the Act, which is to the effect that the assessee should not be owning more than one residential property at the time of investment in new immovable property. Another notable is fact that the assessee

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purchased new property at Colaba, Mumbai for a sum of Rs.14,14,55,783/- for which deduction u/s. 54F of the Act was claimed, which was also jointly registered by the assessee along- with with his wife. However, the assessee has taken complete deduction of the entire amount of investment of Rs.14,14,55,783/-, despite the fact that the assessee is only 50% of the owner of such property (since the new investment is jointly held by the assessee and his wife). Therefore, evidently even in event of subsequent sale of property of Colaba, Mumbai, the assessee is likely to again take a view that since the property purchased at Colaba, Mumbai is held by the assessee in joint ownership, the restrictions imposed by Section 54/54F of the Act would not apply to assessee’s set of facts, in light of judicial precedents, which have held that for such restrictions to apply, the assessee should be the exclusive owner of the property. If this view were to be accepted in each case, then the assessees would this lacunae as a convenient tool for tax evasion. In our view, this contention of the assessee cannot be accepted if on facts it is found that the entire investment in the immovable property has been made by the assessee exclusively with his own funds and such argument can be accepted only if assessee is able to establish joint and separate investment by co-owners in the property. Accordingly, this argument of the assessee is also rejected.

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facts, it was observed that the assessee was clearly using the Farm of Vishubaug for residential purposes as well. The assessing officer while framing the assessment order has given a categorical finding that the immovable property situated at Vishubaug had a separately built bungalow, surrounded with verandah and covered boundary and all the furniture/furnishings of a house. Accordingly, on facts, the Department has clearly established that the property situated at Vishubaug was capable of being used and was also used by the assessee for his residential purposes.

Order pronounced in the open court on 05-07-2024

Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 05/07/2024 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT

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