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August 29, 2022

Two residential apartments used for commercial purposes should be excluded from the deduction under section 54F

by CA Shivam Jaiswal in Income Tax, Legal Court Judgement

Two residential apartments used for commercial purposes should be excluded from the deduction under section 54F

Facts and Issue of the Case

The assessee has raised following grounds of appeal:-

1. The order of the learned Commissioner of Income Tax Appeal is opposed to law, facts and probabilities of the case.

2. The learned CIT (A) erred in denying exemption U/s 54F as there is no addition of property in the hands of the Assessee since the Co Ownership is converted into Full Ownership by purchasing the share of his brother Mr. Ananda Kumar by investing the capital gains proceeds.

3. The Assessee prays the exemption under Section 54F be allowed by deleting the addition made by the Learned Assessing Officer in the interest of Justice.

4. Further, the Assessee pleads that the Penalty proceedings be kept in abeyance till the disposal of appeal. The Assessee craves permission to adduce further grounds of appeal at the time of hearing.

The facts of the case are that the assessee is an individual derives income from house property apart from remuneration and interest income from M/s.Saidapet Electricals. The assessee has filed his return of income for the assessment year 2007-08 on 31.03.2007 admitting total income of Rs.5,49,500/-. During financial year relevant to assessment year 2007-08, the assessee has sold property for consideration of Rs.40 lakhs and computed long term capital gain of Rs.26,28,898/-. The assessee had also claimed deduction u/s.54F of the Income Tax Act, 1961 for purchase of another residential house property for consideration of Rs.27,50,000/-. The Assessing Officer has disallowed deduction claimed u/s.54F of the Income Tax Act, 1961, on the ground that at the time of transfer of original asset, the assessee is having more than one house property. The assessee carried the matter in appeal before the first appellate authority, but could not succeed. The learned CIT(A), for the reasons stated in their appellate order dated 12.09.2019 confirmed additions made by the Assessing Officer towards disallowance of deduction claimed u/s.54F of the Act. Being aggrieved by the learned CIT(A) order, the assessee is in appeal before us.

The learned A.R. for the assessee submitted that the learned CIT(A) erred in confirming disallowance of deduction claimed u/s.54F of the Act, without appreciating fact that although, the assessee had more than one house property at the time of transfer of original asset, but those properties were let out for commercial purposes and if we exclude those properties, then the assessee does not own more than one house property and consequently, eligible for deduction u/s.54F of the Income Tax Act, 1961.

The learned DR, on the other hand, supporting order of the learned CIT(A) submitted that the Assessing Officer as well as the learned CIT(A) brought out clear facts to the effect that properties owned by the assessee are residential houses even though, same are let out for commercial purposes, therefore, the assessee is not entitled for deduction u/s.54F of the Income Tax Act, 1961 and hence, their orders should be upheld.

Observation by the Court

The court had heard both the parties, perused material available on record and gone through orders of the authorities below. The Assessing Officer has denied deduction claimed u/s.54F of the Act, on the ground that the assessee owns more than one houses at the time of transfer of original asset. It was explanation of the assessee before the Assessing Officer that although, he had owned more than one houses, but those houses are let out for commercial purposes and if we exclude houses let out for commercial purposes, then the assessee does not have more than one houses, when the original asset was transferred and thus, entitled for exemption u/s.54F of the Income Tax Act, 1961.

The court had considered rival submissions and also decision relied upon by the learned AR for the assessee in the case of Navin Vs, ITO and the court find that the issue involved in the present appeal is squarely covered by the decision of the Hon’ble Karnataka High Court where it has been held that where two apartments owned by the assessee, even though had been sanctioned for residential purpose, yet same were in fact, being used for commercial purposes as service apartments, then both needs to be excluded for the purpose of deduction u/s.54F of the Income Tax Act, 1961.

In this view of the matter, and by respectfully following decision of the Hon’ble Karnataka High Court in the case of Navin Vs, ITO , the court are of the considered view that the assessee is entitled for deduction u/s.54F of the Income Tax Act, 1961 in respect of amount invested for purchase of another residential property. Hence, the court  direct the Assessing Officer to delete additions made towards disallowance of deduction claimed u/s.54F of the Income Tax Act, 1961.

Conclusion

 The appeal filed by the assessee is allowed by the court .

D.-Ravikumar-Vs-ACIT-ITAT-Chennai

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