2018 (2) TMI 177 - AT - Income Tax

Claim of exemption raised by the assessee u/s 54F - Held that - The case of the assessee before us does not fall within the sweep of the disqualification contemplated in the proviso of Sec. 54F(1) for two reasons, viz. (i) the properties, i.e. Tara Manzil and Noor Manzil were not residential properties but commercial properties; and (ii) that the assessee was not the absolute owner of the aforesaid properties, but rather, was only a fractional owner of the same. It can safely be concluded that the observations of the CIT(A) do not suffer from any infirmity. Thus as being in agreement with the view taken by the coordinate bench of the Tribunal in the case of Shri Rasiklal N. Satra (2005 (9) TMI 635 - ITAT MUMBAI) therefore, uphold the order of the CIT(A). - Decided against revenue.

Summary

Issues Involved:
1. Eligibility for exemption under Section 54F of the Income Tax Act, 1961.
2. Determination of residential versus commercial property status.
3. Impact of fractional ownership on exemption eligibility.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption under Section 54F:
The primary issue in this case was whether the assessee was entitled to claim an exemption under Section 54F of the Income Tax Act, 1961. The assessee received ?1,00,00,000 on surrender of tenancy rights and invested ?1,84,91,350 in a new residential house, claiming exemption under Section 54F. The Assessing Officer (AO) disallowed the exemption, arguing that the assessee owned more than one residential house on the date of transfer of the original asset, thus disqualifying him under the proviso of Section 54F(1).

2. Determination of Residential versus Commercial Property Status:
The assessee contended that the two properties in question, Tara Manzil and Noor Manzil, were commercial properties and not residential properties. The CIT(A) accepted this argument, noting that the properties were tenanted and the assessee had only limited legal ownership and rent collection rights. The Tribunal upheld this view, stating that there was no evidence to contradict the CIT(A)'s findings that the properties were commercial in nature. Therefore, the proviso of Section 54F(1), which disqualifies an assessee owning more than one residential house, was not applicable.

3. Impact of Fractional Ownership on Exemption Eligibility:
The assessee also argued that even if the properties were considered residential, he was only a fractional owner with 25% ownership in Tara Manzil and 20% in Noor Manzil. The Tribunal agreed, citing that fractional ownership does not equate to owning a residential house under Section 54F(1). The Tribunal referenced the case of The Income Tax Officer Vs. Shri Rasiklal N. Satra (2006) and the judgment of the Hon’ble High Court of Madras in Dr. P.K. Vasanthi Rangarajan Vs. CIT (2012), concluding that ownership under Section 54F(1) means complete ownership to the exclusion of others, not fractional ownership.

Conclusion:
The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision that the assessee was entitled to the exemption under Section 54F. The properties in question were commercial, and the assessee's fractional ownership did not disqualify him from the exemption. The Tribunal emphasized that the term "owns more than one residential house" in Section 54F(1) must be strictly construed, excluding fractional ownership from its scope.