2006 (4) TMI 99 - HC - Income Tax

Exemption u/s 54F - Whether, the Appellate Tribunal had valid materials to give a finding that the assessee had constructed a residential house before June 21, 1988, and thus eligible for exemption u/s 54F? - HELD THAT - The documents relied on by the assessees before the Tribunal were mere letters addressed by Y. R. Srinivasan, who is the architect. The said architect had given a quotation and bill dated June 27, 1988, and his acknowledgment of the receipt of a sum of Rs. 75,000 from each of these two assessees, which are not sufficient to prove that there were construction of residential houses. The said documents and other evidence were produced first time before the Tribunal. But the Revenue had relied on the inspection report and also verified with the Madras Corporation and further they have taken photographs of the place and all these documents reveal that there were only an extension of the old building. Further learned counsel submitted that section 54F is a beneficial provision and the same should be construed liberally. For the purpose of exemption u/s 54F, the assessees must construct residential houses within three years from the date of transfer. Hence the assessees are not entitled to relief u/s 54F of the Act. Thus, we are of the opinion that there were no construction and the claims made by the assessees for exemption u/s 54F were factually unacceptable. Hence, we answer the question in favour of the Revenue and against the assessees.

Summary

Issues Involved:
1. Eligibility for exemption under section 54F of the Income-tax Act.
2. Validity of the construction of residential houses within the specified period.
3. Evaluation of the Tribunal's findings and evidence.

Detailed Analysis:

1. Eligibility for exemption under section 54F of the Income-tax Act:
The primary issue was whether the assessees were eligible for exemption under section 54F of the Income-tax Act. The section provides that capital gains from the transfer of a long-term capital asset are not to be charged if the assessee constructs a residential house within three years of the transfer. The court noted that section 54F is a beneficial provision and should be construed liberally. However, the conditions for exemption must be strictly met, which includes the actual construction of a residential house.

2. Validity of the construction of residential houses within the specified period:
The court examined whether the assessees had indeed constructed residential houses within the three-year period from the date of transfer. The assessees claimed to have constructed new residential houses by June 20, 1988. However, the Revenue argued that there were no new constructions, supported by evidence from the Madras Corporation and local inquiries that showed the assessees applied for construction approval only on December 27, 1989, and received it on February 9, 1990. The court found that the evidence, including inspection reports and photographs, indicated that only old buildings existed and no new constructions were visible. The court concluded that the assessees failed to provide tangible proof of the construction of new residential houses.

3. Evaluation of the Tribunal's findings and evidence:
The court scrutinized the Tribunal's decision, which had granted exemption under section 54F based on the assessees' claims of unauthorized constructions that were later demolished. The Tribunal's findings were deemed perverse and not based on valid material or evidence. The court emphasized that the burden of proof was on the assessees to demonstrate the construction of new residential houses, which they failed to do. The Tribunal's reliance on irrelevant materials and the absence of contemporaneous documents led the court to interfere with its findings. The court cited Supreme Court judgments to assert its jurisdiction to overturn findings that are based on no evidence or are patently unreasonable.

Conclusion:
The court concluded that there were no constructions of new residential houses by the assessees within the specified period, making them ineligible for exemption under section 54F. The Tribunal's findings were overturned, and the question was answered in favor of the Revenue, with no costs awarded.