2010 (5) TMI 639 - AT - Income Tax

Exemption under section 54F of the Income-tax Act - assessee claimed deduction for purchasing two residential units - Held that - in the case of Narendra Mohan Uniyal assessee had sold a piece of land and had earned capital gains. Thereafter, the assessee purchased a piece of land for Rs. 30 lakhs. Later yet, the assessee purchased a plot of land contiguous to the land purchased earlier. A residential house was constructed only on one piece of land purchased. The other piece was kept vacant. On denial of benefit under section 54F of the Act to the assessee, when the matter reached the Tribunal, it was held that section 54F of the Act contains no rider that no deduction will be allowed in respect of investment of capital gains made in acquisition of land appurtenant to a building or an investment in land on which the building is to be constructed. Reliance by the learned Commissioner of Income-tax (Appeals) on ITO v. Ms. Sushila M. Jhaveri (2007 -TMI - 59614 - ITAT BOMBAY-I) is by holding and, rightly so, that the assessee s case was still better, since the assessee had purchased the two floors of the same building within a short span of two days, no error whatsoever in the order passed by the learned Commissioner of Income-tax (Appeals), the same is hereby confirmed, appeal filed by the Department is dismissed.

Summary

Issues:
Department's appeal regarding exemption under section 54F for purchasing two residential properties out of long-term capital gain.

Analysis:
1. The Department appealed against the allowance of exemption under section 54F by the Commissioner of Income-tax (Appeals) for the assessment year 2005-06. The issue was whether the assessee, who sold two commercial properties and purchased two residential units, was eligible for deduction under section 54F of the Income-tax Act, 1961.

2. The Assessing Officer contended that the assessee purchased two distinct residential properties, IC-1 and IC-2, within a short period, making the assessee ineligible for the deduction. The Assessing Officer emphasized that the deduction under section 54F is allowed only for investment in one housing property, not multiple properties, and if income from additional residential properties is chargeable, no deduction is allowable.

3. The assessee argued that IC-1 and IC-2 constituted one residential unit, forming a duplex house. The ground floor had one bedroom, dining room, etc., and the first floor had two bedrooms. The assessee highlighted the internal staircase connecting both floors and the absence of separate entries. The Commissioner of Income-tax (Appeals) accepted this argument, considering the physical layout and the confirmation from the developer, confirming a single villa with a single kitchen.

4. The Commissioner of Income-tax (Appeals) also referred to a similar case, Addl. CIT v. Narendra Mohan Uniyal, where the Tribunal allowed deduction under section 54F for the purchase of contiguous lands for residential purposes. In this case, the assessee had purchased two floors of the same building within a short period, further supporting the eligibility for deduction.

5. The Commissioner of Income-tax (Appeals) concluded that the assessee was entitled to the deduction under section 54F, as the two floors constituted one residential unit. The Department's appeal was dismissed, upholding the decision of the Commissioner of Income-tax (Appeals) and confirming the eligibility of the assessee for the deduction.

6. The judgment emphasized the importance of the physical layout and the intention behind the purchase of residential properties in determining eligibility for deductions under section 54F. The confirmation from the developer and the physical characteristics of the purchased properties played a crucial role in establishing the single residential unit status, leading to the allowance of the deduction.