2009 (8) TMI 825 - AT - Income Tax

Benefit of exemption under section 54F of the Income-tax Act in respect of second property purchased by the assessee - Another plot of land which was purchased by the assessee was adjacent to the plot already purchased during the relevant year itself out of capital gains. - AO observed that deduction under section 54F is provided only if investment is in respect of a residential house and not for an empty plot. AO found that assessee was constructing his house on first plot and second plot was still vacant. - Held that - In the case of Sunita Aggarwal 2005 (11) TMI 43 - DELHI High Court - has observed that while claiming exemption under section 54, the property though purchased from two different persons by virtue of four different .sale instances in the shape of four different parcels, constitutes one single residential unit of the assessee, property purchased by the assessee was a single unit and was being used for residential purposes, therefore investment made in respect of both the plots was eligible for claim of exemption under section 54F, appeal of the revenue is dismissed whereas cross-objection filed by the assessee is allowed.

Issues:
1. Exemption under section 54F for the second property purchased.
2. Interpretation of provisions of section 54F regarding investment in residential house.
3. Distinction between sections 54 and 54F of the Income-tax Act.

Exemption under section 54F for the second property purchased:
The case involved an appeal by the revenue and a cross-objection by the assessee against the CIT(A)'s order for the assessment year 2006-07. The revenue contested the deletion of an addition of Rs. 15 lakhs and the allowance of exemption under section 54F for the second property purchased by the assessee. The Assessing Officer had restricted the exemption to the amount invested in the purchase of the first plot, arguing that the second plot was not eligible for exemption under section 54F. However, the CIT(A) allowed the claim of deduction for the second plot, relying on a decision of the Jurisdictional High Court. The revenue appealed this decision.

Interpretation of provisions of section 54F regarding investment in residential house:
The revenue argued that there was a distinction between sections 54 and 54F of the Income-tax Act, emphasizing that under section 54F, exemption is only allowed for capital gains invested in a residential house and not in the land appurtenant thereto. However, the Tribunal disagreed with this interpretation. It noted that there was no requirement in section 54F that no deduction would be allowed for investment in land appurtenant to the building. The Tribunal highlighted that the investment of capital gains was made within the statutory period and that the second plot purchased was adjacent to the first plot acquired out of capital gains. The Tribunal concluded that the exemption claimed for the investment in the adjacent plot was valid under section 54F.

Distinction between sections 54 and 54F of the Income-tax Act:
The Tribunal further analyzed the provisions of sections 54 and 54F to clarify that exemption is allowable for the construction of a residential house without any restriction on investment in land appurtenant to the building. It emphasized that the cost of vacant land forming part of the residential unit is eligible for exemption under section 54F, even if no construction is done on that land. The Tribunal also highlighted that the property purchased by the assessee constituted a single unit used for residential purposes, making the investment in both plots eligible for exemption under section 54F. The Tribunal upheld the CIT(A)'s order and dismissed the revenue's appeal while allowing the cross-objection filed by the assessee.

This detailed analysis of the judgment showcases the interpretation of the provisions of section 54F, the distinction between sections 54 and 54F, and the application of these provisions in the specific case regarding the exemption claimed for the second property purchased by the assessee.

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