2014 (1) TMI 137 - HC - Income Tax

Exemption u/s 54F - Held that - If the material on record shows, prior to sale, the vendor lived there with his family and he has sold the site along with the residential construction, merely because the property is not suitable to the assessee and construction material are kept there, is not a ground to deny exemption under Section 54F of the Act - The orders by the lower Authorities are based on the report submitted by the Inspector who visited the place three years after the sale - Decided against Revenue.

Summary

Issues:
Challenge to grant of exemption under Section 54F of the Income Tax Act.

Analysis:
The appeal was filed by the Revenue challenging the Tribunal's order granting exemption to the assessee under Section 54F of the Income Tax Act, setting aside the orders of the Appellate Authority and the Assessing Authority. The assessee, a medical practitioner, initially declared a total income of Rs. 27,22,500 for the assessment year 2008-09. The assessment later determined the income at Rs. 1,03,25,814 by denying the exemption claim under Section 54F. The Tribunal, upon reevaluation of the evidence, found that the assessee had purchased a residential site with a house, which was subsequently demolished for reconstruction. The Tribunal concluded that the assessee was entitled to the exemption based on the documents and evidence presented, overturning the previous decisions.

The Revenue contended that the construction on the property was not fit for residence, lacking essential facilities like electricity, water, and proper structure. However, the Court dismissed this argument, emphasizing that the focus should be on whether the property purchased was intended for residential use, rather than the adequacy of the current structure. The lower Authorities had relied on a report by an Inspector who visited the property three years after the sale and found a temporary shed, not the original residential structure mentioned in the sale deed. The Court highlighted that the law does not specify the extent or quality of the residential construction required for exemption under Section 54F, but rather focuses on the nature of the property purchased.

The Court further explained that the key consideration is whether the property sold included a residential structure, regardless of its current state or suitability for the assessee. The Tribunal's decision was based on a thorough review of the evidence, concluding that the assessee had indeed purchased a property with a residential structure, even though it was subsequently demolished for reconstruction. Consequently, the Court found no legal basis to entertain the Revenue's appeal, as no substantial question of law arose from the case. The appeal was dismissed, upholding the Tribunal's decision to grant exemption under Section 54F of the Income Tax Act.