2014 (1) TMI 752 - AT - Income Tax

Deduction u/s 54F of the Act Scope of section 22 of the Act Held that - The authorities below have erred in coming to the conclusion that the assessee owns two residential properties as the income received from the commercial property is assessed under the head Income from House Property - The view taken by the Commissioner of Income Tax (Appeals) is not correct that, the assessee has claimed deduction under section 24 of the Act, the assessee cannot claim property at Raahat Plaza to be commercial property - The Income Tax Act does not create any distinction between rental income from house property and rental income from commercial building - Rental income from residential and/or commercial building has to be assessed under section 22 of the Act under the head Income from House Property subject to certain exceptions. Section 22 shows that the term used in section is building , it is not qualified by the word residential Relying upon Shambhu Investment P. Ltd. Vs. CIT 2003 (1) TMI 99 - SUPREME Court - the property situated at Raahat Plaza, Arcot Road, Chennai is a commercial property - the deduction claimed by the assessee under section 54F of the Act on account of investment in new residential house at Kodaikanal is allowed Decided in favour of Assessee.

Summary

Issues:
Interpretation of provisions of section 54F for claiming exemption, Assessment of rental income from commercial property, Distinction between residential and commercial property for tax purposes.

Interpretation of provisions of section 54F for claiming exemption:
The appeal was filed by the assessee challenging the rejection of the claim under section 54F by the Assessing Officer. The issue revolved around the condition that the assessee should not own more than one residential house property other than the new asset to claim exemption under section 54F. The Assessing Officer rejected the claim based on the interpretation that the term 'residential property' and 'commercial property' were not defined under the Income-tax Act. The Commissioner of Income Tax (Appeals) upheld this decision. However, the Tribunal disagreed, emphasizing that the Act does not differentiate between rental income from residential and commercial properties, both falling under "Income from House Property" under section 22, subject to exceptions. The Tribunal held that the property in question, a commercial property, was erroneously considered residential, and allowed the deduction claimed under section 54F.

Assessment of rental income from commercial property:
The dispute also involved the assessment of rental income from a commercial property owned by the assessee. The authorities had assessed this income under the head "Income from House Property," leading to the conclusion that the assessee owned another residential property. The counsel for the assessee argued that the property was commercial, supported by rent agreements and documents indicating commercial usage. The Tribunal examined the provisions of section 22, which charge income from property under the head "Income from house property" without specifying 'residential', and cited precedents where income from commercial properties was assessed under this section. Relying on the evidence presented, the Tribunal determined that the property was indeed commercial, overturning the decision of the Commissioner of Income Tax (Appeals).

Distinction between residential and commercial property for tax purposes:
The Tribunal highlighted the misconception in distinguishing between rental income from residential and commercial properties for tax assessment purposes. The Commissioner of Income Tax (Appeals) had erred in equating the assessment of commercial property income under "Income from House Property" to residential property ownership. By referencing legal precedents and examining the nature of the property through rent agreements and utility bills, the Tribunal concluded that the property was being used for commercial purposes, not residential. Consequently, the Tribunal set aside the decision of the Commissioner of Income Tax (Appeals) and allowed the appeal of the assessee, affirming the commercial nature of the property and permitting the claimed deduction under section 54F.

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