2015 (11) TMI 1452 - AT - Income Tax

Deduction u/s 54 - transfer of three adjacent plots - plot in the name of assessee and family members (Join ownership) - the house purchased from Rajasthan Housing Board was skeleton in which it was allotted as was envisaged by comparing the other houses which existed there. - Held that - The first property was originally booked by Smt. Krishna Beniwal under Kalptaru Yojna of Rajasthan Housing Board in the year 1992 and thereafter she made payment up to 15/4/2006 to the Board by obtaining loan from bank of Rajasthan in the joint name of Krishna Beniwal and the appellant. The possession of house was taken by Smt. Krishna Beniwal and appellant jointly in November 2006. The assessee filed an application before Rajasthan Housing Board on 31/5/2007 to adde her name which has been accepted by it. The registration letter for lease deed was issued in the joint name of Smt. Krishna Beniwal and the appellant. All the payments were made 17 months prior to the date of sale of first flat i.e 20/10/2007. The possession letter was issued in the name of Smt. Krishna Beniwal on 7/11/2006 and possession was to be taken by Smt. Krishna Beniwal on or before 14/12/2006 which was taken by her on 15/11/2006. Perpetual lease was executed on 23/6/2007 in which name of Smt. Krishna Beniwal and Smt. Seema Singh Beniwal had been shown. As held by the various courts that purchase of constructed house in self financing scheme from any authority would be treated construction not purchase of residential house. Thus we uphold the order of the ld CIT(A) on first exemption claim U/s 54F of the Act. Therefore we are not giving any finding on additional expenditure incurred on finishing of the house. It is clarified by the CBDT that purchase of plot of land is a part of residential house for claiming of deduction U/s 54F of the Act. The revenue itself has admitted that it is a habitable as a servant quarter which in other words was habitable for human being either servant or master or any employee. There is also no restriction that what percentage of the size of flat should be used for residential purposes either under the Income Tax law but there is a restriction of maximum construction by the local authorities of the respective states. It is also admitted fact that the assessee electric connection in the constructed premises and the first flat was sold by the assessee on 20/10/2007 and second flat was sold on 15/3/2008 whereas the assessee constructed room at plot No. C-114 Hanuman Nagar Jaipur up to 15/3/2010 which is within three years from the date of sale of first flat i.e. 20/10/2007. Thus the assessee is entitled to deduction U/s 54F of the Act on second investment at Hanuman Nagar property at Rs. 29, 37, 200/-. Accordingly we reverse the order of the ld CIT(A) on this point.

Issues Involved:
1. Jurisdiction and validity of additions and disallowances made under Section 143(3) of the Income Tax Act.
2. Disallowance of deduction claimed under Section 54 of the Income Tax Act amounting to Rs. 38,30,114.
3. Charging of interest under Sections 234A and 234B of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of Additions and Disallowances:
The appellant did not press this ground, and therefore, it was dismissed as not pressed.

2. Disallowance of Deduction under Section 54 of the Income Tax Act:
The appellant, a director in two companies, declared income from various sources including remuneration, interest, and income under Section 44AF. The return for A.Y. 2008-09 was filed on 31/3/2009 and revised on 31/3/2010. The case was scrutinized under Section 143(3). The original return did not include long-term capital gains from the sale of two flats, which were later claimed as exempt under Section 54 in the revised return. The Assessing Officer (AO) found discrepancies in the original and revised returns and disallowed the deduction claimed under Section 54.

The AO observed that the residential house at 64/108, Pratap Nagar, Jaipur was originally allotted to the appellant's mother-in-law, and the payments were made from a bank loan. The AO concluded that the appellant added her name as a co-owner to claim the deduction under Section 54. The AO also found that the construction claimed by the appellant was not substantiated with proper evidence and was not a finished house.

Regarding the second property at C-114, Hanuman Nagar, Jaipur, the AO noted that the construction was minimal and not suitable for residential purposes. The AO concluded that the construction was an attempt to misuse the provisions of Section 54.

The CIT(A) confirmed the AO's findings, stating that the appellant could claim deduction under Section 54 only for one house and that the payments for the first property were made before the sale of the flats. The CIT(A) also found that the construction on the second property was not sufficient to qualify as a residential house.

3. Charging of Interest under Sections 234A and 234B:
The appellant denied liability for interest under Sections 234A and 234B. The decision on this issue is consequential to the findings on the other grounds.

Tribunal's Findings:

First Property (Pratap Nagar):
The Tribunal upheld the CIT(A)'s decision, agreeing that the payments for the first property were made before the sale of the flats and that the appellant's name was added to claim the deduction. The Tribunal noted that the purchase of a constructed house in a self-financing scheme is treated as construction, not purchase, and therefore, the appellant was not entitled to the deduction under Section 54 for this property.

Second Property (Hanuman Nagar):
The Tribunal found that the appellant had deposited the sale proceeds in a capital gain account and used it to purchase a plot and construct a room. The Tribunal noted that the construction was minimal but habitable and fulfilled the requirements of a residential house. The Tribunal reversed the CIT(A)'s decision and allowed the deduction under Section 54 for the second property.

Interest under Sections 234A and 234B:
The Tribunal directed the AO to take a decision on the charging of interest as per law, based on the findings on the other grounds.

Conclusion:
The appeal was partly allowed, with the Tribunal upholding the disallowance for the first property and allowing the deduction for the second property. The issue of interest was left to the AO to decide as per law.

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