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2018 (4) TMI 1728 - AT - Income TaxDeduction u/s 54F - assessee owned more than one residential house other than the new asset on the date of transfer of the original asset - whether the assessee was having more than one residential house other than new asset on the date of the original transfer of asset? - HELD THAT - As per the assessee in the present case, this property is being used for storing construction material. About this claim of the assessee that this property is being used for the purpose of storing construction material, the AO has stated the assessment order as reproduced above that the assessee has not produced any evidence to prove this claim. AO has also noted that this property is demolished by the assessee and a multi storied complex is coming up on the land of this property and hence, it is not possible to verify the use of this property at the relevant point of time. We feel it proper to restore this aspect of the matter also to CIT (A) for fresh decision with the direction that the assessee should produce evidence in support of this claim that this property is being used for storing construction material during relevant period and if the assessee is able to do so than this property should not be considered as a residential house property owned by the assessee on the relevant date for deciding the eligibility of the assessee for deduction u/s 54F. Claim of the assessee about Apartment at Bangalore as per the AO, actual user is not relevant and we have held in Para 10 above that a house property can be considered as a residential house property only if it is being used for residential purpose by the assessee or the tenant and this decision of us is supported by the tribunal order rendered in the case of Sanjeev Puri vs. DCIT 2016 (8) TMI 907 - ITAT DELHI . CIT (A) has noted the claim of the assessee that this property is being used as assessee's office at Bangalore and learned DR of the revenue could not bring any material before us to even create some doubt about this claim of the assessee that this property is used as office and is disclosed in balance sheet as stock in trade. Hence we hold that this property cannot be considered as a residential house property owned by the assessee on the relevant date. Regarding the Property at Katipalla village out of remaining two properties as find that about this Property, the AO says of the assessment order that this property has 10.2 acres of land with building with a number and he has noted the explanation of the assessee that this is an agricultural property but the AO concluded that since the agricultural land has a building inside and this building is fit to be used for residential purposes, it is a residential house but there is no finding of the AO that it is actually used for residential purposes. In the absence of this finding of the AO that this property was actually used for residential purposes and the failure of the learned DR of the revenue to bring any evidence before us in this regard to dislodge the claim of the assessee and finding of CIT (A) that this property is not a residential property, we hold that this property also cannot be considered as a residential house property owned by the assessee on the relevant date. Remaining property i.e. Flat at Ashoka Majestic there is no finding of the AO that this was actually used as a residential house and in spite of this finding of CIT (A) that this property is not used for residential purposes, DR of the revenue did not bring any evidence before us in this regard to dislodge the claim of the assessee and finding of CIT (A) that this property is not a residential property and it is a business asset shown in the balance sheet as stock in trade. Hence, we hold that this property also cannot be considered as a residential house property owned by the assessee on the relevant date. Five properties in dispute, except for first and third properties, we have held that none of these three properties can be considered as a residential house property owned by the assessee on the relevant date. But for two properties i.e. first and third properties, we have restored the matter back to CIT (A) for fresh decision. Hence, this issue is partly decided in favour of the revenue for statistical purposes. Properties are residential house properties while deciding the issue about allowability of the assessee's claim for deduction u/s 54F - CIT (A) heId that since it is held by him that none of these five properties is a residential house property owned by the assessee in the relevant year, this addition is deleted. We also find that the assessment order, the AO has noted the contentions of the assessee that these five properties are used for business purposes and therefore, no addition u/s 22/23 is called for. Taxability u/s 22/23 - AO concluded that since these properties are not let out, addition of notional rent of these properties is to be made but he has not given any finding about the claim of the assessee that these properties are used for business purposes. As per section 22 of I. T. Act, for any property occupied by the assessee for the purpose of any business carried on by him, Annual value is not to be computed for taxing under the head Income from house Property. Since, we have upheld the order of CIT (A) on this aspect in respect of three properties out of five properties, we uphold the order of CIT (A) on this issue also in respect of those three properties but for remaining two properties, we have restored the matter back to CIT (A) for a fresh decision in respect of allowability of assessee's claim under section 54F. Hence on this aspect i.e. taxability u/s 22/23 also, in relation to these two properties, the matter is restored to CIT (A) for fresh decision with the direction that if it is found that these two properties are actually used for business or agricultural purposes than no addition can be made u/s 22/23. Ground No. 14 15 are partly allowed for statistical purposes.
Issues Involved:
1. Allowability of deduction claimed by the assessee under Section 54F of the Income Tax Act. 2. Determination of whether the assessee owned more than one residential house on the date of transfer of the original asset. 3. Consideration of properties as residential or business assets. 4. Taxability of notional rent from unoccupied residential properties under Section 23 of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Allowability of Deduction Claimed by the Assessee Under Section 54F: The primary issue revolves around the eligibility of the assessee to claim deduction under Section 54F of the Income Tax Act. The revenue contended that the assessee owned more than one residential house other than the new asset on the date of transfer of the original asset, thus disqualifying the assessee from claiming the deduction. The CIT(A) allowed the deduction, holding that the properties treated as residential by the AO were actually business assets. The Tribunal noted that the CIT(A) had accepted the arguments of the assessee without providing cogent reasons, leading to the decision to remand the matter back to the CIT(A) for a fresh decision with a reasoned order. 2. Determination of Whether the Assessee Owned More Than One Residential House: The AO identified several properties owned by the assessee and concluded that these were residential properties, thereby disqualifying the assessee from claiming deduction under Section 54F. These properties included: - An apartment in Bangalore. - A residential property at 90B, Boloor Village, Mangalore. - A property at Katipalla Village, Mangalore. - An unsold flat in the 5H Project. - A property at Chilimbi. The CIT(A) held that these properties were business assets and not residential properties. The Tribunal found that the CIT(A) had not provided sufficient reasons for rejecting the AO's findings and directed the CIT(A) to re-examine the factual aspects, particularly the actual use of these properties during the relevant period. 3. Consideration of Properties as Residential or Business Assets: The Tribunal emphasized that a property can be considered a residential house only if it is used for residential purposes by the assessee or a tenant. The AO had based his conclusions on the descriptions in the purchase deeds, while the Tribunal held that actual use is the determining factor. The Tribunal restored the matter to the CIT(A) to verify the actual use of the properties, including: - Whether the properties at Chilimbi and 90B, Boloor Village, Mangalore were used together as a combined property. - Whether the Bangalore apartment was used as an office. - Whether the property at Katipalla Village was used for residential purposes. - Whether the flat at Ashoka Majestic was a business asset. 4. Taxability of Notional Rent from Unoccupied Residential Properties Under Section 23: The AO had added notional rent for the five properties, treating them as residential houses. The CIT(A) deleted this addition, holding that these properties were business assets. The Tribunal upheld the CIT(A)'s decision for three properties but remanded the matter for the two properties (Chilimbi and 90B, Boloor Village) to the CIT(A) for fresh examination. The Tribunal directed that if these properties were used for business or agricultural purposes, no addition under Section 22/23 should be made. Conclusion: The Tribunal partially allowed the revenue's appeal for statistical purposes, directing the CIT(A) to re-examine the factual aspects and provide a reasoned order regarding the eligibility of the assessee for deduction under Section 54F and the taxability of notional rent under Section 23. The Tribunal emphasized the importance of actual use of the properties in determining their classification as residential or business assets.
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