2020 (1) TMI 1489 - AT - Income Tax

Disallowance u/s.54F - long-term capital gain for the investment made in the two properties which are adjacent to each other and used as one residential unit. Indeed the provision of law requires that the exemption will be available to the assessee under section 54F of the Act for the investment in one residential unit - HELD THAT - One assessee can buy huge bungalow/property say thousand square meters and can claim the deduction subject to the conditions. Similarly the other assessee on the other hand acquired two different residential properties adjacent to each other but both the properties put together has only two hundred square meters but he will be extended the benefit of the exemption with respect to one unit only because of the reason that there are two different properties based on registry documents. There can be a situation that the family of the assessee is quite large comprising of several members in the family and therefore he needs two properties adjacent to each other to accommodate his family members. So from the point of view of the assessee it is single property but he got two different properties registered as per the requirement of the builder. In our considered view the assessee cannot be deprived of the benefit conferred under the statute merely on the reasoning that there were two different registries of the buildings/properties. It is also not a case of the revenue/assessee that both the properties purchased by the assessee were located in different graphical area. In such a situation the law amended under section 54F of the Act appears to be applicable where the assessee buys two properties in two different areas. Principles laid down by the courts cannot be just brushed aside on the aspect of defining the one residential unit - we are of the view that the assessee is entitled for the exemption provided under section 54F of the Act in the present facts of circumstances. Hence we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made - Decided in favour of assessee.

Summary

Issues Involved:
- Disallowance under section 54F of the Income Tax Act, 1961
- Interpretation of the term "one residential house" under section 54F
- Eligibility for exemption under section 54F for investment in two adjacent properties

Analysis:

1. Disallowance under Section 54F:
The appellant challenged the disallowance of ?64,22,882 under section 54F of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed the excess claim under section 54F, as he believed the exemption could only be claimed for investment in one bungalow. The appellant contended that both bungalows, adjacent to each other, should be considered as one unit for residential purposes. The Commissioner of Income Tax (Appeals) upheld the AO's decision based on the amendment to section 54F, replacing "a residential house" with "one residential house." The Tribunal reviewed the facts and determined whether the appellant was eligible for the exemption under section 54F for the investment in two adjacent properties.

2. Interpretation of "One Residential House":
The Tribunal deliberated on the interpretation of "one residential house" under section 54F. Despite the two units having separate registration documents, they were used as a single residential unit by the appellant. The Tribunal emphasized that the Act does not define the area of the residential property, allowing for flexibility in interpretation. It highlighted a scenario where an assessee may require multiple adjacent properties to accommodate a large family, considering them as a single property. Referring to a Karnataka High Court judgment, the Tribunal concluded that the phrase "a residential house" should be understood broadly, focusing on the residential nature of the building rather than a singular number.

3. Eligibility for Exemption in the Present Circumstances:
After analyzing the facts and legal principles, the Tribunal ruled in favor of the appellant. It held that the appellant was entitled to the exemption under section 54F for the investment in two adjacent properties used as a single residential unit. The Tribunal directed the AO to delete the addition made, allowing the appeal of the Assessee. The decision was based on the understanding that the appellant should not be deprived of the statutory benefit due to separate registry documents when the properties were functionally one unit for residential purposes.

In conclusion, the Tribunal's judgment emphasized a broad interpretation of the term "one residential house" under section 54F, considering the functional use of properties as a single unit for residential purposes. The decision provided clarity on eligibility for exemption in cases where multiple adjacent properties are utilized as a cohesive residential unit, ensuring fair application of the Income Tax Act provisions.