2019 (10) TMI 1528 - AT - Income Tax

Deduction u/s 54 - restricted deduction only to one residential house - as argued by assessee that exemption u/s. 54/54F should be allowed on the investment made on multiple residential houses at different places - HELD THAT - We find that this issue has been decided against the assessee by the Special Bench of the Tribunal, Mumbai in the case of ITO v. Ms. Sushila Jhaveri ( 2007 (4) TMI 289 - ITAT BOMBAY-I - We also find that in the case of K.C. Kaushik 1990 (4) TMI 38 - BOMBAY HIGH COURT the Hon'ble Bombay High Court has taken a similar view. Thus, we do not see any infirmity in allowing exemption u/s. 54 of the Act on the investment made only in one residential house. Thus, we sustain the order of the Ld.CIT(A) and reject the ground raised by the assessee. Capital gain - nature of land sold - whether land along with residential shed sold by the assessee is an agricultural land and not a capital asset within the meaning of provisions of clause (a) of Section 2(14) and therefore outside the purview of the provisions of computation of capital gains u/s. 45 of the Act as the asset is situated beyond 8 Kms from the municipal limit - HELD THAT - Since adjudication of this ground leads to the very computation of capital gains and levy of taxes and since this is not before lower authorities, we feel it appropriate to restore this issue to the file of the Assessing Officer for denovo adjudication in accordance with law. If the land and shed sold by the assessee is proved to be an agricultural land and situated beyond 8 KM from the municipal limits the very computation provisions for capital gains fails and there shall not be any tax liability at all. In the circumstances, since this additional ground is going to the root of the computation of capital gains itself, we restore this issue to the file of the Assessing Officer for denovo adjudication in accordance with law.

Summary

Issues Involved:
1. Eligibility for deduction under Section 54F of the Income-tax Act.
2. Classification of the sold property as residential or agricultural land.
3. Admissibility of additional grounds raised by the assessee.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 54F:

The Revenue contended that the assessee was ineligible for deduction under Section 54F because the assessee had purchased three immovable properties in the same year the capital asset was sold, contravening the provisions of Section 54F. The Revenue also argued that the assessee's claim for deduction under Section 54 was invalid as the property sold was not a residential property. The assessee, however, argued that the investment in multiple residential properties should be allowed as per the provisions prior to the amendment effective from the A.Y. 2015-16, which allowed for "a residential house" to be interpreted in the plural sense. The Tribunal upheld the decision of the Ld. CIT(A), which restricted the exemption under Section 54 to one residential house, aligning with the Special Bench decision in ITO v. Ms. Sushila Jhaveri and the Hon'ble Bombay High Court's ruling in K.C. Kaushik v. P.B. Rane, thereby rejecting the assessee's claim for multiple properties.

2. Classification of the Sold Property:

The assessee claimed that the land sold, along with a shed, was agricultural land situated beyond 8 Kms from the municipal limits, thus not a "capital asset" under Section 2(14) of the Act, and therefore not subject to capital gains tax. The assessee provided evidence, including a road map showing the distance and a property card indicating the land's agricultural nature. The Tribunal found this issue crucial as it could fundamentally affect the computation of long-term capital gains and tax liability. Consequently, the Tribunal restored this issue to the Assessing Officer for a de novo adjudication, emphasizing the need for a thorough examination of the evidence and the legal provisions.

3. Admissibility of Additional Grounds:

The assessee raised an additional ground, arguing that the consideration received from the sale of agricultural land should not be liable for capital gains tax. The Tribunal, referencing the Hon'ble Bombay High Court's decision in Ahmedabad Electricity Co. Ltd v. CIT, admitted the additional ground, noting that it pertained to the subject matter of the entire tax proceedings. The Tribunal decided that this ground needed to be adjudicated by the Assessing Officer to ensure a comprehensive resolution of the tax liability issue.

Conclusion:

The Tribunal dismissed the Revenue's appeal due to the low tax effect, as per CBDT Circular No. 17/2019. The cross objection by the assessee was partly allowed: the Tribunal upheld the restriction of the Section 54 exemption to one residential house and restored the issue of the land's classification to the Assessing Officer for further examination. The judgment emphasizes the necessity of adhering to statutory provisions and the importance of thorough evidence examination in tax disputes.