2016 (4) TMI 216 - HC - Income Tax

Deduction u/s. 54F - Tribunal was right in allowing assessee claim for deduction u/s. 54F especially when assessee owned two properties on the date of transfer of original assets and income from two properties were chargeable to tax under the head income from house property - Held that - It is not a case of the Department that the case of the assessee would fall under any one of the three sub-clauses of clause (a) together with clause (b). The case of the Department is that the assessee had income from a commercial property that was treated as income from house property. To be precise, the assessee had one residential house in Chennai, one commercial flat in Chennai, from out of both of which, he was deriving a total income of ₹ 4,25,131/-. He also had a land in Neelankarai which was sold and a house property was purchased in Kodaikanal. Under Section 22 of the Act, any income from any buildings, irrespective of which the use which has to be treated under the head income from house property . Therefore, the Revenue cannot take above all the terminology use in clause (b) under the proviso. This is a mistake into which the Revenue has fallen to treat the case of the assessee as falling within the purview of the proviso. The facts of the case as narrated in the order of assessment would show that the assessee did not own more than one residential house other than the new asset on the date of transfer of the original asset so as to fall clause (a)(i) of the proviso. The assessee did not purchase any residential house other than the new asset within one year of the transfer of the original asset. Therefore, his case did not also fall within clause (a)(ii) of the proviso. The assessee did not construct any residential house other than the new asset, so as to fall under clause (a)(iii). Therefore, the assessee did not satisfy any of the three sub-clauses contained in clause (a). Hence, the question of applying clause (b) of the proviso independent of the clause (a) of the proviso did not arise. - Decided in favour of the assessee

Summary

Issues:
1. Whether the Tribunal was correct in allowing the assessee's claim for deduction under Section 54F when the assessee owned two properties with income chargeable under the head income from house property?
2. Whether the Tribunal's finding was flawed as the assessee's case was impacted by specific clauses of the proviso to Section 54F, thereby disallowing the deduction?

Analysis:
Issue 1: The case involved the assessee claiming exemption under Section 54F of the Income Tax Act for investing the sale proceeds of a land into the construction of a residential house. The Assessing Officer and Commissioner of Income Tax (Appeals) held against the assessee, but the Income Tax Appellate Tribunal allowed the appeal based on the interpretation of Section 22 and a Supreme Court decision. The Tribunal found that all conditions of Section 54F were met, including the purchase of a residential house within the stipulated time frame, leading to the Revenue's appeal.

Issue 2: The crux of the matter was whether the assessee's case fell under the proviso to Section 54F, which would disallow the deduction. The proviso outlined specific scenarios where the benefit would not apply, including owning more than one residential house on the date of transfer of the original asset or purchasing/constructing another residential house within specified periods. The Revenue argued that the assessee had income from a commercial property treated as income from house property, but the Court found that the case did not satisfy any of the conditions in the proviso.

In conclusion, the Court determined that the assessee did not meet the criteria outlined in the proviso to Section 54F, and thus, the substantial question of law was answered in favor of the assessee, leading to the dismissal of the appeal. Additionally, the Court noted an error in indicating the address of the assessee, directing the Registry to rectify the address in the order copies.