2016 (9) TMI 385 - AT - Income Tax

Claim for exemption u/s. 54F denied - construction of swimming pool - Held that - The assessee has invested in construction of swimming pool and lawn adjacent to the existing House property constructed in the year 2003 and the construction was confirmed by the independent enquiry report of Inspector of Income Tax referred in assessment order. The ld. Authorised Representative could not controvert the finding of the ld. Assessing Officer and relied only on the principles of construction of property on plot adjacent to the Residential House as construction on land apparent to the building. We are not convinced by the arguments put forth on the logical aspects of construction of swimming pool within the definition of Residential House. Considering the apparent facts, materials on record and legal decisions, the assessee though undertakes the construction on the apparent land. But construction works shall not qualify for treating as Residential Property and the ld. Commissioner of Income Tax (Appeals) dealt on the disputed issue. We are of the opinion that the assessee is not eligible for exemption u/s. 54F of the Act for construction of swimming pool and we uphold the order of the Commissioner of Income Tax (Appeals) - Decided against assessee

Issues Involved:
1. Denial of exemption claim under Section 54F of the Income Tax Act.
2. Compliance with the conditions stipulated under Section 54 of the Income Tax Act.
3. Definition and qualification of "residential property" for exemption purposes.
4. Validity of the investment in a swimming pool and lawn as part of the residential property.

Detailed Analysis:

1. Denial of exemption claim under Section 54F of the Income Tax Act:
The assessee appealed against the order of the Commissioner of Income-tax (Appeals) confirming the denial of exemption under Section 54F of the Income Tax Act by the Assessing Officer. The grounds of appeal included the assertion that the acquired property was a residential property, thus qualifying for the exemption.

2. Compliance with the conditions stipulated under Section 54 of the Income Tax Act:
The Assessing Officer scrutinized the assessee's claim for exemption of Long Term Capital Gains under Section 54F. The officer noted that the assessee had not deposited the amount in the Capital Gains Deposit Scheme before the due date under Section 139(1). The primary conditions under Section 54 require the purchase of a new asset within one year before or two years after the transfer of the original asset, or construction of a residential property within three years.

3. Definition and qualification of "residential property" for exemption purposes:
The crux of the issue was whether the investment in a swimming pool and lawn adjacent to an existing house could be considered a "residential property" under Section 54. The Assessing Officer and the Commissioner of Income-tax (Appeals) both concluded that the construction of a swimming pool and lawn did not meet the definition of a residential house for the purpose of claiming exemption. The Tribunal referred to judicial decisions, including the case of South Kanara Central Co-Operative Wholesale Stores vs. CIT, which emphasized that the term "residential house" should be understood in its normal sense, meaning a place where one eats, drinks, and sleeps.

4. Validity of the investment in a swimming pool and lawn as part of the residential property:
The Tribunal examined the timeline and nature of the investments made by the assessee. It was found that the assessee had purchased vacant land and constructed a swimming pool and lawn, but these constructions did not qualify as a "residential house" under Section 54. The Tribunal noted that the construction of the swimming pool and lawn was not sufficient to meet the criteria for exemption, as these did not constitute a residential property in the conventional sense.

Conclusion:
The Tribunal upheld the order of the Commissioner of Income-tax (Appeals) and the Assessing Officer, concluding that the assessee was not eligible for the exemption under Section 54F of the Income Tax Act for the construction of a swimming pool and lawn. The appeal of the assessee was dismissed.

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