2017 (1) TMI 558 - AT - Income Tax

Eligibility to benefit u/s 54 - assessee has not produced evidence to show that the impugned house was in a habitable condition and it was occupied by someone, hence AO held that the asset originally transferred at Uttarahalli cannot be treated as a residential house for the purpose of claiming benefit u/s. 54 but it could be treated as land which qualifies for deduction u/s.54F - Held that - The facts remain that as on 01.4.2010, the assessee had the residential property situated at No.7/232/415, Doddakallasandra village, Uttarahalli Hobli, Bangalore South Taluk which was purchased on 03.6 & 01.7.2006 and a flat at Brigade Gateway which was purchased on 16-10-2009. He sold the residential property situated at No.7/232/415, Doddakallasandra village, Uttarahalli for a consideration of Rs. one crore on 25-05-2010. The AO has held that the building at Uttarahalli cannot be treated as a residential house for the purpose of claiming benefit u/s. 54 but the property could be treated as land which qualifies for deduction u/s.54F. The assessee purchased another residential flat at F 1605, 16th floor, Marigold Block, The Gardens, Binnyston Garden, Magadi Road, Bangalore, on 16-06-2010 for a consideration of ₹ 57,77,137/-. Thus, as on 16.06.2010, other than the new asset at Magadi Road, the assessee has a flat at Brigade Gateway. So, he is entitled for a deduction u/s 54F on the investment made at Magadi Road property . Although, the assessee claimed such benefit before the AO & also before the CIT (A), as mentioned supra, his claim is not considered. Thus, his alternate plea is found meritorious and accordingly, the AO is directed to grant deduction on the investment made at Magadi Road property u/s 54F. The appeal is allowed to that extent.

Issues Involved:
1. Eligibility for deduction under Section 54 of the Income Tax Act.
2. Eligibility for deduction under Section 54F of the Income Tax Act.
3. Assessment of capital gains on the sale of property.
4. Levy of interest under Section 234B of the Income Tax Act.

Detailed Analysis:

1. Eligibility for Deduction under Section 54:
The assessee sold a residential property and claimed a deduction under Section 54 for investments made in two apartments. The Assessing Officer (AO) restricted the benefit to only one house, as per the wordings in Section 54 (1)(i) & (ii) which refer to a "singular house." The AO further denied the deduction under Section 54 on the grounds that the property sold was not a "residential house" but merely land with an insignificant structure. The AO emphasized that the property did not have the essential facilities to be considered a habitable residential house. The CIT (A) upheld the AO's decision, stating that the property could not be classified as a residential house due to the lack of evidence of habitation and rental income.

2. Eligibility for Deduction under Section 54F:
The AO examined the eligibility for deduction under Section 54F and found that the assessee had purchased another residential property within two years from the date of transfer of the original asset, violating the proviso stipulated under Section 54F(1)(a)(ii) & (iii). Consequently, the AO denied the deduction under Section 54F as well.

3. Assessment of Capital Gains on the Sale of Property:
The AO assessed the capital gains arising from the sale of the property and brought it to tax, denying the benefits claimed under Sections 54 and 54F. The assessee argued that the property sold was a residential building in a habitable condition and provided evidence such as photographs, property tax receipts, and utility bills to support the claim. However, the AO and CIT (A) did not accept these arguments, stating that the property did not qualify as a residential house.

4. Levy of Interest under Section 234B:
The assessee contested the levy of interest under Section 234B, arguing that the AO and CIT (A) erred in their assessment and denial of deductions. However, this issue was not specifically addressed in the final judgment.

Judgment:
The Tribunal heard the rival submissions and perused the relevant material. It was found that the assessee had a residential property and a flat at Brigade Gateway as on 01.04.2010. The property at Uttarahalli was sold on 25.05.2010, and another residential flat was purchased at Magadi Road on 16.06.2010. The Tribunal concluded that the property sold could be treated as "land" qualifying for deduction under Section 54F. The Tribunal found merit in the assessee's alternate plea for deduction under Section 54F for the investment made in the Magadi Road property. The AO was directed to grant the deduction under Section 54F for the investment at Magadi Road. Consequently, the appeal was allowed to that extent.

Conclusion:
The assessee's appeal was treated as allowed, with the AO directed to grant the deduction under Section 54F for the investment made in the Magadi Road property. The judgment emphasized the importance of providing adequate evidence to support claims for deductions under Sections 54 and 54F and clarified the interpretation of "residential house" for tax purposes.

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