2017 (1) TMI 948 - AT - Income Tax

Claim of deduction u/s 54 - assessee has invested the sale proceeds in a commercial property - Held that - The building was constructed as a residential unit and even the report of the Inspector clarified that it was a residential vacant floor . The occupation certificate dated 19/09/2009, issued by the BMC also clarified that it was a residential building. Even the report of SE dated 24/12/2010 and internal note/report dated 05/01/2010 clarified that the first floor was occupied by the assessee and there was no office therein and these documents are prior to passing the assessment order, therefore, cannot be said to be created document. Even, on 13/01/2011, the assessee got a single water connection for the residential unit. The assessee also paid the property tax of ₹ 1 lakh to the BMC as a residential property and vide letter dated 11/04/2011, the assessee wrote a letter to the Assessor and Collector, BMC with a request to assess the property as a residential from wrongly assessed as commercial. In response to an RTI application dated 21/11/2011, the BMC furnished the inter note dated 11/01/2011 and 21/04/2011, wherein, it was mentioned that the plot was assessed as residential rateable value from 01/01/2008 and the building plan was sanctioned as residential building vide note dated 29/09/2009. Before the Ld. Commissioner of Income Tax (Appeal), the assessee also enclosed copy of receipt dated 27/04/2011 for transfer of residential gas Cylinder at the new address. All these documents were made part of the paper book before the First Appellate Authority and also before us. The small units were converted in a single unit (as mentioned earlier the total area of all units is 1935 Sq. Ft.), therefore, in our considered opinion, it is a single unit. It is not the case that all the six flats are having abnormally bigger areas and simply to get the benefit u/s 54 of the Act, a story was concocted by the assessee. The evidences filed by the assessee clearly indicates that small units on the same floor were converted into one habitable unit for a peaceful/comfortable living, thus, the assessee cannot be denied the benefit of exemption. - Decided in favour of assessee

Summary

Issues Involved:
1. Eligibility for deduction under Section 54 of the Income Tax Act.
2. Nature of the property (residential vs. commercial).
3. Interpretation of "a residential house" under Section 54.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 54 of the Income Tax Act:
The primary issue revolves around the eligibility for deduction under Section 54 of the Income Tax Act. The Revenue contended that the deduction should be restricted to one flat only, while the assessee claimed exemption for multiple flats purchased with the sale proceeds. The First Appellate Authority allowed the deduction, and the Revenue appealed this decision. The Tribunal upheld the First Appellate Authority's decision, noting that the assessee had invested the sale proceeds within the specified time in the first-floor properties of the same building, which were converted into a single habitable unit.

2. Nature of the Property (Residential vs. Commercial):
The Revenue argued that the property was non-residential during the relevant financial year. However, the assessee provided substantial evidence, including reports from the BMC, water department, and other authorities, indicating that the property was residential. The Tribunal noted that the property was constructed and assessed as a residential unit, and the occupation certificate and other documents supported this claim. The Tribunal concluded that the property was indeed residential, as evidenced by the conversion of small units into a single residential unit and the payment of residential property tax.

3. Interpretation of "a Residential House" under Section 54:
A significant point of contention was the interpretation of the phrase "a residential house" in Section 54. The Revenue's stance was that it should mean one residential house. However, the Tribunal referred to Section 13 of the General Clauses Act, which allows the plural interpretation of singular terms. The Tribunal emphasized that the expression "a residential house" should be understood as a residential building, not necessarily a single unit. The Tribunal cited precedents, including CIT vs. D. Ananda Basappa and CIT vs. Gita Duggal, to support the view that multiple units constructed or purchased together could be considered a single residential house for the purpose of Section 54. The Tribunal concluded that the physical structuring of the residential house, whether lateral or vertical, should not impede the allowance of the deduction under Section 54.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the First Appellate Authority's decision to allow the assessee's claim for deduction under Section 54. The Tribunal held that the property was residential, and the interpretation of "a residential house" could include multiple units converted into a single habitable unit, thus entitling the assessee to the exemption. The judgment was pronounced in the open court on 17/11/2016.