2017 (5) TMI 1096 - AT - Income Tax

Granting of deduction u/s.54F - 5 properties which were purchased by the assessee by DRT auction wherein clubbed the same as one property - Held that - In the present case the assessee purchased the whole property as a single property by auction by DRT and it cannot be said that all the properties are different properties so as to deny the deduction u/s.54F of the Act. In the present case the Commr. (A) has brought on record and his findings have not been successfully impugned before us that while the total area or the plot sold was 2146 sq. yards the let out structure built in 1960 occupied only 108 sq. yards. Thus the property sold was substantially self occupied by the assessee and the provisions of s. 54 were rightly relied upon by the assessee before the lower authorities. Lands appurtenant to the buildings within the meaning of s. 54 would be those enjoyed with and occupied with the buildings in question. Considering the location and the various structures on the plot of land and having seen the site plan we are convinced that the entire plot of land could be treated as land appurtenant to the buildings sold by the assessee. The dictionary meaning given to us by the Deptl. Rep. does not really bear out the contention of the Department. Assessee shall be granted with deduction u/s.54F of the Act as the investment in entire property to be considered as a single residential unit since the consideration received from sale of capital asset was so invested. - Decided against revenue.

Issues Involved:
1. Eligibility for deduction under section 54F of the Income Tax Act.
2. Definition and scope of "residential house" under section 54F.
3. Treatment of land appurtenant to a residential house for the purpose of section 54F deduction.

Detailed Analysis:

1. Eligibility for deduction under section 54F of the Income Tax Act:

The primary issue in this appeal is whether the assessee is eligible for a deduction under section 54F of the Income Tax Act for the purchase of five properties through a Debt Recovery Tribunal (DRT) auction, which the assessee claimed as a single property. The assessee sold shares and derived a long-term capital gain (LTCG) of ?12,53,05,529/-. The assessee claimed exemptions under sections 54EC and 54F of the Act, with a significant portion of ?8,56,89,844/- invested in the property purchased through the DRT auction.

2. Definition and scope of "residential house" under section 54F:

The Assessing Officer (AO) disallowed the claim under section 54F, arguing that only investment in a "residential house property" is eligible for deduction, and the purchased property included a vast stretch of land, some of which had no residential building. The AO's contention was that the property should be considered as separate investments in land and residential house, thus disallowing the deduction for the land portion.

The assessee argued that the entire purchase was a single residential unit, supported by various documents, including the sale certificate from the DRT, property tax assessments, and electricity records, all indicating the property as a single unit. The assessee also cited several case laws and a CBDT circular to substantiate the claim that the entire property, including the land appurtenant to the residential house, should be considered as a single unit for the purpose of section 54F.

3. Treatment of land appurtenant to a residential house for the purpose of section 54F deduction:

The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the property was sold by the DRT as a single lot, and the sale certificate described the property as a composite unit, including both Schedule A (residential property) and Schedule B (land). The CIT(A) relied on several case laws, including the Kerala High Court's decision in Smt. Asha George v. ITO and the Madras High Court's decision in CIT v. Smt. M. Kalpagam, which supported the view that the cost of land appurtenant to a residential house is an integral part of the cost of the residential house for the purpose of section 54F.

The CIT(A) concluded that the property purchased by the assessee was a single composite unit, including the residential house and the land appurtenant thereto. The CIT(A) also noted that the AO's distinction between the residential house and the land was not tenable, as the entire property was used as a single residential unit.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, stating that the assessee is entitled to the deduction under section 54F for the entire property, including the land appurtenant to the residential house. The Tribunal emphasized that section 54F does not restrict the deduction to the constructed portion of the property and includes the land appurtenant to the residential house. The appeal by the Revenue was dismissed, and the assessee's claim for deduction under section 54F was allowed in full.

Order:

The appeal of the Revenue is dismissed, and the assessee is granted the deduction under section 54F for the investment in the entire property as a single residential unit. The order was pronounced on 1st May 2017 at Chennai.

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