2018 (1) TMI 1303 - AT - Income Tax

Disallowing claim u/s 54F - the property on which the assessee claimed to have constructed house is owned by the mother of the assessee and not by the assessee - Held that - As regards the property is owned by the mother of the assessee we are of the view that if the assessee has constructed a new on the plot of land which is owned by the mother of the assessee then the investment made by the assessee in construction of new house is eligible for deduction u/s 54F. A residential house is not a personal effects but it is meant for residential purpose of the family. Therefore the investment made by the assessee for purchase or construction of house even in the name of the mother is eligible for deduction u/s 54F as held in case of CIT vs. Kamal Wahal (2013 (1) TMI 401 - DELHI HIGH COURT). Thus merely because the new house is constructed on a plot of land owned by the mother of the assessee will not disentitle the assesee for claim of deduction u/s 54F Whether it is a construction of new house after demolition of the existing house or it is only a renovation work carried out by the assessee ? - Held that - To ascertain whether the assessee has constructed a new house or only renovated the existing house a proper investigation and enquiry is required to be conducted by physical verification of the property as well as the experts opinion may also be taken in this respect because the alleged demolition and reconstruction is without any permission from the Municipal Corporation.In the absence of sanctioned site plan or completion certificate the evidence produce by the assessee cannot be considered as conclusive proof to establish the nature of construction carried out by the assessee at the property in question. According in the facts and circumstances of the case we set aside this issue to the record of the Assessing officer for proper verification and investigation - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Disallowance of deduction under Section 54F of the Income Tax Act, 1961.
2. Ownership and construction of the house property.
3. Nature of construction: new house vs. renovation.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 54F:
The assessee claimed a deduction under Section 54F of ?60,63,980/- for the construction of a house property. The Assessing Officer (AO) disallowed this claim, arguing that the assessee did not construct a new house but merely renovated an existing one. The CIT(A) upheld this disallowance, further noting that the property was in the mother’s name, not the assessee’s.

2. Ownership and Construction of the House Property:
The assessee argued that Section 54F does not require the house to be constructed in the assessee’s name. The assessee had invested ?60,63,980/- in constructing a house on a plot owned by his mother, where he had been residing for 20 years. The mother had gifted half the property to the assessee’s sister-in-law, and the remaining half was in the assessee’s possession. The assessee provided a declaration from his mother permitting the construction. The Tribunal agreed with the assessee, citing precedents like CIT vs. Kamal Wahal and Shri Laxmi Narayan vs. CIT, which held that the deduction under Section 54F is permissible even if the house is constructed in the name of a family member, provided the investment is made by the assessee.

3. Nature of Construction: New House vs. Renovation:
The Tribunal noted that determining whether the work was new construction or renovation is a factual matter requiring physical verification. The assessee provided various documents, including vouchers, FIR, and a notice from the Municipal Corporation, indicating construction activities. However, these documents were not conclusive proof of new construction. The Tribunal observed that the nature of expenses suggested possible commercial use of the property. Therefore, the Tribunal remanded the issue back to the AO for thorough verification, including physical inspection and expert opinion, to ascertain whether the construction was new or merely renovation and whether the property was residential or commercial.

Conclusion:
The Tribunal held that the assessee is eligible for deduction under Section 54F even if the house is constructed on a plot owned by his mother. However, the nature of the construction (new house vs. renovation) needs further verification. The case was remanded to the AO for a detailed investigation and fresh decision. The appeal was partly allowed.