2018 (4) TMI 438 - AT - Income Tax

Section 54/54F - exemption eligibility - LTCG - investment in residential property out of amount received from sale of basement - The stand of the Assessing Officer was that the basement does not fall within the purview of Residential Flat as envisaged u/s 54 of the Act. Thus, the same not being in the nature of capital asset, the gain arising therefrom should be taxed. - Held that - If the two units are conjoint together and to make it habitable (situated on the same floor) it will satisfy the provision and exemption u/s 54F will be available to the assessee. However, in the present appeal before us it is an admitted fact that the basement is part and parcel of the same building, therefore, we cannot do any violence to the section and the provision has to be read as it is. There is nothing in the section which requires that the residential house should be built in a particular manner. A person may construct a house according to his plans and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. For instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out or even the other family members can be adjusted and they can remain mutually supportive. In the instant case the basement is part and parcel of the same building / residential house. Considering all the assessee is entitled for exemption u/s 54 / 54F of the Act, therefore, we find no infirmity in the order of the ld. First Appellate Authority, therefore, it is affirmed. - Decided against revenue

Summary

Issues Involved:
1. Admission of additional evidence by the Commissioner of Income Tax (Appeal) in contravention of Rule 46A of the Income Tax Rules.
2. Eligibility of the assessee for claiming deduction under Section 54 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Admission of Additional Evidence in Contravention of Rule 46A:

The Revenue contended that the First Appellate Authority admitted additional evidence in the form of photographs and electricity bills without providing an opportunity to the Assessing Officer, violating Rule 46A of the Income Tax Rules. The assessee's counsel defended the impugned order by referring to the factual findings recorded by the First Appellate Authority. The Tribunal noted that the Assessing Officer had the opportunity to examine the factual matrix during the assessment proceedings but did not do so. The assessee had submitted all necessary details and documents during the assessment, and the order was passed under Section 143(3). Consequently, the Tribunal found no violation of Rule 46A and dismissed this ground of the Revenue.

2. Eligibility for Deduction under Section 54:

The primary issue was whether the basement could be considered a part of the residential unit under Section 54 of the Income Tax Act. The Tribunal analyzed the provisions of Sections 54 and 54F, noting that the basement was part and parcel of the same building. The Tribunal emphasized that the term "a residential house" should not be understood to indicate a singular number, and the combined reading of Sections 54(1) and 54F allows for the exemption of capital gains tax when invested in a residential building.

The Tribunal also referenced various judicial pronouncements, including CIT v. D. Ananda Bassappa, which clarified that "a residential house" should be understood in a sense that the building should be of a residential nature and not necessarily a single unit. The Tribunal concluded that the basement, being part of the same residential building, qualified for the exemption under Section 54/54F. The Tribunal found no infirmity in the order of the First Appellate Authority and affirmed it.

Conclusion:

The appeal of the Revenue was dismissed, and the Tribunal upheld the First Appellate Authority's decision, allowing the assessee's claim for deduction under Section 54 of the Income Tax Act, 1961. The Tribunal emphasized that the basement, being part of the residential unit, met the requirements for the exemption.