2021 (3) TMI 527 - HC - Income Tax

Revision u/s 263 - Eligibility to claim under section 54F - assessee owned more then two residential houses - HELD THAT - The assessee at the time of the sale of aforesaid two sites had a residential property at Sulthanpalya which was occupied by the assessee for the purposes of residence and another point at High Point which was let out as office space. All the aforesaid facts were noticed by the Assessing Officer during the course of assessment proceedings. Thus, at the time of sale of property, the assessee owned only one residential property as the usage of the property has to be considered whether the property is a residential property or a commercial property. Assessing Officer therefore, held that the assessee has fulfilled the conditions laid down in section 54F of the Act and is eligible for deduction. The tribunal in its order dated 31.07.2015 has held that the Assessing Officer had all the information and had made enquiries with regard to claim of exemption under Section 54F of the Act. It was further held that the Assessing Officer was of the view that one of the properties was let out for commercial purposes. Therefore, the assessee was eligible for deduction under Section 54F of the Act was one of the possible views which cannot be termed as unlawful or illegal. The aforesaid finding in our view does not suffer from any infirmity warranting interference of this court in exercise of powers under Section 263 - Decided in favour of the assessee.

Summary

Issues:
1. Eligibility to claim deduction under Section 54F of the Income Tax Act when owning more than two residential houses.
2. Validity of invoking powers under Section 263 by the Commissioner of Income Tax.

Analysis:
1. The appeal concerned the eligibility of the assessee to claim deduction under Section 54F of the Income Tax Act for the Assessment Year 2005-06. The revenue contended that since the assessee owned more than two residential houses, including one let out for commercial purposes, the benefit of Section 54F was not applicable. The revenue also argued that the Commissioner of Income Tax rightfully invoked powers under Section 263 as the Assessing Officer's order was erroneous and prejudicial to revenue. Legal precedents such as 'MALABAR INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME TAX' and 'COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE, BANGALORE VS. M.J. SIWANI' were cited to support the revenue's position.

2. On the other hand, the assessee argued that the property's usage should determine its classification as residential or commercial. The Assessing Officer was aware of the property being let out for commercial purposes, and the assessee claimed exemption under Section 54F based on owning only one residential property at the time of property transfer. The tribunal held that the Commissioner of Income Tax could not have invoked powers under Section 263 in this case. The assessee also contended that the appeal by the revenue was not maintainable due to the tax effect being below the prescribed monetary limit, citing legal decisions like 'SHRI.NAVEEN JOLLY VS. INCOME TAX OFFICER' and 'COMMISSIONER OF INCOME TAX VS. SOHANA WOOLLEN MILLS'.

3. The High Court analyzed Section 263 of the Income Tax Act, emphasizing that for revisional jurisdiction, the Assessing Officer's order must be both erroneous and prejudicial to revenue. Citing 'MALABAR INDUSTRIAL CO. LTD.' and subsequent Supreme Court decisions, the court clarified that a mere loss of revenue due to the order does not make it prejudicial. In this case, the Assessing Officer correctly considered the property usage and the number of residential properties owned by the assessee, leading to eligibility for deduction under Section 54F. The court found no infirmity in the tribunal's decision and dismissed the appeal, ruling in favor of the assessee.

This detailed analysis of the judgment highlights the legal arguments, factual background, and application of relevant legal provisions in resolving the issues raised in the appeal before the High Court.