2022 (8) TMI 960 - AT - Income Tax

Deduction u/s 54F - Denial of deduction as building was constructed for commercial purposes - AO recorded that except reiterating their original stand that the building in question was constructed for residential purpose, photographs would establish the same, the building is located in predominantly a residential area with all the facilities necessary for a residential building, assessee did not furnish any of the information sought by the learned Assessing Officer - HELD THAT - As on the date of verification, the physical features of the building and actual usage of the same do not suggest that the same is a residential building, but it is only a commercial building fit for running a hostel. There is no evidence whatsoever produced by the assessee to suggest that originally the building was constructed for residential house, but subsequently it was converted for commercial usage. Law presumes the continuance of a state of affairs once shown to have prevailed, and such presumption of continuity can be drawn not only forward but backward also. Court can presume that such state of affairs might have existed in past also unless discontinuity is proved. In the instant case, it is found that the building in question is a structure, not fit for residential house, but to exploit the same for commercial usage. Absolutely, there is no affirmative evidence on record to show that originally, the plaintiff constructed the building as a residential building but subsequently, it was converted into a hostel at the request of the lessee. The contention of the assessee that the tenant used the property according to their convenience is also appears to be not acceptable because by way of agreement the lessee was prevented from making any additional alterations or structural changes of any kind whatsoever in such building. It is therefore clear that even before the building was let out on lease, the structural changes were made to make it suitable for running a hostel. As we held in the preceding paragraphs that the need to have such a huge building for a single dwelling unit is not established, and at the same time the demarcation for multi-dwelling units is not possible in the structure of the building. When we look at this fact from the angle of the assessee and for that matter anyone used the building for residential purpose at no point of time, coupled with the fact that the assessee obtained the loan from M/s Narayana Educational Society even before the building is complete shows that the construction of the building itself was for commercial purposes. The lessee is prevented by way of agreement from making any structural changes and also that the lessee shall obtain requisite permission of the concerned authorities for carrying out the business at such premises at their own cost from time to time. All these things cumulatively lead to the inference that the assessee constructed the building for commercial purposes only. The findings of fact recorded by the authorities below do not warrant any interference and we accordingly uphold the same. Consequently we find the grounds of appeal as devoid of merits and dismissed the same. - Decided against assessee.

Issues Involved:
1. Eligibility for exemption under Section 54F of the Income Tax Act.
2. Eligibility for exemption under Section 54B of the Income Tax Act.
3. Assessment of agricultural income.

Detailed Analysis:

1. Eligibility for Exemption under Section 54F of the Income Tax Act:
The primary issue was whether the building constructed by the assessee qualified for exemption under Section 54F of the Income Tax Act, which pertains to capital gains on the sale of property used for residential purposes. The assessee claimed that the building was constructed as a residential property. However, the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] determined that the building was constructed for commercial purposes, specifically as a hostel.

The Tribunal noted that the physical characteristics of the building, such as the presence of 25 wash basins, 25 lavatory basins, a large underground sump, and a substantial overhead tank, indicated that it was meant for commercial use. The Tribunal also highlighted that the building was never used for residential purposes by the assessee or any family members and was leased to an educational institution. Furthermore, the assessee failed to provide necessary documentation such as the construction plan, municipal approval, and residential tax assessment to support their claim.

The Tribunal concluded that the building was constructed for commercial purposes from the outset and thus did not qualify for exemption under Section 54F.

2. Eligibility for Exemption under Section 54B of the Income Tax Act:
The CIT(A) had allowed the assessee's claim for exemption under Section 54B, which pertains to capital gains on the transfer of agricultural land. The Revenue challenged this decision, but the Tribunal upheld the CIT(A)'s order, confirming the exemption under Section 54B.

3. Assessment of Agricultural Income:
The AO had restricted the agricultural income declared by the assessee to Rs. 20,000 per acre and added the remaining amount to the income from other sources. The CIT(A) upheld this addition. However, the Tribunal, in an earlier round of litigation, had allowed the assessee's claim regarding agricultural income, which was not contested further in this judgment.

Conclusion:
The Tribunal dismissed the assessee's appeals, affirming that the building was constructed for commercial purposes and thus not eligible for exemption under Section 54F. The exemption under Section 54B was upheld, and the earlier decision regarding agricultural income was maintained. Both appeals were dismissed, and the findings were applicable to the co-owner's case as well.

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