2023 (1) TMI 711 - AT - Income Tax

Benefit u/s 54F - Denial of benefit two houses in USA owned by the assessee had been considered by the CIT(A) for denying the deduction - HELD THAT - A proviso must be construed harmoniously with the main statute so as to give effect to the legislative objective and the section should be read as a whole inclusive of the proviso in such manner that they mutually throw light on each other and result in a harmonious construction. The legislative intent behind granting relief to the assessee through section 54F is investments in residential house in India and therefore the proviso imposing the conditions cannot be read in isolation and should construed harmoniously with the main section. Accordingly the proviso to section 54F which contains the condition that the deduction is not available if the assessee owns more than one residential house, other than the new asset, should be interpreted to mean ownership of residential houses in India. Therefore the ground on which the deduction u/s.54F is denied that the assessee owns two residential houses in USA in our considered view is not tenable. We accordingly hold that the assessee is entitled for claiming deduction u/s.54F for investments made in India in one residential house within the time limit stipulated under the said section. In the case of DIT (International Taxation) v. Mrs. Jenifer Bhide 2011 (9) TMI 161 - KARNATAKA HIGH COURT has considered a similar issue and held that to attract section 54 and section 54EC of the Act, what is material is the investment of the sale consideration in acquiring the residential premises or constructing a residential premises or investing the amounts in bonds set out in section 54EC and once the sale consideration is invested in any such manner out of the entire sale consideration that had flown from the assessee, then the assessee would be entitled to the benefit conferred under this provision. In our view the facts of assessee s case needs to be examined based on evidences. We accordingly remit the issue back to the AO with a direction to verify the documents and evidences and allow the claim of the assessee with respect to the property acquired by the assessee out of sale consideration keeping in mind the ratio laid down by the Hon ble Karnataka High Court.

Summary

Issues Involved:

1. Disallowance of exemption claimed under section 54F of the Income Tax Act.
2. Jurisdiction of the CIT (Appeals) in disallowing relief granted by the Assessing Officer.
3. Consideration of residential properties owned abroad for section 54F exemption.
4. Verification of investment sources for claiming section 54F exemption.
5. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Disallowance of Exemption Claimed Under Section 54F:
The assessee, a Non-Resident, filed her return of income for AY 2015-16 claiming exemption under section 54F for investment in a residential house property at 'Skyline Infinity', Thrissur. The Assessing Officer (AO) disallowed this claim, arguing that the assessee had acquired another residential house (apartment in Sobha City) within the stipulated period, thus violating the conditions under section 54F. The AO allowed an alternate deduction for the Sobha City property, considering it a joint investment with the assessee's husband. The CIT(A) further disallowed the entire exemption, noting that the assessee owned two residential properties in the USA, which, according to the CIT(A), disqualified her from claiming the section 54F exemption.

2. Jurisdiction of the CIT (Appeals):
The assessee contended that the CIT(A) lacked jurisdiction to disallow the relief already granted by the AO. The CIT(A) issued a notice for enhancing the assessment and disallowed the alternate claim of Rs 73,80,778/- granted by the AO for the Sobha City property, which the assessee argued was illegal and arbitrary.

3. Consideration of Residential Properties Owned Abroad:
The primary issue was whether residential properties owned abroad should be considered for disallowing the section 54F exemption. The CIT(A) denied the exemption based on the assessee owning two residential houses in the USA. The assessee argued that the legislative intent behind the amendment to section 54F by the Finance Act, 2014, was to promote real estate investments in India, and therefore, properties owned abroad should not be considered for disallowing the exemption. The Tribunal agreed with the assessee, stating that the proviso to section 54F should be interpreted harmoniously with the main section, which aims to promote real estate investments in India. Thus, residential properties owned abroad should not disqualify the assessee from claiming the exemption under section 54F for investments made in India.

4. Verification of Investment Sources:
The assessee argued that the AO incorrectly allowed the deduction for the Sobha City property, which was fully funded by her husband. The assessee claimed that her investment was in the 'Skyline Infinity' property and requested that the section 54F deduction be granted for this investment. The Tribunal remitted the issue back to the AO to verify the documents and evidence to ascertain the correct source of investment and allow the claim accordingly, following the ratio laid down by the Hon'ble Karnataka High Court in the case of DIT (International Taxation) v. Mrs. Jenifer Bhide.

5. Initiation of Penalty Proceedings Under Section 271(1)(c):
The penalty proceedings initiated under section 271(1)(c) became infructuous as a result of the Tribunal's decision to allow the appeal regarding the section 54F exemption. Consequently, the appeal against the initiation of penalty proceedings was dismissed.

Conclusion:
The Tribunal allowed the appeal regarding the section 54F exemption, directing the AO to verify the investment details and grant the exemption for the 'Skyline Infinity' property. The appeal against the penalty proceedings was dismissed as infructuous.