1997 (9) TMI 152 - AT - Income Tax

Summary

Issues Involved:
1. Classification of income from sale of interest in flats.
2. Eligibility for exemption u/s 54F of IT Act, 1961.
3. Deduction of interest expenditure against property income.
4. Allowance of collection charges as a deduction.

Summary:

Issue 1: Classification of Income from Sale of Interest in Flats

The assessee contested the CIT (Appeals) decision to assess Rs. 2,15,000 as "income from other sources" rather than allowing the benefit u/s 54F of IT Act, 1961. The Assessing Officer (AO) had treated the profit from the sale of interest in two flats as "income from business," arguing that the properties were held as stock-in-trade. The CIT (Appeals) disagreed, stating that the income from the sale of interest in flats should not be treated as business income but as "income from other sources" since the flats were incomplete and not fit for habitation. The Tribunal, upon fresh hearing, concluded that the rights acquired by the assessee in the flats constituted "capital assets" u/s 2(14) and the profit from their sale should be assessed as capital gains.

Issue 2: Eligibility for Exemption u/s 54F of IT Act, 1961

The Tribunal examined whether the assessee was entitled to exemption u/s 54F. It was determined that the interest in the flats did not constitute a "residential house" as the flats were incomplete and uninhabitable. Therefore, the capital gain from the transfer of these interests was eligible for exemption u/s 54F, provided the other conditions of the section were met. The assessee had invested the capital gain in purchasing a new residential property within the prescribed period, fulfilling the conditions for exemption u/s 54F.

Issue 3: Deduction of Interest Expenditure Against Property Income

The Revenue's appeal included a ground challenging the CIT (Appeals) decision to allow a deduction of Rs. 8,400 against property income. The AO had disallowed this deduction, questioning the linkage of the interest to loans taken for property construction. The CIT (Appeals) allowed the deduction, noting that similar deductions had been allowed in previous years after verification. The Tribunal upheld the CIT (Appeals) decision, finding no justification to interfere with the consistent treatment of the interest deduction.

Issue 4: Allowance of Collection Charges as a Deduction

The Revenue also contested the allowance of Rs. 12,000 as collection charges. The AO had disallowed this amount due to the non-production of the employees who received the payments. The CIT (Appeals) allowed the deduction based on the proof of payment and appointment letters submitted by the assessee. The Tribunal upheld this decision, considering the collection charges reasonable given the total property income assessed.

Conclusion:

In conclusion, the assessee's appeal was partly allowed, granting the exemption u/s 54F, and the Revenue's appeal was dismissed, upholding the deductions for interest expenditure and collection charges.