2024 (7) TMI 79 - AT - Income Tax

LTCG - Deduction u/s 54F - As per AO the assessee has no title in respect of the plot of land on which the construction of the house property is made to claim the deduction - As per assessee property devolved upon the assessee by way of gift (hiba) which need not be registered and it is one of the modes of transfer of property as per Muslim Personal Law - HELD THAT - The property is predominantly being used for religious purposes namely Mosque Orphanage School and Staff quarters and therefore in our opinion it does not fit within the definition of the residential house as contemplated u/s 54F of the I.T. Act. There is a report stating that the 3rd floor of the property is being used for residential purposes being used for the residence of the assessee. In our view the report suggesting 3rd floor being residential is contrary to the statement of the assessee filed before the GHMC seeking regularization of the property wherein it was submitted that the property was being used for Mosque Orphanage School and residence for the staff. The above said statement clearly shows that the assessee has not used the property for the residential purpose within the time granted by the statute and further there is no evidence to show that the assessee has invested in raising of the construction of a residential house therefore in our opinion the assessee is not entitled to any relief u/s 54F. We have examined the provisions of section 54F which is the enabling provision for grant of deduction. The literal reading of section 54F makes it abundantly clear that there is no scope of grant of pro-rata deduction more particularly when no provision of residence can be made in a Mosque. Accordingly the grounds of appeal of the Revenue are allowed and the order of the AO is upheld. Appeal filed by the Revenue is allowed.

Summary

Issues:
1. Disallowance of claim made u/s 54F
2. Title of the assessee in the plot of land
3. Disallowance of business loss
4. Misinterpretation of the concept of residential house u/s 54F
5. Grant of pro-rata deduction u/s 54F

Analysis:

Issue 1: Disallowance of claim made u/s 54F
The Revenue challenged the disallowance of the claim made u/s 54F by the Assessing Officer. The Assessing Officer doubted the validity of the claim due to lack of municipal approval for the construction of the property within the stipulated period. The assessee claimed exemption of Rs. 5,47,20,000 u/s 54F but failed to provide sufficient evidence of ownership and construction approval. The Revenue contended that the property was predominantly used for religious purposes, not residential, and thus not eligible for the deduction.

Issue 2: Title of the assessee in the plot of land
The Assessing Officer questioned the title of the assessee in the plot of land where the construction was made. The assessee claimed the property devolved upon them by way of gift under Muslim Personal Law. However, the lack of proper documentation and municipal approval raised doubts regarding the ownership and eligibility for deduction u/s 54F.

Issue 3: Disallowance of business loss
The Assessing Officer disallowed the business loss claimed by the assessee. The grounds for disallowance were not clearly stated, leading to a challenge by the Revenue regarding the validity of the disallowance.

Issue 4: Misinterpretation of the concept of residential house u/s 54F
The Revenue raised concerns about the misinterpretation of the concept of a residential house under section 54F. The contention was whether a property used for Mosque activities could qualify as a residential house for the purpose of claiming deductions u/s 54F. The Revenue argued that a Mosque does not meet the criteria of a residential house as per the Act.

Issue 5: Grant of pro-rata deduction u/s 54F
The Revenue questioned the grant of pro-rata deduction u/s 54F by the CIT (A) for the 1st, 2nd, and 3rd floors of the property. The Revenue argued that there is no provision for pro-rata deduction under section 54F, and the property being used for Mosque activities did not qualify as a residential house.

In conclusion, the Appellate Tribunal upheld the appeal filed by the Revenue, disallowing the claim u/s 54F and emphasizing that the property predominantly used for religious purposes did not meet the definition of a residential house under the Act. The Tribunal ruled that the assessee was not entitled to any relief u/s 54F, and the order of the Assessing Officer was upheld.