2013 (8) TMI 754 - AT - Income Tax

Deduction u/s.54 - Joint ownership in property - assessee was owner of 50%. - Though the capital gain was computed in the hands of the assessee but exemption under section 54 was not granted in the assessment order passed under section 143(3) of the Act on the ground that assessee is not owner of the house property which was sold and no income has been assessed relating to the said property in the hands of the assessee under the head house property . Held that - assessee is owner of the land upon which building was constructed by the funds made available by the husband of the assessee in pursuance to an agreement - If the terms of aforementioned agreement are kept in mind then it cannot be said that assessee was not owner of the building which was sold by her. Upon the basis of aforementioned agreement revenue has assessed the husband of the assessee and has computed long term capital gain on 50% of the sale proceeds and exemption has also been granted under section 54 - AO after verifying the evidences filed by the assessee has accepted the claim of the assessee regarding deductibility of Rs.25.00 lacs, which was paid to the tenant as compensation. This fact itself has established that the property of the assessee was occupied by the tenant. The requirement of section 54 is that the income of the building which is being sold should be chargeable under the head income from house property . The requirement of section is not that the assessee must earn income from said property. If there was a tenant then the income from the property was chargeable to tax. Therefore, exemption also cannot be denied to the assessee on the ground that assessee did not show any income chargeable under the head income from house property - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the CIT(A)'s order.
2. Entitlement to deduction under section 54 of the Income Tax Act.
3. Consideration of earlier CIT(A)'s decision and Agreement dated 03-12-1973.
4. Scope of the Assessing Officer's (AO) re-examination.
5. Examination of additional evidence by the AO.
6. Overall entitlement to deduction under section 54.

Detailed Analysis:

1. Legality of the CIT(A)'s Order:
The appellant argued that the order passed by the CIT(A) was "bad in law." This issue questions the legal soundness and procedural correctness of the CIT(A)'s decision, which denied the appellant the deduction under section 54 of the Income Tax Act.

2. Entitlement to Deduction under Section 54:
The main contention was whether the appellant was entitled to a deduction under section 54 for the investment made in a new residential house. The appellant claimed that she invested Rs. 1,96,17,250/- in a new residential house, which should be deductible against the long-term capital gain from the sale of a property in Khar, of which she owned 50%.

3. Consideration of Earlier CIT(A)'s Decision and Agreement Dated 03-12-1973:
The appellant highlighted that an earlier CIT(A) had allowed the deduction under section 54 based on an Agreement dated 03-12-1973 between the appellant and her husband, which showed she was a 50% owner of the property. The ITAT had remitted the matter back to the AO for re-examination of this agreement.

4. Scope of the AO's Re-examination:
The appellant argued that the AO exceeded the scope of the re-examination by considering other documents such as balance sheets, which were not fresh evidence. The AO was supposed to limit the re-examination to the Agreement dated 03-12-1973.

5. Examination of Additional Evidence by the AO:
The Tribunal had earlier restored the issue to the AO for fresh examination of additional evidence, including the Agreement dated 03-12-1973. The AO, in his subsequent assessment, did not find sufficient evidence to prove that the appellant was a 50% owner of the property, thus denying the deduction under section 54.

6. Overall Entitlement to Deduction under Section 54:
The Tribunal found that the appellant was indeed the owner of the land on which the building was constructed, and the building was sold. The Tribunal noted that the AO had accepted the appellant's claim regarding the payment of Rs. 25 lakhs to a tenant, which indicated that the property was occupied by a tenant. This established that the property could generate income chargeable under the head "income from house property," fulfilling one of the requirements for section 54. The Tribunal also noted that the husband's exemption under section 54 for his 50% share had been granted, and thus, the appellant should also be entitled to the same exemption.

Conclusion:
The Tribunal allowed the appeal, directing the AO to grant the deduction under section 54 to the appellant. The Tribunal emphasized that the appellant's ownership of the land and the building, along with the fulfillment of section 54 requirements, justified the exemption. The order pronounced on 08/07/2013 concluded that the appeal of the assessee was allowed.