2016 (3) TMI 1015 - AT - Income Tax

Exemption u/s 54F - whether two flats owned by the assessee are commercial and assessee is eligible for exemption under sec. 54F for acquiring 3 flats in lieu of development agreement - Held that - In the present case on hand, the records show that the assessee along with family members purchased incomplete residential apartment consisting of 8 flats. The assessee has taken housing loan from bank. The plan sanction was also for the purpose of residential purpose. The revenue records show that properties are residential in nature. Just because, the flats are let out for commercial purposes for financial viability, it cannot be said that the properties lose its basic nature and characteristics. From the facts, it is undoubtedly clear that as on the date of transfer of original asset, the assessee has owned two residential flats. Therefore, we are of the opinion that the assessee is not eligible for exemption u/s 54F of the Act for the flats received in lieu of joint development agreement. The CIT(A) has rightly confirmed the order of the assessing officer denial of claim - Decided against assessee.

Summary

Issues Involved:
- Assessment of additional income declared during survey operation
- Denial of exemption under section 54F of the Income-Tax Act
- Interpretation of residential house ownership for exemption eligibility

Analysis:

Assessment of Additional Income:
The appeal was filed against the order of CIT(A) pertaining to the assessment year 2010-11. The assessee admitted additional income during a survey operation and filed a revised return. The Assessing Officer (A.O.) reopened the assessment under section 147 of the Act, issuing a notice to explain capital gains on three flats received through a joint development agreement. The A.O. denied exemption under section 54F of the Act, claiming the assessee owned two residential flats, thus making him ineligible for the exemption.

Denial of Exemption under Section 54F:
The assessee contended that the two flats owned were commercial and used for commercial purposes, thus qualifying for exemption under section 54F for acquiring three new flats. The CIT(A) rejected the appeal, stating that the flats were initially approved for residential building construction, and the commercial usage did not change their residential nature. The CIT(A) confirmed the A.O.'s decision, leading to the appeal before the tribunal.

Interpretation of Residential House Ownership:
The tribunal analyzed the provisions of section 54F, emphasizing the objective of encouraging housing activity by granting exemptions. It noted that the assessee owned two residential flats, which were let out for commercial purposes. Despite the commercial usage, the tribunal held that the basic character of the properties remained residential, making the assessee ineligible for the exemption. The tribunal differentiated a previous case law cited by the assessee, highlighting the factual distinctions and affirming the CIT(A)'s decision.

In conclusion, the tribunal upheld the CIT(A)'s order, dismissing the appeal filed by the assessee. The decision was based on the understanding that the assessee's ownership of two residential flats, despite commercial usage, rendered him ineligible for exemption under section 54F of the Act.