2016 (8) TMI 907 - AT - Income Tax

Eligible to claim deduction under sec. 54F - nature of property - residential or commercial - Held that - There is no dispute on fact that the property owned by the assessee was being used as his office during the relevant period but only dispute between the assessee and Revenue remained about the entitlement of deduction of sec. 54F of the Act on the basis of actual user of the property i.e. office use and not merely on the basis of the municipal showing the property meant for residential use or in the sale deed shown as residential type. For availing deduction under sec. 54F of the Act, the property though shown as residential on the record of the municipality but the test will be actual user of the premises by the assessee during the relevant period. In other words, it does not make difference whether the property has been shown as residential house on the record of the government authority but actual user thereof by the assessee will be considered while adjudicating upon the eligibility of deduction under sec. 54F of the Act claimed by the assessee. In the present case, for denial of the claimed deduction under sec. 54F of the Act, the Assessing Officer should not have considered the property as residential on the basis of municipal record ignoring the actual user thereof. The authorities below were thus not justified in denying and upholding the denial of the claimed benefit to the assessee by way of deduction under sec. 54F of the Act on the basis that the assessee was owning more than one residential house (i.e. inclusion of E-575A, GK-II, New Delhi) on the date of transfer of the original assets. We thus setting aside the orders of the authorities below in this regard direct the Assessing Officer to allow the claimed deduction under sec. 54F of the Act. - Decided in favour of assessee

Summary

Issues Involved:
1. Entitlement to deduction under Section 54F of the Income-tax Act, 1961.
2. Treatment of property E-575A, Greater Kailash-II, New Delhi as residential or commercial.
3. Actual use of the property versus its classification in municipal records and sale deed.
4. Alternative claim for deduction under Section 54EC of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 54F:
The assessee contested the disallowance of deduction under Section 54F by the CIT(A). The assessee had sold his rights in a Gurgaon Flat and invested the proceeds in a new residential property, claiming deduction under Section 54F. The Assessing Officer disallowed the deduction on the grounds that the property at E-575A, Greater Kailash-II, New Delhi was a residential property, and the assessee owned more than one residential house at the time of transfer. The CIT(A) upheld this disallowance.

2. Treatment of Property E-575A as Residential or Commercial:
The core issue was whether the property E-575A, classified as residential in municipal records and the sale deed, could be considered a commercial property based on its actual use by the assessee. The assessee argued that he used the property exclusively for his legal practice, supported by various evidences such as professional invoices, official notifications, and the allowance of depreciation on the property as an office building by the Assessing Officer in previous years.

3. Actual Use of the Property versus Its Classification:
The assessee's argument was that the actual use of the property should determine its classification, not the municipal records or the sale deed. The assessee cited several judgments supporting the view that the actual use of the property should be considered for claiming deductions under Section 54F. The Tribunal agreed with this view, noting that the property was used as an office and not for residential purposes, despite its classification in municipal records.

4. Alternative Claim for Deduction under Section 54EC:
The assessee also made an alternative claim for deduction under Section 54EC, as he had invested ?50 lacs in REC Bonds. This claim was to be considered if the deduction under Section 54F was disallowed. However, since the Tribunal allowed the deduction under Section 54F, the alternative claim under Section 54EC became infructuous.

Conclusion:
The Tribunal concluded that the actual use of the property E-575A as an office should be considered for the purpose of Section 54F. The orders of the authorities below were set aside, and the Assessing Officer was directed to allow the claimed deduction under Section 54F. Consequently, the alternative claim under Section 54EC was dismissed as infructuous. The appeal ITA No. 5474/Del/2014 was allowed, and ITA No. 2477/Del/2015 was dismissed.