2016 (9) TMI 949 - AT - Income Tax

Deduction u/s.54 or 54F - Held that - In view of the said circumstances for the purpose of deduction u/s.54 or 54F of the Act, the land appurtenant on constructed house is liable to be considered for exemption. Therefore, in view of the said circumstances the purchase value of the house to the tune of ₹ 30,29,296/- is liable to be considered to the extent of the share of the assessee, therefore, we set aside the order of the CIT(A) on this issue and direct the Assessing Officer to reassess the deduction u/s.54 or 54F of the Act in view of the circular no.667 dated 18.10.1993 in accordance with law. - Decided in favour of assessee.

Summary

Issues:
1. Consideration of house property value for deduction under Sections 54 and 54F of the Income Tax Act.
2. Interpretation of Section 27(1) regarding investment in house property.
3. Treatment of deemed dividend under Section 2(22)(e) for advance or loan made to a shareholder.

Analysis:

Issue 1: Consideration of house property value for deduction under Sections 54 and 54F
The assessee contested the valuation of the house property by the Assessing Officer and CIT(A) for deduction under Sections 54 and 54F of the Income Tax Act. The contention was that the cost of construction should include the cost of the plot as well, as per Circular No. 667, dated 18.10.1993. The Tribunal observed that the cost of land is an integral part of the cost of the residential house, whether purchased or built. Therefore, the aggregate cost, including the cost of the plot and construction, should be considered for determining the deduction under Sections 54/54F. The Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to reassess the deduction in accordance with the law and the circular.

Issue 2: Interpretation of Section 27(1) regarding investment in house property
The Assessing Officer and CIT(A) disallowed a portion of the investment in house property based on Section 27(1) of the Income Tax Act. The Tribunal noted that dividing the value of the property into three parts was against the law. It held that the investment should be allowed to the extent of 2/3rd of the amount, as per the provisions of Section 27(1). The Tribunal directed the Assessing Officer to reconsider the investment in house property in line with the law.

Issue 3: Treatment of deemed dividend under Section 2(22)(e)
The Assessing Officer considered a certain amount as deemed dividend under Section 2(22)(e) for an advance or loan made to a shareholder. The Tribunal noted that the company derived its income from investments, falling under Section 2(22)(e), which was overlooked by the Assessing Officer and CIT(A). The Tribunal directed a reassessment of the deemed dividend in accordance with the provisions of the Income Tax Act.

In conclusion, the appeal filed by the assessee was allowed by the Tribunal, and the orders of the Assessing Officer and CIT(A) were set aside on various issues related to the valuation of house property, investment interpretation, and deemed dividend treatment. The Tribunal provided detailed reasoning based on legal provisions and circulars to support its decision.