2020 (9) TMI 817 - AT - Income Tax

Disallowing claim of deduction u/s 54F - plot purchased was of the commercial nature - HELD THAT - The only condition has been laid in the Sec. 54F is that either a residential house is purchased or constructed a house for residential purposes in stipulated time, meaning thereby of 'construction of a house for residential purpose' is that some construction should be made by the assessee on the plot, whether assessee is physically residing or not in that house, or whether plot on which house has been constructed is of commercial or agricultural nature, is all immaterial. The said condition was fulfilled by the assessee by constructing a house for residential purpose on the plot purchased by her from JDA on auction and said house was consisted of two rooms, boundary wall with iron gate, electricity connection etc. and house was constructed within stipulated time. All the conditions of claiming deduction under Sec. 54F of the Act were fulfilled by the assessee and all relevant details/evidences submitted before the AO during the proceedings which were examined by him and nothing was remained on the part of the assessee to prove her claim as per provisions of sec. 54F - No merit for declining the assessee s claim of deduction U/s 54F. Legally and factually in interpreting the actual spirit of section 50C for the purpose of working out deduction under section 54F - HELD THAT - Deeming fiction as provided in sec. 50C in respect of the words 'full value of consideration' is to be applied only to Sec. 48. Words 'full value of consideration' in other provisions of the Act are not governed by the meaning of these words as mentioned in Sec. 50C. Thus, for ascertaining the full value of consideration as mentioned in different provisions except Sec. 48, consideration specified in sale deed has to be considered. The meaning of full value of consideration as referred to in Explanation to Sec. 54F(1) is not governed by the meaning of the words full value of consideration as mentioned in Sec. 50C. In the instant case, the cost of new asset is not less than the net consideration, therefore, the whole of the capital gain is not chargeable to tax even if the capital gain is computed by taking the value adopted by the stamp authority. Hence, the assessee is entitled for exemption u/s 54F of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of claim of deduction U/s 54F of the Income Tax Act, 1961.
2. Interpretation of Section 50C of the Act for working out deduction under Section 54F.

Issue 1: Disallowance of claim of deduction U/s 54F:
The appeal was filed against the order disallowing the deduction U/s 54F of the Act. The initial assessment order disallowed the claim, and the CIT(A) upheld this decision. The ITAT, Jaipur had previously directed the Assessing Officer to verify details of payments for construction and consider relevant case law. However, in the subsequent proceedings, the AO again disallowed the claim without providing the spot enquiry report to the assessee. The AO's findings focused on the plot's commercial nature and lack of evidence for payment sources. The ITAT found the AO's findings irrelevant and overlapping, emphasizing that the nature of the plot was immaterial for claiming deduction U/s 54F. The conditions for claiming the deduction were fulfilled by the assessee, including constructing a residential house within the stipulated time. The AO and CIT(A) failed to consider the ITAT's directions and relevant case law, leading to the allowance of the assessee's appeal.

Issue 2: Interpretation of Section 50C for deduction under Section 54F:
The AO applied Section 50C to determine the capital gain, using stamp authority value instead of the actual sale value. The ITAT clarified that Section 50C is a deeming provision applicable to taxing capital gains only, not for deductions like U/s 54F. Judicial decisions supported this interpretation, stating that Section 50C's deeming fiction applies to Section 48, not other provisions like Section 54F. The full value of consideration specified in the sale deed should be considered for deductions under Section 54F. In this case, the assessee was entitled to exemption U/s 54F as the cost of the new asset was not less than the net consideration, even if the capital gain was computed using the stamp authority value.

In conclusion, the ITAT allowed the assessee's appeal, emphasizing that the conditions for claiming deduction U/s 54F were met, and Section 50C did not apply to deductions under Section 54F. The judgment highlighted the importance of following statutory provisions and judicial interpretations to ensure accurate tax assessments and deductions.