2022 (7) TMI 632 - AT - Income Tax

Denial of deduction u/s 54F - allegation of investment in more than one house by assessee - as per ao assessee has made three independent floors and the stilt parking has three car parking - HELD THAT - As the factual matrix would reveal that the assessee has made investment in one residential building which consist of three floors. For all the three floors, the land tax is paid as a single unit. All the three floors have the same door number - AO has denied the claim merely on the ground that the assessee has made three independent floors and the stilt parking has three car parking. Further, the assessee has taken 6 electricity connections. However, in the light of the fact that units have been constructed on a single piece of land, these factors would not be of much relevance to determine the eligibility to claim deduction u/s 54F. The ground floor has been occupied by the assessee himself whereas each of the other two floors are occupied by two tenants each. The same is one of the factors as considered by AO to deny the deduction. The conclusion of Ld. AO would necessarily mean that the assessee was debarred from making separate units on a single piece of land and secondly, it raises a presumption that complete building should have been used by the assessee for its own residential purposes as a single unit. However, the same is not the intention of the legislature. The only requirement is that the assessee should make investment in one residential house. The conclusion of Ld. AO overlooks the fact that the multi-storied building was subjected to one property tax assessment and pertinently, it has one door number only. In our considered opinion, there is nothing in the statutory provisions which debar the assessee to make separate independent livable units on a single piece of land or obtain more than one electricity connection to claim the deduction. There is also not a condition that the property should be, at all times, used exclusively by the owner himself for his own residential purposes and the same could not be let out. As long as the property is one residential house, the fragmentation of the same into different livable units and to let them in part would not make the assessee ineligible to claim the deduction. Accordingly, the lower authorities, in our considered opinion, has misconstrued the statutory provisions. We would hold that the assessee is eligible to claim the deduction on investment of Rs.249.98 Lacs which shall proportionately stand reduced to Rs.244.30 Lacs as held by Ld. AO in para-14 of assessment order in view of the fact that full sale consideration was not invested in the new house. As per the provisions, the assessee is eligible to claim proportionate deduction only. We order so. AO is directed to re-compute the assessee s income. - Decided partly in favour of assessee.

Summary

Issues:
- Denial of deduction u/s 54F for construction of residential house.
- Interpretation of statutory provisions of Sec.54F.
- Impact of Finance Act amendments on deduction eligibility.
- Dispute regarding the definition of "a residential house."
- Assessment of the number of residential houses constructed for deduction eligibility.

Issue 1: Denial of deduction u/s 54F for construction of residential house:
The assessee appealed against the denial of deduction u/s 54F for the Assessment Year 2015-16. The contention was that the order of the Ld. CIT(A) was contrary to law, facts, and evidence on record. The assessee claimed to qualify for relief u/s 54F since only one house was constructed and not more than one house was owned at the time of property sale. The assessee also argued that the CIT(A) should have considered the decisions in various cases supporting the claim for deduction u/s 54F.

Issue 2: Interpretation of statutory provisions of Sec.54F:
The provisions of Sec.54F allow for deduction on investment in a residential house from capital gains arising from the transfer of long-term capital assets. The expression "a residential house" has been a subject of litigation, with courts interpreting it to potentially include multiple houses or units based on the facts of each case. The Finance Act amendments in 2014 and 2019 brought significant changes to restrict the deduction to one residential house or, in specific cases, two residential houses in India.

Issue 3: Impact of Finance Act amendments on deduction eligibility:
The Finance Act changes aimed to clarify that the deduction under Sec.54F is limited to investment in one residential house post-amendment. The legislative intent was to restrict the benefit to investment in one residential house situated in India, thereby addressing previous interpretations allowing for multiple houses.

Issue 4: Dispute regarding the definition of "a residential house":
The interpretation of "a residential house" was crucial in determining the eligibility for deduction u/s 54F. The courts, including the Madras High Court, emphasized that the legislative amendments post-2014 aimed to limit the deduction to one residential house, irrespective of the number of units or floors within the property. The focus was on the singular nature of the residential house for deduction purposes.

Issue 5: Assessment of the number of residential houses constructed for deduction eligibility:
In the case at hand, the assessee constructed a building with multiple floors, leading to a dispute on whether it constituted one or multiple residential houses. The lower authorities denied the deduction based on the number of independent floors and electricity connections. However, the Tribunal held that the fragmentation of a property into separate livable units on a single piece of land does not disqualify the assessee from claiming the deduction, as long as it constitutes one residential house. The Tribunal directed the re-computation of the assessee's income for proportionate deduction eligibility.

In conclusion, the Tribunal partly allowed the appeal, emphasizing that the assessee was eligible to claim the deduction on the investment made in one residential house, despite the property having multiple floors and units. The decision highlighted the importance of the singular nature of the residential property for deduction purposes under Sec.54F.