2023 (2) TMI 333 - AT - Income Tax

Revision u/s 263 - deduction u/s 54F - As per CIT AO has allowed the claim of deduction u/s 54F without proper verification of the facts in the wake of assessee s contention that some of the properties were given on rent and hence commercial in nature - Assessee owns more than one residential property on the date of transfer of the capital asset other than the new asset acquired - HELD THAT - We are unable to accept the contention of the ld.counsel for the assessee that since the flats are utilized for commercial use, they are not residential in nature and therefore, the assessee is eligible to get the benefit of deduction u/s. 54F of the I.T.Act. Even though, the properties situated at Flat No.505 Begumpet is accepted to be used for business purpose of the assessee being used for conducting meetings with the clients relating to his construction projects undertaken, however, the flats at Swastik Apartments, Siliguri and the three flats at Lakshmi Nilayam, Kavuri Hills in Hyderabad cannot be accepted to be commercial in nature in absence of any satisfactory evidence. Under these circumstances, we are of the considered opinion that the benefit of deduction u/s. 54F was rightly denied to the assessee on the ground that the assessee owns more than one residential property on the date of transfer of the capital asset other than the new asset acquired. The flats are situated in residential societies and there is no evidence on record to show that local authorities have charged the taxes applicable for commercial use of the property or the electricity department levied the charges applicable for commercial properties. Therefore, the decisions relied on by the ld.counsel for the assessee, in our opinion, are not applicable to the facts of the present case. In this view of the matter and in view of the detailed reasoning given by the ld.CIT(A) on this issue, we do not find any infirmity in his order denying the benefit of deduction u/s. 54F of the I.T.Act. We, therefore uphold the order of the ld.CIT(A) on this issue and the grounds raised by the assessee are dismissed.

Summary

Issues Involved:

1. Validity of deduction claim under Section 54F of the Income Tax Act.
2. Determination of the nature of properties (residential or commercial) for Section 54F applicability.
3. Burden of proof regarding the nature of properties.
4. Relevance of rental income classification under "Income from House Property."
5. Applicability of case laws cited by the assessee.

Detailed Analysis:

1. Validity of Deduction Claim under Section 54F:

The central issue revolves around the assessee's claim for deduction under Section 54F of the Income Tax Act. The Assessing Officer (AO) initially accepted the assessee's claim, but the Principal Commissioner of Income Tax (Pr. CIT) later initiated proceedings under Section 263, questioning the validity of the deduction without proper verification. The AO subsequently disallowed the deduction, concluding that the assessee owned multiple residential properties, thus violating the conditions of Section 54F.

2. Determination of the Nature of Properties:

The AO scrutinized the nature of the properties owned by the assessee. The properties in question included:
- Sai Nivas, Shaikpet Village, Hyderabad (vacant site)
- Sai Praveen Kuteer (guest room)
- Flats at Sai Lakshmi Nilayam, Hyderabad (given on rent)
- Swastik Apartment, Siliguri (commercial property)
- House No.A-102, Noida, U.P. (industrial property)

The AO accepted the vacant site and industrial property as non-residential but determined that the other properties were residential units based on rental agreements and municipal tax receipts. The AO concluded that these properties were residential, thus disqualifying the assessee from Section 54F benefits.

3. Burden of Proof Regarding the Nature of Properties:

The assessee argued that the properties were used for commercial purposes and provided lease agreements as evidence. However, the AO and the CIT (A) held that the onus was on the assessee to prove the commercial nature of the properties. The CIT (A) emphasized that merely leasing properties to companies where the assessee is a director does not alter their residential nature. The Tribunal upheld this view, noting the lack of evidence such as commercial tax rates or electricity charges applicable to commercial properties.

4. Relevance of Rental Income Classification Under "Income from House Property":

The assessee contended that the classification of rental income under "Income from House Property" should not determine the nature of the properties. However, both the AO and the CIT (A) considered this classification as significant evidence of the residential nature of the properties. The Tribunal agreed, stating that the absence of commercial tax rates and other supporting evidence reinforced the residential classification.

5. Applicability of Case Laws Cited by the Assessee:

The assessee cited several case laws to support their claim, including decisions from the Delhi Bench of the Tribunal and the Karnataka High Court. These cases emphasized the actual use of the property over its classification. However, the Tribunal distinguished these cases, noting that the properties in question were situated in residential societies without evidence of commercial use. Therefore, the cited case laws were deemed inapplicable to the present case.

Conclusion:

The Tribunal dismissed the appeal, upholding the AO and CIT (A)'s decision to deny the deduction under Section 54F. The Tribunal concluded that the assessee failed to provide sufficient evidence to prove the commercial nature of the properties, thereby disqualifying them from the claimed deduction. The judgment emphasized the importance of proper classification and evidence in determining the applicability of tax deductions.