Issue: The subject matter before the bench in the present appeal is to determine whether the appellate authority was justified in law in confirming the denial of exemption claimed by appellant u/s 54F of the Income Tax Act, 1961 and also to interpret liberally the proviso (a)(i) of section 54F(1).
The individual assessee derived long term capital gain of Rs. 1,55,47,315/- and constructed a residential property and claimed exemption u/s 54F of the Act. The assessee at the time of transfer of shares was the owner of 9 other properties and the same were let out for commercial purposes, the rental receipts therein were taxed under house property. The assessing officer recorded a finding that properties owned by the appellant are residential
apartments and exemption under Section 54F was denied.
Ld. CIT (A) dismissed the appeal on the ground that out of nine properties, seven flats have
been granted with the sanction to let out for commercial purposes whereas the other two properties has got plan sanction of residential in nature but were actually been used for commercial purposes as service apartments. The claim of the assessee that the properties be not treated as residential houses on the basis of usage was not accepted. Hon’ble ITAT pheld the order of CIT (A) interalia on the ground that it is of no importance as to how the assessee utilise the units i.e. whether these residential units are used for commercial purposes or residential purposes, so long as these units were recognized as residential units.
Case of Assessee:
The assessee submitted that at the time of determining whether the building is a residential or commercial unit, the “usage” of the property is to be considered. the assessee submitted that in a building where 2 units were situated and have been granted sanction to be used as residential unit but on the contrary are offered as service apartments and being used for commercial purposes as service apartments. Therefore, the service apartments could not have been treated as residential units
Alternatively, it is submitted that even if two apartments are treated to be residential, then also since, they are situated in the same building, therefore, the apartments have to be treated as one residential only. Reliance was placed on the following:
- CIT vs. Iifthiqar ashiq, (2016) 239 taxman 443 (Madras),
- Firm Ganga Ram Kishore Chand vs. Firm Jai Ram Bhagat Ram, AIR 1957 Punjab
- Globe Theatres Ltd. vs. Khan Saheb Abdul Gani and another, 1956 Mysore 57 ((S) AIR
V 43 c 25 Dec.),
- C.H.Kesava Rao vs. CIT, (1985) 156 ITR 369 (Madras),
- CIT vs. Ouseph Chacko, 271 itr 29 (kerala),
- Sanjeev Puri vs. DCIT, (2016) 180 TTJ 649 (Delhi-Trib),
- P.N.Shukla vs. CIT, (2005) 276 ITR 642 (Allahabad)
- CIT vs. Smt.Shyama Devi Dalmia, (1992) 194 ITR 114 (Calcutta),
- ITO vs. Smt.Rohini Reddy, (2010) 122 ITD 1 (Hyderabad),
- Bajaj Tempo Ltd. vs. CIT, (1992) 196 ITR 188 (SC),
- CIT vs. Srisambandam Udaykumar, (2012) 345 ITR 389 (Karnataka)
- Gita Duggal (2013) 357 ITR 153 (Delhi) and Gita Duggal (2015) 228 taxman 62 (SC).
Revenue’s case: The department on the other hand submitted that clause (a) did not apply but clause (b) to proviso to Section 54F (1) apply to the facts of the case. Further, w.r.t the question of determination, whether the property is a residential or a commercial unit, the sanction granted in respect of the property is to be considered and not the usage.
Further, in order to support its contention, the counsel for the department submitted that the legislature had used both the expressions “owned” and “used” in section 32(1) of the Act the same had not been used in proviso to Section 54F (1) of the Act, reference was made to section 32(1) wherein the expressions ‘owned’ and ‘used’ are contained simultaneously, while in section 54F(1) only the term “owned” is referred to. Further, the requirement u/s 54F(1) is that the assessee ought to be the owner of the “residential house” and he may or may not be the user. The department has placed its reliance on the decision of the supreme court in the case of Commissioner of Income Tax vs. Calcutta Knitwears (2014) 43 Taxmann.com 446 (SC).
- The bench came to a conclusion that the expression ‘residence’ implies some sought of
permanency and cannot be equated to the expression ‘temporary stay’ as a lodger. Reliance was placed on decision of Hon’ble Madras High Court in the case of C.H. Keshavrao wherein it was held that expression ‘residence’ implies some sought of permanency and cannot be equated to the expression ‘temporary stay’ as a lodger. The usage of the property has to be considered for determining whether the property in question is a residential property or a commercial property. Accordingly, the view of Kerala, Delhi, Allahabad, Calcutta and Hyderabad High Courts was concurred with. Even if the property in question is residential, if it is used for commercial purposes, it cannot be treated as a residential unit for the purposes of section 54F.
- With regard to the alternative submission, their lordships went on to hold that the assessee owns two apartments in same building which has to be treated as one residential unit and the bench relied on the case of Gita Duggal (2013) 357 ITR 153 (Delhi) and Gita Duggal (2015) 228 taxman 62 (SC).