2005 (12) TMI 461 - AT - Income Tax

Tax Tribunal Rules Basement Qualifies for Section 54F Exemption: Residential Features Prevail Over Commercial Use.

The Tribunal allowed the appeal, granting the exemption under Section 54F of the Income-tax Act to the assessee. It determined that the basement property ... Capital gains - Denial of exemption u/s 54F - Basement property not use for residential purposes - Meaning of residential property - Nature and use of the basement property purchased by the assessee - HELD THAT:- The requirement of law is that the property should be a residential house. The expression residential house has not been defined in the Act. The popular meaning of the word is a place or building used for habitation of people. It is used in contradistinction to a place which is used for the purpose of business, office, shop, etc., It is not necessary that a person should reside in the house to call it a residential house. If it is capable of being used for the purpose of residence than the requirement of section is satisfied. Thus, we are of the view that the basement was capable of being used as residence. The fact that the assessee did not actually use the same for his residence will not disentitle him to the claim of exemption u/s 54F of the Act. On the facts and the circumstances of the case, we are of the view that the exemption u/s 54F deserves to be allowed. Accordingly, we direct that the same should be allowed. The appeal of the assessee is allowed. Issues Involved:1. Denial of exemption u/s 54F of the Income-tax Act.2. Nature and use of the basement property purchased by the assessee.Summary:Issue 1: Denial of exemption u/s 54F of the Income-tax ActThe primary issue for consideration is whether the revenue authorities were justified in denying the benefit of exemption u/s 54F of the Income-tax Act to the assessee. The assessee sold a commercial property and purchased a basement, claiming it as a residential house to avail exemption u/s 54F. The Assessing Officer denied the exemption on the grounds that the basement was used for commercial purposes and lacked essential residential features like a bedroom, living room, and kitchen.Issue 2: Nature and use of the basement property purchased by the assesseeThe assessee argued that the basement was located in a residential area, constructed as a residential house, and treated as such by the MCD authorities for property tax purposes. The basement was used for storing household goods, accommodating guests, and office work, with amenities like water, electricity, and a kitchen. The CIT(A) upheld the Assessing Officer's view, stating that MCD Bye-Laws do not permit residential use of basements and the basement was used commercially.Tribunal's Findings:The Tribunal considered the affidavit filed by the assessee u/r 10 of the ITAT Rules, 1963, which contradicted the Assessing Officer's observations about the commercial use of the basement. The Tribunal noted that the property was capable of being used as a residential accommodation, with necessary amenities and independent access. The Tribunal emphasized that the law requires the property to be a 'residential house' and not necessarily used as a residence. The Tribunal concluded that the basement was capable of being used as a residence, and the actual use by the assessee was not a disqualifying factor for exemption u/s 54F.Conclusion:The Tribunal allowed the appeal, directing that the exemption u/s 54F be granted to the assessee, as the basement property met the criteria of being a residential house. The appeal of the assessee was allowed.