2015 (9) TMI 550 - AT - Income Tax

Tribunal grants deduction under Section 54F for residential house investment dispute

Shri S. Tejraj Ranka Versus The Assistant Commissioner of Income Tax, Circle 7 (1), Bangalore.

The Tribunal allowed the assessee's claim for deduction under Section 54F of the Income-tax Act, permitting the entire investment of Rs. 54,70,887 in a ... Eligibility for deduction u/s 54F - AO was of the view that the value shown in the registered sale deed can be considered as investment in a residential house for allowing exemption u/s 54F - Held that:- Assessee has parted with a sum of ₹ 54,70,887 to acquire a “ residential house”, in the sense, a house which is habitable. Therefore as far as proceedings under the Act are concerned, the Assessee cannot be denied the benefit of deduction u/s.54F of the Act. The fact that there was undervaluation of the value of the property for the purpose of stamp duty, is an issue which is alien to the question of allowing deduction u/s.54F of the Act, when the evidence on record clearly shows investment in construction of “residential house” to the extent of ₹ 54,70,887. The AO and the CIT(A) have ignored the fact that the Assessee has in fact made investment to the extent of ₹ 54,70,887 and therefore the deduction claimed u/s.54F of the Act ought to be allowed. The fact that there was discrepancy between the amount set out in the registered document and the agreement with the builder has already been noticed by the State Registration Authorities and the Assessee is contesting those proceedings. Those proceedings will not have any bearing with regard to the claim of the Assessee for deduction u/s.54F of the Act, as the factum of investment in acquiring a residential house and payment of ₹ 54,70,887 has been established and not disputed by the Revenue. - Decided in favour of assessee. Issues Involved:1. Claim for deduction under Section 54F of the Income-tax Act, 1961.2. Calculation of investment in a residential house for Section 54F exemption.3. Validity of additional costs included in the total investment for Section 54F exemption.4. Alleged undervaluation of property for stamp duty purposes.Issue-wise Detailed Analysis:1. Claim for Deduction under Section 54F of the Income-tax Act, 1961:The assessee claimed a deduction of Rs. 34,34,640 under Section 54F of the Act for the assessment year 2007-08, which was restricted by the Revenue authorities to Rs. 23,04,640. The primary contention was whether the entire investment in the new residential property, including additional costs, should be considered for the deduction.2. Calculation of Investment in a Residential House for Section 54F Exemption:The assessee sold an immovable property for Rs. 36 lakhs, resulting in a Long Term Capital Gain (LTCG) of Rs. 34,34,360. The assessee claimed that the entire LTCG was exempt under Section 54F as he had invested in a new flat. The Assessing Officer (AO) restricted the exemption to Rs. 23,04,640 based on the value shown in the registered sale deed, which was Rs. 22,05,000, plus registration charges and stamp duty, totaling Rs. 24,15,595. The AO computed the proportionate deduction as follows:\[ \text{34,34,640} \times \frac{\text{24,15,595}}{\text{36,00,000}} = Rs. 23,04,640 \]3. Validity of Additional Costs Included in the Total Investment for Section 54F Exemption:The AO and CIT(A) did not consider additional costs such as upgradation, club house membership, and other amenities as part of the 'residential house' investment. The assessee argued that the total investment in the property, including these additional costs, was Rs. 54,70,887 and should be considered for exemption. The Tribunal held that the term 'residential house' should be understood in the normal sense as a habitable house, and since the assessee paid Rs. 54,70,887 for a habitable flat, the entire amount should be eligible for deduction under Section 54F.4. Alleged Undervaluation of Property for Stamp Duty Purposes:The CIT(A) contended that the assessee undervalued the property to avoid stamp duty, considering only the value in the registered sale deed. However, the Tribunal found that the assessee's total investment in the habitable residential house was Rs. 54,70,887, and the issue of undervaluation for stamp duty purposes was irrelevant to the deduction under Section 54F. The Tribunal emphasized the factual investment in the residential house and allowed the deduction as claimed by the assessee.Conclusion:The Tribunal concluded that the assessee's claim for deduction under Section 54F of the Act should be allowed for the entire investment of Rs. 54,70,887, as it was a legitimate investment in a habitable residential house. The appeal by the assessee was allowed, and the order of the CIT(A) was overturned.Pronouncement:The judgment was pronounced in the open court on August 26, 2015, and the appeal by the assessee was allowed.