2015 (4) TMI 1255 - AT - Income Tax

Incomplete Flat Exemption Dispute: Section 54F Interpretation

The case involved determining whether an incomplete flat qualified as a 'residential house' for claiming exemption under section 54F of the Income Tax ... Grant of deduction u/s 54F - assessee could not be constructed by the builder for a sufficient long time and the same could not be categorised as residential house - Held that:- The assessee had booked a residential flat on 15.01.1981. The builder failed to complete the construction and the dispute travelled to the Hon’ble Bombay High Court. The Hon’ble Bombay High Court had appointed a committee/receiver with a direction to complete the construction. The construction of the building was not complete up to Feb 2011 as has been gathered by the CIT(A) from the letter dated 17.02.2011 issued by the said committee of court receiver. The assessee, however, in the year 2005 had sold the unconstructed/under construction unit resulting in taxable long term capital gains. CIT(A) has categorically held, after appreciation of the factual matrix of the case, that the property transferred by the assessee could not be termed to be a residential house. The findings of the CIT(A) have been reproduced above. The provisions of section 54F are beneficial provisions enacted for the purpose of promoting the construction/purchase of residential houses. The property in question sold by the assessee could not be constructed by the builder for a sufficient long time and the same could not be categorised as residential house and therefore the claim of the assessee has rightly been allowed by the Ld. CIT(A) under section 54F. No infirmity on the order of the CIT(A) in this respect. - Decided in favour of assessee. Issues:1. Whether the incomplete flat of the assessee qualifies as a 'residential house' for the purpose of claiming exemption under section 54F of the Income Tax Act.2. Whether the claim of the assessee under section 54F was rightly allowed by the Ld. CIT(A) or not.Analysis:Issue 1:The case involved determining whether the incomplete flat of the assessee qualified as a 'residential house' under section 54F of the Income Tax Act. The Assessing Officer (AO) initially allowed the claim of exemption under section 54F. However, the Commissioner of Income Tax (CIT) initiated proceedings under section 263, contending that the claim was erroneous. The AO then observed that the asset transferred was a residential house, denying the exemption. The Ld. CIT(A) considered all facts and submissions, concluding that the incomplete flat did not fall under the definition of a 'residential house' as per section 54F. The Ld. CIT(A) emphasized that a 'residential house' must be a complete structure fit for habitation, having essential facilities. The judgment highlighted that the legislative intent was clear that a 'residential house' meant a unit suitable for residence, which could be occupied or put to use for residence. The Ld. CIT(A) decision was based on these interpretations, ultimately allowing the claim of the assessee under section 54F.Issue 2:The Revenue appealed the decision of the Ld. CIT(A), contesting the allowance of the claim under section 54F. The Revenue argued that the property should be considered a 'residential house' for the purpose of exemption. However, the appellate tribunal upheld the decision of the Ld. CIT(A), emphasizing that the property in question, an incomplete flat, did not meet the criteria of a 'residential house' as per section 54F. The tribunal concurred with the Ld. CIT(A) that the property could not be categorized as a residential house due to the prolonged construction period and lack of essential features for habitation. Consequently, the tribunal dismissed the appeal of the Revenue and the cross objections of the assessee, affirming the decision in favor of the assessee regarding the exemption under section 54F.In conclusion, the judgment clarified the interpretation of 'residential house' under section 54F, emphasizing the essential features required for a property to qualify for the exemption. The decision favored the assessee, allowing the claim under section 54F and dismissing the appeals, based on the property not meeting the criteria of a 'residential house' for the purpose of exemption.