2017 (10) TMI 1435 - AT - Income Tax

Tribunal orders reassessment of deduction under Section 54F, emphasizes adherence to High Court guidelines

The Tribunal directed the Assessing Officer to re-determine the eligible deduction under Section 54F, focusing on the extent of land appurtenant to the ... Deduction u/s. 54F - complete the construction and occupy the same within the period of three years from the date of sale of original asset, if the construction had commenced within the period of three years - HELD THAT:- It is seen from the copy of the remand report sent by the ACIT, Noncorporate Circle (5)-1 to the CIT (A) dated 26.08.2016, which is in the paper book, that the ITI inspected “the property on 17.08.2016 and found that the said property is a land having a small portion in the middle of property constructed (about 1500 sq.ft.). This indicates that the size of house is just about 1500 sqft only in the sprawling land of 1 acres 25 cents. Though the assessee has made out a case for deduction u/s 54F, as per the ratios of the jurisdictional HC , however, a question arises that when the assessee has invested in 1.25 acres of land but constructed a house in the land just about 1500 sq.ft. only and claims the benefit of deduction u/s 54F on the entire investments in the 1.25 acres land and its compound wall etc, on the investment of how much land and buildings should she be given the benefit of deduction u/s 54F has not been examined by the lower authorities at all. In the case of Commissioner Of Income-Tax, Vs Zaibunnisa Begum [1984 (7) TMI 62 - ANDHRA PRADESH HIGH COURT] has laid the tests to be applied for the determination of the extent of land appurtenant to a building in the case involving sale of land and buildings, in sub para 18, supra, we are of the view that they could very well be applied in the case of purchase of land and construction of house as is involved in this case also We deem it fit to restore the matter for the determination of the extent of land appurtenant to a building (in this case the house) to the AO and direct him to re-determine the eligible deduction u/s 54F , afresh, on the lines on which the Honourable High Courts have laid the guidelines, supra, after giving adequate opportunity to the assessee. - Revenue’s appeal is treated as partly allowed for statistical purposes. Issues Involved:1. Eligibility of the assessee to claim deduction under Section 54F of the Income Tax Act.2. Completion of construction of the residential house within the stipulated period.3. Intention behind the construction—whether residential or commercial.4. Extent of land appurtenant to the residential house for the purpose of claiming deduction under Section 54F.Issue-wise Detailed Analysis:1. Eligibility of the Assessee to Claim Deduction under Section 54F:The assessee, an advocate by profession, sold a vacant land for Rs. 2.35 crores and computed the capital gains at Rs. 2,15,56,250/-, claiming deduction under Section 54F on an investment made in a new asset for Rs. 2.6 crores. The Assessing Officer (AO) found that the investment included Rs. 2,20,00,000/- in 1.25 acres of nanja land and Rs. 17,20,167/- for registration, totaling Rs. 2,37,20,167/-. An additional Rs. 20,20,000/- was invested in the capital gains account scheme. The AO's enquiry revealed an incomplete structure on the land, leading to the conclusion that no residential house was constructed within three years, and the intention was to construct a commercial property. Consequently, the AO held that the assessee was ineligible for deduction under Section 54F.2. Completion of Construction of the Residential House within the Stipulated Period:The CIT(A) considered the assessee's argument that for claiming deduction under Section 54F, it is sufficient if the construction commenced within three years from the date of sale of the original asset. The CIT(A) accepted the reasons for the delay in construction and noted that the construction commenced within the stipulated period. The CIT(A) relied on the jurisdictional High Court decisions, which stated that the construction need not be completed within three years if it had commenced within that period. The CIT(A) thus directed the AO to grant the relief under Section 54F.3. Intention Behind the Construction—Whether Residential or Commercial:The revenue argued that the assessee's intention was to construct a commercial property, supported by the fact that the electricity connection was obtained under Tariff No V, which is for commercial purposes. The revenue cited the case of Jagwinder Singh Vs CIT, where similar circumstances led to the denial of deduction under Section 54F. The CIT(A) did not address this issue in detail but focused on the commencement of construction within the stipulated period.4. Extent of Land Appurtenant to the Residential House for the Purpose of Claiming Deduction under Section 54F:The Tribunal noted that the assessee constructed a house on only about 1500 sq.ft. of the 1.25 acres of land. The Tribunal referred to the case of Commissioner Of Income-Tax, Vs Zaibunnisa Begum, where the extent of land appurtenant to a building was considered for deduction purposes. The Tribunal concluded that the lower authorities did not examine the extent of land appurtenant to the house. The Tribunal directed the AO to re-determine the eligible deduction under Section 54F, considering the guidelines laid down by the High Courts, which include determining whether the land is reasonably appurtenant to the building.Conclusion:The Tribunal restored the matter to the AO for re-determination of the eligible deduction under Section 54F, considering the extent of land appurtenant to the residential house. The Tribunal directed the AO to follow the guidelines provided by the High Courts and give adequate opportunity to the assessee. The revenue's appeal was partly allowed for statistical purposes.