2015 (11) TMI 1850 - AT - Income Tax

Tribunal Limits Deduction for Section 54F Claim, Upholds Revenue's Appeal

The Assistant Commissioner of Income Tax, Business Circle- III Chennai Versus Smt. Janaki Mohan

The Tribunal upheld the Assessing Officer's decision, limiting the deduction under section 54F to the land purchased from Mr. Y.J. Alex. The Tribunal ... Deduction u/s 54F - assessee an individual purchased several plots from seven members of a family - contiguous property purchase or multiple units - restricted deduction only to that portion of land where the building is situated which is purchased from Mr. Y.J.Alex and ignored the other plots of land purchased from other family members under separate sale deeds for the purpose of allowing deduction under section 54 - whether the assessee is entitled for deduction u/s 54F on the seven plots of land or is entitled to deduction only in respect of land purchased from Mr. Y.J.Alex in survey numbers 98/9, 98/10, 98/11 and 98/2-3? - HELD THAT:- On a perusal of the map furnished by the assessee, we find that this map is not prepared by any government agency or any government recognized agency, so no much credence can be given to the map furnished. AO made clear in the assessment order that huge land is adjacent to the Vambanadu lake which joins Arabian sea, in and around this lake there are several resorts and tourism is a major activity in the surroundings. The land purchased by the assessee is surrounded by canals in which passenger boats ply which is common way of transport in this particular area, therefore approach should not be a problem to the assessee. Interpretation given by the Revenue that assessee purchased several pieces of land by way of separate sale deeds and therefore not eligible for deduction under section 54F of the Act on the entire land is hyper technical and contrary to the intention of the provision. No doubt provision is intended to benefit the assessee that invests in acquisition of residential house. However, in this case the intention of the assessee appears to be not to purchase residential house but to develop a resort. The developmental activities, if any on the property are at the instance of M/s. Arun Excello Construction and the assessee has no connection therewith. All these things go to clearly show that assessee’s intention was to purchase land and develop a resort rather than a residential house for residing purpose. If the version of the assessee that all the land purchased is contiguous land forms part of one property with one residential house though purchased from several individuals of a family should be considered as eligible for deduction under section 54F of the Act, it defeats the very purpose of introducing the provisions of section 54F of the Act which is enacted to intend the benefit to the assessee who invests in acquisition of residential house especially in the present circumstances where the assessee purchased huge extent of 5.61 acres of land stating to be contiguous which was later developed into a resort for commercial purposes. Even assuming that survey numbers 98/2/1A, 99/5-3, 99/5-2, 99/51 are taken to be independent properties the land in survey numbers 98/2-2, 98/2-1 are contiguous to survey number 98/9 housing residential property and relief under section 54F is liable to be granted also cannot be accepted for the reason that all the properties are independent properties purchased from several individuals even though from the same family having various water bodies with clear demarcation of land of each property with buildings thereon in the three of the properties with municipal door numbers. In the facts and circumstances of the case, it is to be noted that each transaction as a separate transaction and it cannot be considered as contiguous properties - Assessing Officer is perfectly justified in restricting the deduction only to the portion of the land purchased from Mr. Y.J.Alex in survey numbers 98/9, 98/10, 98/11 and 98/2-3. Thus, we uphold the order of the AO - Decided in favour of revenue. Issues Involved:1. Whether the assessee is entitled to a deduction under section 54F of the Income Tax Act for the purchase of multiple plots of land.2. Determination of whether the land purchased is contiguous and forms part of a single residential unit.3. Consideration of the intention behind the purchase of the land and its subsequent use.Detailed Analysis:Issue 1: Deduction under Section 54F for Multiple PlotsThe Revenue argued that the Commissioner of Income Tax (Appeals) erred in directing the Assessing Officer (A.O.) to allow the exemption under section 54F for the investment made by the assessee in multiple plots of land. The A.O. had allowed the exemption only for the plot purchased from Mr. Y.J. Alex, which contained a residential building, and not for the subsequent plots purchased from six different persons. The A.O. contended that each transaction was independent, and the payments were made separately, thus not qualifying for the deduction under section 54F, which is intended for the purchase or construction of a residential house, not land.Issue 2: Contiguity and Single Residential UnitThe Commissioner of Income Tax (Appeals) allowed the assessee's claim, observing that the lands were contiguous and part of a single property, despite being purchased under separate deeds. The Commissioner noted that the existence of water bodies did not negate the contiguity of the land and that the cost of vacant land appurtenant to the residential unit should be considered for the claim under section 54F. The Departmental Representative, however, argued that the properties purchased from Mr. Alex Mathew, Mr. T.G. Paul, Mr. T.G. Sebastian, and Mr. Baiju did not contain any buildings and, therefore, could not be considered for the exemption under section 54F.Issue 3: Intention Behind Purchase and Subsequent UseThe A.O. and the Departmental Representative highlighted that the land was adjacent to Vembanadu Lake, an area known for tourism and resorts, suggesting that the assessee's intention was commercial exploitation rather than residential use. The A.O. supported this by noting that the land was surrounded by canals and was not totally cut off from the main stream of life, making access possible. The assessee countered by stating that the land was purchased as a single property from one family, with only one residential house, and the land was contiguous.Judgment:The Tribunal upheld the A.O.'s decision, restricting the deduction under section 54F to the land purchased from Mr. Y.J. Alex. The Tribunal found that the assessee's intention was not to purchase a residential house but to develop a resort, as evidenced by the application for constructing a resort and the subsequent building permit. The Tribunal noted that the properties were purchased from different individuals, and the existence of multiple buildings with municipal door numbers and electrical installations indicated that there were more than one residential buildings. The Tribunal concluded that each transaction should be considered independently, and the properties could not be treated as contiguous for the purpose of claiming the deduction under section 54F. Thus, the appeal of the Revenue was allowed, and the order of the Commissioner of Income Tax (Appeals) was reversed.