2016 (3) TMI 1015 - AT - Income Tax

Assessee's Appeal Dismissed Due to Commercial Use of Residential Flats under Section 54F

The tribunal upheld the CIT(A)'s order, dismissing the appeal filed by the assessee. The decision was based on the understanding that the assessee's ... Exemption under section 54F - ownership for purposes of section 54F - character of property (residential versus commercial) - sanctioned building plan as indicium of residential character - use of property does not alter its basic character - survey under section 133A and reopening under section 148/147Exemption under section 54F - ownership for purposes of section 54F - character of property (residential versus commercial) - sanctioned building plan as indicium of residential character - use of property does not alter its basic character - Whether the two flats owned by the assessee were to be treated as residential houses for the purpose of denying exemption under section 54F, despite being let out for commercial purposes, thereby disqualifying the assessee from exemption for the flats received under the joint development agreement. - HELD THAT: - The Tribunal examined the material on record including the sanctioned building plan, bank sanction of housing loan, and revenue records, alongside documentary evidence of commercial letting. It held that the flats were originally purchased and sanctioned as residential units and that their subsequent letting for commercial use for financial viability does not change the fundamental character of the properties. The statutory condition in section 54F requires that, as on the date of transfer of the original asset, the assessee should not own more than one residential house (other than the new house). Applying the principle that physical use for commercial purposes does not alter the basic nature of a property established by the sanctioned plan and other records, the Tribunal concluded that the assessee owned two residential flats as on the relevant date. The Tribunal considered the case-law relied upon by the assessee and found it distinguishable on facts, since in that decision the property purchased was held to be commercial in nature. On the facts of this case, the Tribunal found no error in the authorities below in denying exemption under section 54F and upheld the assessing officer's and CIT(A)'s conclusions. [Paras 5, 6, 8]The two flats are to be treated as residential houses notwithstanding their commercial letting; the assessee therefore owned two residential houses as on the date of transfer and is not eligible for exemption under section 54F for the flats received under the joint development agreement.Final Conclusion: The Tribunal upheld the orders of the lower authorities and dismissed the appeal, confirming denial of exemption under section 54F for Assessment Year 2010-11. Issues Involved:- Assessment of additional income declared during survey operation- Denial of exemption under section 54F of the Income-Tax Act- Interpretation of residential house ownership for exemption eligibilityAnalysis:Assessment of Additional Income:The appeal was filed against the order of CIT(A) pertaining to the assessment year 2010-11. The assessee admitted additional income during a survey operation and filed a revised return. The Assessing Officer (A.O.) reopened the assessment under section 147 of the Act, issuing a notice to explain capital gains on three flats received through a joint development agreement. The A.O. denied exemption under section 54F of the Act, claiming the assessee owned two residential flats, thus making him ineligible for the exemption.Denial of Exemption under Section 54F:The assessee contended that the two flats owned were commercial and used for commercial purposes, thus qualifying for exemption under section 54F for acquiring three new flats. The CIT(A) rejected the appeal, stating that the flats were initially approved for residential building construction, and the commercial usage did not change their residential nature. The CIT(A) confirmed the A.O.'s decision, leading to the appeal before the tribunal.Interpretation of Residential House Ownership:The tribunal analyzed the provisions of section 54F, emphasizing the objective of encouraging housing activity by granting exemptions. It noted that the assessee owned two residential flats, which were let out for commercial purposes. Despite the commercial usage, the tribunal held that the basic character of the properties remained residential, making the assessee ineligible for the exemption. The tribunal differentiated a previous case law cited by the assessee, highlighting the factual distinctions and affirming the CIT(A)'s decision.In conclusion, the tribunal upheld the CIT(A)'s order, dismissing the appeal filed by the assessee. The decision was based on the understanding that the assessee's ownership of two residential flats, despite commercial usage, rendered him ineligible for exemption under section 54F of the Act.