Section 54F relief denied for multiple house ownership, while windmill foundation depreciation was allowed at the plant rate.

Ownership of more than one residential house on the date of transfer disqualifies an assessee from Section 54F relief, even if one property is claimed as demolished or the other units are said to be business assets; the residential nature and ownership findings sustained the denial. Foundation cost integral to a windmill is treated as part of the windmill asset and qualifies for depreciation at the windmill rate. Deemed rental income was upheld where the assessee was found to own multiple house properties and evidence of non-possession was lacking. Disallowance under Rule 8D was sustained because exempt income was earned and administrative expenditure was linked to it, and ad hoc disallowances of vehicle and travelling expenses were confirmed for want of proof of exclusive business use.

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Issues: (i) Whether deduction under Section 54F was admissible when the assessee owned more than one residential house on the date of transfer of the original asset; (ii) whether depreciation on the civil foundation work of the windmill was allowable at the rate applicable to the windmill; (iii) whether deemed rental income on the assessee's house properties was taxable under Section 23(4); (iv) whether disallowance under Section 14A read with Rule 8D was justified; and (v) whether the ad hoc disallowances out of vehicle depreciation and travelling and conveyance expenses were sustainable.

Issue (i): Whether deduction under Section 54F was admissible when the assessee owned more than one residential house on the date of transfer of the original asset.

Analysis: The claim under Section 54F turned on whether the Prabhat Road bungalow had been demolished before the relevant transfer dates and whether the Lake Town flats were business assets. The findings recorded that the alleged demolition was not supported by credible municipal permission or contemporaneous evidence, the building plan itself showed the structure as "to be demolished", and the property tax records continued to treat it as a residential house. The three Lake Town flats were also held to be capital assets and, in any event, ownership of more than one residential house disentitled the assessee from relief under Section 54F.

Conclusion: Deduction under Section 54F was not allowable and the disallowance was upheld.

Issue (ii): Whether depreciation on the civil foundation work of the windmill was allowable at the rate applicable to the windmill.

Analysis: The foundation work was integral to the installation and functioning of the windmill. The issue was treated as covered by binding precedent holding that the foundation cost forms part of the windmill asset for depreciation purposes and therefore takes the same depreciation rate as the windmill itself.

Conclusion: Depreciation on the civil foundation work was allowable at the windmill rate and the assessee succeeded on this issue.

Issue (iii): Whether deemed rental income on the assessee's house properties was taxable under Section 23(4).

Analysis: Since the three Lake Town flats were not accepted as business assets and the Prabhat Road bungalow was held not to have been demolished by the relevant year-end, the assessee was treated as owning more than one house property. The claim regarding the Kingston Tower flat was not supported by evidence showing absence of possession. On these findings, the provisions governing deemed annual letting value were held applicable.

Conclusion: The addition on account of deemed rental income was sustained.

Issue (iv): Whether disallowance under Section 14A read with Rule 8D was justified.

Analysis: The assessee had earned exempt income from dividends and share of profits, and the record supported the view that administrative expenditure had been incurred in relation to such exempt income. The satisfaction recorded for invoking Rule 8D was accepted and no error was shown in the computation.

Conclusion: The disallowance under Section 14A read with Rule 8D was upheld.

Issue (v): Whether the ad hoc disallowances out of vehicle depreciation and travelling and conveyance expenses were sustainable.

Analysis: The assessee did not produce a log book or other reliable evidence to show exclusive business use of vehicles, and no supporting material was furnished for the travelling and conveyance claims. In the absence of proof rebutting personal element, the estimated disallowances were found justified.

Conclusion: The ad hoc disallowances were sustained.

Final Conclusion: Relief was granted only on the windmill depreciation issue, while the remaining additions and disallowances were confirmed.

Ratio Decidendi: For Section 54F relief, ownership of more than one residential house on the date of transfer is disqualifying irrespective of whether the houses are claimed to be capital assets or stock-in-trade; foundation cost integral to a windmill is depreciable at the windmill rate.

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