2021 (11) TMI 45 - AT - Income Tax

Duplex house qualifies as one residential unit for tax deduction under Section 54F.

Sri S.M. Vinod, L/R of late SM Muniyappa Versus The Income Tax Officer, Ward 7 (2) (1), Bangalore.

The Tribunal allowed the appeal, holding that the duplex house should be considered as one residential house for the purposes of Section 54F. The ... Deduction u/s 54F denied - owning more than one residential house at the time of sale of original asset - scope of amendment brought in Finance (No.2) Act 2014 to the proviso to section 54F(1) - as submitted residential property in Jayanagar has to be considered as one residential house since it is a duplex house containing single Khatha number, single Property Identification (PID) number - HELD THAT:- As in case of Bhatkal Ramarao Prakash [2019 (2) TMI 1059 - ITAT BANGALORE] has held that a residential house where ground floor is used for assessee’s own residence and the first floor was let out has to be considered as one residential house for the purposes of S. 54F of the Act though having independent entries, deduction has to be allowed. The assessee is having one building which consists of two units; one was let out and another is self-occupied by the assessee. The assessee owns one independent building which has two units one in ground floor and another in first floor and having two units cannot change the nature of the building, it remains as “one residential house” as in the case of Shri Ramaiah Harish [2021 (9) TMI 1138 - ITAT BANGALORE] Thus, we direct the AO to allow deduction u/s. 54F of the Act. The grounds raised by the assessee are allowed. Issues Involved:1. Whether the order of the Commissioner of Income-tax (Appeals) is erroneous and prejudicial to the interest of the appellant.2. Disallowance of deduction under Section 54F of the Income Tax Act, 1961.3. Application of the amendment brought by Finance (No.2) Act 2014 to the proviso to Section 54F(1).4. Consideration of a duplex house as one residential house for the purpose of Section 54F.Issue-wise Detailed Analysis:1. Erroneous and Prejudicial Order:The appellant challenged the order of the Commissioner of Income-tax (Appeals) [CIT(A)] on the grounds that it was erroneous and prejudicial to the interest of the appellant. The appellant contended that the CIT(A) incorrectly disallowed the deduction claimed under Section 54F of the Income Tax Act, 1961.2. Disallowance of Deduction under Section 54F:The appellant, during the assessment year 2016-17, had declared income from house property, other sources, and claimed a deduction under Section 54F for the purchase of another residential property after selling a vacant site. The Assessing Officer (AO) disallowed the deduction on the grounds that the appellant owned more than one residential house at the time of the sale of the original asset. The AO observed that the appellant owned two residential houses, one self-occupied and the other let out, and thus, the deduction under Section 54F was not applicable. This decision was upheld by the CIT(A).3. Application of Amendment by Finance (No.2) Act 2014:The CIT(A) applied the amendment brought by the Finance (No.2) Act 2014 to the proviso to Section 54F(1), which restricts the benefit to one residential house. The CIT(A) held that since the appellant owned two residential units, he was not eligible for the deduction. The appellant argued that the amendment should not apply as the property in question was a single house with two units, having a single municipal number and PID number.4. Consideration of Duplex House as One Residential House:The appellant contended that the property in question was a duplex house with a single Khatha number, single Property Identification (PID) number, and a single BESCOM connection, and thus should be considered as one residential house. The appellant relied on the decision of the Karnataka High Court in Navin Jolly Vs ITO, which held that multiple residential units in the same building should be treated as one residential unit. The appellant also cited the Bangalore Tribunal's decision in Bhatkal Ramarao Prakash Vs ITO, which supported the view that a residential house with multiple units should be considered as one residential house for the purposes of Section 54F.Tribunal's Decision:The Tribunal considered the facts and submissions and referred to various judicial precedents, including the Karnataka High Court's decision in Navin Jolly Vs ITO and the Bangalore Tribunal's decision in Bhatkal Ramarao Prakash Vs ITO. The Tribunal noted that the appellant's property, although consisting of two units (ground floor and first floor), should be considered as one residential house as it had a single municipal number and PID number. The Tribunal held that the physical structuring of the house, whether lateral or vertical, does not affect its consideration as one residential house for the purposes of Section 54F.The Tribunal also addressed the CIT(A)'s reliance on the Supreme Court's decisions in Dilip Kumar & Co. and Novopan India Ltd., stating that these decisions were not applicable to the present case. The Tribunal concluded that the appellant was entitled to the deduction under Section 54F and directed the AO to allow the deduction.Conclusion:The Tribunal allowed the appeal of the appellant, holding that the duplex house should be considered as one residential house for the purposes of Section 54F, and directed the AO to allow the deduction. The grounds raised by the appellant were allowed, and the appeal was pronounced in favor of the appellant on October 27, 2021.