2022 (7) TMI 492 - AT - Income Tax

Appellant's Claim for Deduction Denied Under Section 54

Sumeet Dhiman Versus ACIT Circle-4 (1), Haryana

The Tribunal upheld the findings of the Assessing Officer and Commissioner of Income Tax (Appeals), ruling that the appellant was eligible for deduction ... Deduction u/s 54 - assessee has sold residential property and earned capital gain and the assessee has claimed deduction u/s 54 with respect to investment in two different houses i.e. purchase of a new house and for repayment of loan borrowed for acquisition of another house - whether the assessee was eligible for deduction u/s 54 with respect to investment in two residential house property? - HELD THAT:- As per Section 54 if an assessee being an individual or Hindu undivided family, the capital gain arises from the transfer of long term capital asset being building or lands appurtenant thereto and being a residential house the income of which is chargeable under the head of “income from house property”. But the said capital gain not liable to be taxed if the same has been invested in a new residential house which has been either purchase or constructed within the relevant period of time as prescribed by the section 54. In case the assessee fails or commit a default in nesting the same, then there is a mechanism inbuilt in section 54 which safeguard the interest of revenue according to which if the capital gain were not invested within the due date as mentioned u/s 139(1) aforesaid person, then such capital gain required to be deposited with the separate bank account called a capital gain account scheme. There is another safeguard as prescribed by the provision of section 54 which provides that, if there is a proportionate amount of capital gain is invested in purchase or construction of a new residential house, then only the pro- rata deduction is available to the assessee. In the present case, admittedly assessee has used with the long term capital gain for purchase of a new residential house and also used for repayment of a housing loan which is borrowed on a property located. Thus, the assessee has invested a capital gain in purchase of two residential houses. The assessee can take shelter and claim deduction u/s 54 only when the assessee invests the long term capital gain in purchase or construction of a single residential house. The words ‘a one residential’ mentioned in Section 54 of the Act is refers to only a one house which can be purchased or constructed to the amount of capital gain. The word ‘a residential house’ cannot be read or interpreted as ‘more than one house’ in the present case, wherein both the houses situated in separate buildings and in different places. The Hon’ble Court’s opinion is that, the physical structure of a new residential house whether it is literal or vertical, should not come in the way of considering the building as a residential house and there can be several independent units can be permitted in a single building for allowance of the deduction u/s 54/54F. But in the present case, the assessee has admittedly claimed deduction u/s 54 with respect to two different houses i.e. purchase of a new house and for repayment of loan borrowed for acquisition of another house which is situated not only in different building but also in a different area. Therefore, the judgment relied by the Ld. Counsel for the assessee is not applicable to the present case. Appeal of assessee dismissed. Issues Involved:1. Legality of the order passed by the CIT(A) under Section 250(6) of the Income Tax Act.2. Eligibility for deduction under Section 54 of the Income Tax Act with respect to investment in two different residential properties.3. Consideration of payment amounts and costs related to the new residential properties.4. Interpretation of the term 'a residential house' under Section 54 of the Income Tax Act.Detailed Analysis:1. Legality of the Order Passed by CIT(A):The appellant challenged the order dated 13/02/2018 passed by the CIT(A)-1, Gurgaon, asserting that it was 'bad in law and on the facts and circumstances of the case.' The appellant argued that the CIT(A) and the Assessing Officer (AO) failed to consider several crucial facts, including litigation issues affecting the execution of the sale deed and the Supreme Court's stay on further construction of the flat.2. Eligibility for Deduction Under Section 54:The primary issue was whether the assessee was eligible for deduction under Section 54 of the Income Tax Act for investments made in two different residential properties. The appellant sold a residential property and earned a capital gain of Rs. 76,64,058/-. The appellant claimed deductions under Section 54 for investments in two properties: one for the purchase of a new residential house and another for the repayment of a housing loan borrowed for a different property. The AO limited the deduction to Rs. 49,14,447/-, contending that the assessee was eligible for deduction concerning only one property, thereby taxing the balance capital gain of Rs. 27,49,611/-.3. Consideration of Payment Amounts and Costs:The appellant argued that the payment made to the builder AKME Projects Ltd. was Rs. 52,07,616/- and not Rs. 49,14,447/- as stated in the assessment order. Additionally, the appellant contended that the cost of the flat in AKME Projects Ltd. was Rs. 68,24,852/- excluding additional charges like electricity connection, common service charges, stamp duty, and registration costs. The appellant also claimed that the AO failed to consider the repayment of a home loan amounting to Rs. 60 lakh as reinvestment.4. Interpretation of 'A Residential House':The appellant argued that the term 'a residential house' should not be limited to a single unit, citing various judicial precedents. However, the Tribunal referred to the specific wording in Section 54, emphasizing that the deduction applies to the investment in 'a residential house,' which implies a single house. The Tribunal noted that the appellant's case involved investments in two separate properties located in different areas, thus not meeting the criteria for deduction under Section 54.Conclusion:The Tribunal upheld the findings of the AO and CIT(A), stating that the appellant was eligible for deduction under Section 54 only for one residential property. The Tribunal dismissed the appellant's grounds, affirming that the term 'a residential house' cannot be interpreted to mean multiple houses situated in different buildings and areas. Consequently, the appeal filed by the assessee was dismissed.Order:The appeal filed by the assessee is dismissed. The order was pronounced in the Open Court on 08th July 2022.