2023 (9) TMI 1314 - AT - Income Tax

Tribunal grants deduction under section 54F, corrects property classification error.

Sh. Kunal Dar Versus Income Tax Officer Ward-53 (3) New Delhi

The Tribunal allowed the appeal filed by the assessee, reversing the decision of the CIT(A). The Tribunal held that the Assessing Officer erred in ... Deduction u/s 54F - Claim denied as assessee is already in possession of two residential properties - HELD THAT:- It is the specific case of the assessee that the assessee was owing two properties, one is C-409 IVth Floor Nirvana Courtyard, Sector-50, South City- II, Gurgaon, Haryana, which is ‘commercial property’ and another Property No. 36, Aradhna Enclave, Sector-13, K. R. Puram, New Delhi which is a ‘residential property’. The assessee had produced conveyance deed dated 24/09/2010, wherein it is depicted that the assessee had purchased “shops/Office premises bearing No. 409 Block-C 4th floor, admeasuring super area 1262.51 square feet (117.29 square metre) situated at Nirvana Courtyard, South City-II, Gurgaon, Haryana. But the Ld. A.O. without looking into the conveyance deed, formed an opinion that the assessee is already in possession of ‘two residential properties’. Thus, we are of the opinion, that the A.O. committed error in observing the ‘commercial property’ as ‘residential property’ and also committed error in denying the claim of deduction u/s 54F to the assessee. A.O. ought to have appreciated the fact that the Assessee owns a single residential property and should have allowed the deduction claimed u/s 54F of the Act - Appeal filed by the assessee is allowed. Issues involved:The issues in this case involve the disallowance of deduction under section 54F of the Income Tax Act, 1961, based on the possession of residential properties by the assessee, and the interpretation of the term 'residential house' under section 54F.Issue 1: Disallowance of deduction under section 54F:The assessee claimed deduction under section 54F for investing in a house property, but the Assessing Officer disallowed the deduction on the grounds that the assessee already owned two residential properties. The CIT(A) upheld this disallowance, citing the judgment of the Hon'ble Delhi High Court and ITAT Delhi that letting out a property for commercial purposes does not exempt an assessee from the proviso to section 54F.Issue 2: Interpretation of 'residential house' under section 54F:The CIT(A) considered various factors in interpreting the term 'residential house' under section 54F, including the nature of the properties owned by the assessee, the potential residential use of the properties, and the taxability of income from the properties under the head 'income from house property.' The CIT(A) concluded that since both properties owned by the assessee were residential flats and the income from both properties was taxed under the head 'income from house property,' the conditions in the proviso to section 54F(1) were satisfied, making the proviso operational and denying the deduction under section 54F to the assessee.Judgment:The Tribunal reversed the decision of the CIT(A) and allowed the appeal filed by the assessee. The Tribunal found that the Assessing Officer erred in considering a commercial property as a residential property, leading to the incorrect disallowance of the deduction under section 54F. The Tribunal noted that the assessee actually owned only one residential property and a commercial property, not two residential properties as assumed by the lower authorities. The Tribunal held that the Assessing Officer should have allowed the deduction claimed under section 54F, as the assessee met the conditions for the deduction. Therefore, the Tribunal allowed the appeal and granted the deduction of Rs. 52,54,619 claimed by the assessee under section 54F of the Act.Separate Judgment:No separate judgment was delivered by the judges in this case.