2005 (10) TMI 231 - AT - Income Tax

Tribunal Remands Exemption Issue, Upholds Disallowance of Brokerage, Orders Recalculation of Interest for Assessee.

Mahavir Prasad Gupta. Versus Joint Commissioner Of Income-tax.

The Tribunal partially allowed the appeal, remanding the Section 54F exemption issue to the AO for verifying the residential nature of the new property. ... Claim of exemption u/s 54F - Capital gains - new property let out for commercial use - Additional Evidence - Voluntary Disclosure of Income Scheme, 1997 ('VDIS') - Whether the new property constructed by the assessee is a residential house or not - HELD THAT:- Mere non-residential use would not render a property ineligible for s. 54F benefit, if it otherwise is a residential house. On this aspect, we do not find any positive finding by the lower authorities and neither is there any relevant material before us to arrive at a finding. Thus, for this limited purpose, the issue is restored to the file of the AO. If the assessee is found to have constructed a residential house, whatever may be the use it has been put to, the assessee can be said to have fulfilled the conditions envisaged u/s 54F. Quantum of deduction - In case the assessee is found to have constructed a residential house, next issue is with regard to the quantum of deduction under s. 54F. We find that the AO allowed the same at Rs. 81,300 on the ground that only such amount has been incurred during the year, and there is no evidence of balance spending. Apart from that, the only evidence which the assessee has been able to substantiate is the certificate under vms evidencing the investment of Rs. 1,50,000 towards construction of the new building. To that extent, in our view, the assessee can be construed to have discharged its onus of proving appropriation of money towards construction of the new building. Therefore, we consider it fit and proper to set aside the order of the CIT(A) and direct the AO to allow further benefit of s. 54F to the extent of Rs. 1,50,000 if the assessee is otherwise found eligible for s. 54F benefit as the abovestated verification exercise. However, if as a result of the verification to be carried out by the AO, the assessee is found not to have constructed a residential house, no deduction shall be allowable to the assessee and the AO shall be at liberty to pass such orders as is in accordance with law. Thus, the assessee partly succeeds on this ground, as above, for statistical purposes. In the result, the appeal of the assessee is treated as partly allowed. Issues Involved:1. Claim of exemption under Section 54F of the IT Act, 1961.2. Disallowance of commission payment to the broker.3. Chargeability of interest under Sections 234B and 234C of the IT Act.Issue-Wise Detailed Analysis:1. Claim of Exemption under Section 54F of the IT Act, 1961:The first issue pertains to the assessee's claim of exemption under Section 54F regarding the long-term capital gain on the sale of 500 equity shares of M/s Castrol India Ltd. The assessee claimed that the entire sale proceeds were reinvested in constructing a residential house, thus qualifying for exemption and resulting in 'nil' income under 'Capital gain.' The AO restricted the exemption to Rs. 81,300, noting that the assessee only evidenced this amount spent on construction during the year. The CIT(A) denied the exemption entirely, stating the new asset was not a residential house and enhanced the income by Rs. 81,300. The CIT(A) also noted the lack of evidence for the purchase of shares and directed the AO to charge tax by not treating the income as capital gain.Before the Tribunal, the assessee argued that the CIT(A) enhanced the income without giving notice and brought to tax a new source of income, which was impermissible. The Tribunal admitted additional evidence-a letter from Castrol India Ltd. confirming the shares were held for over 12 months, thus qualifying as long-term capital gain. The Tribunal found the CIT(A) had failed to consider this evidence and restored the issue to the AO to determine if the new property was a residential house. If so, the assessee would be eligible for exemption under Section 54F.2. Disallowance of Commission Payment to the Broker:The second issue concerns the disallowance of Rs. 80,000 paid to a broker for renting out the property. The AO disallowed the claim, stating it was not in terms of any statutory provision. The CIT(A) upheld this decision, referencing the Delhi High Court's ruling in CIT vs. H.G. Gupta & Sons, which stated that expenses not explicitly provided for in Sections 23 or 24 cannot be deducted. The Tribunal agreed with the CIT(A), noting that brokerage expenses are not deductible under the specified sections, thus deciding against the assessee on this count.3. Chargeability of Interest under Sections 234B and 234C:The third issue involves the chargeability of interest under Sections 234B and 234C. The assessee contended that interest should only be charged on the returned income, not the assessed income. The Tribunal found no merit in this argument but directed the AO to recompute the interest after considering the reliefs allowed in earlier paragraphs. The AO was also instructed to allow the assessee an opportunity to challenge the applicability of interest imposition per the Special Bench decision in Motorola Inc. vs. Dy. CIT.Conclusion:The appeal was partly allowed. The Tribunal restored the issue of exemption under Section 54F to the AO for verification of the residential nature of the new property and allowed partial relief for the investment evidenced under VDIS. The disallowance of brokerage expenses was upheld, and the AO was directed to recompute interest under Sections 234B and 234C, allowing the assessee to challenge the imposition of interest.