2024 (10) TMI 303 - AT - Income Tax

Multiple property ownership disqualifies Section 54F deduction despite joint registration with family members

Atul Govindji Shroff Versus The Deputy Commissioner of Income Tax Vadodara

The ITAT Ahmedabad dismissed the assessee's appeal regarding deduction u/s 54F. The assessee owned multiple properties including a farm at Vishubaug ... Deduction u/s. 54F - assessee owner of more than one house property - joint ownership for claiming deduction - owner of more than one immovable property at the time of purchase of new property - as argued jointly registered in the name of his wife and his daughter entire investment in the property at Vishubaug was made by the assessee himself and only for the purposes of registration that the property had been jointly registered in the name of his wife and his daughter - HELD THAT:- The case laws cited by the assessee would not come to the rescue of the assessee for the simple reason that if the entire investment is made by the assessee, then simply by putting the name of other co-owners being the close relatives say wife, daughter, son, etc., would not take away the case from the purview of the restrictions imposed under the provisions of Section 54F being that the assessee should not be owner of more than one immovable property at the time of purchase of new property. The assessee has made investment in the aforesaid property with his own funds, then simply because the assessee has registered the property jointly with his wife, son or any other close relative, should not, in our view take away the case of the assessee from the restrictions/conditions imposed u/s. 54F of the Act. If this view were to be accepted as correct then the assessees would conveniently register the property in joint names and take the case outside the purview of the restrictions imposed u/s. 54F, which is to the effect that the assessee should not be owning more than one residential property at the time of investment in new immovable property. Another notable is fact that the assessee purchased new property at Colaba, Mumbai for which deduction u/s. 54F of the Act was claimed, which was also jointly registered by the assessee along- with with his wife. However, the assessee has taken complete deduction of the entire amount of investment despite the fact that the assessee is only 50% of the owner of such property (since the new investment is jointly held by the assessee and his wife). Therefore, evidently even in event of subsequent sale of property of Colaba, Mumbai, the assessee is likely to again take a view that since the property purchased at Colaba, Mumbai is held by the assessee in joint ownership, the restrictions imposed by Section 54/54F of the Act would not apply to assessee’s set of facts, in light of judicial precedents, which have held that for such restrictions to apply, the assessee should be the exclusive owner of the property. If this view were to be accepted in each case, then the assessees would this lacunae as a convenient tool for tax evasion. In our view, this contention of the assessee cannot be accepted if on facts it is found that the entire investment in the immovable property has been made by the assessee exclusively with his own funds and such argument can be accepted only if assessee is able to establish joint and separate investment by co-owners in the property. Accordingly, this argument of the assessee is also rejected. The third argument of assessee that the assessee does not use the Farm for the purpose of his residence. However, this aspect was discussed in detail by CIT(A) and on facts, it was observed that the assessee was clearly using the Farm of Vishubaug for residential purposes as well. The assessing officer while framing the assessment order has given a categorical finding that the immovable property situated at Vishubaug had a separately built bungalow, surrounded with verandah and covered boundary and all the furniture/furnishings of a house. Accordingly, on facts, the Department has clearly established that the property situated at Vishubaug was capable of being used and was also used by the assessee for his residential purposes. Accordingly, CIT(A) has correctly observed that the property at Vishubaug was a residential house of the assessee. Accordingly, in the instant facts, we are of the view that the property situated at Vishubaug is a residential house and not a commercial property. Accordingly, looking into the instant facts, we find no infirmity in the findings of the Ld. CIT(A) so as to call for any interference. Appeal filed by the Assessee is dismissed. Issues Involved:1. Disallowance of deduction under Section 54F of the Income Tax Act.2. Ownership and classification of Vishubag Farm property as a residential property.3. Applicability of joint ownership for claiming deduction under Section 54F.4. Charging of interest under Sections 234A and 234B of the Income Tax Act.5. Initiation of penalty proceedings under Section 270A of the Income Tax Act.Issue-wise Detailed Analysis:1. Disallowance of Deduction under Section 54F:The primary contention revolves around the disallowance of a deduction claimed under Section 54F of the Income Tax Act, 1961. The Assessee had reinvested the capital gains from the sale of shares into a residential property in Colaba, Mumbai, and claimed a deduction under Section 54F. However, the Assessing Officer (AO) disallowed this claim, arguing that the Assessee owned more than one residential property, which contravenes the provisions of Section 54F. The AO determined that the Vishubag property was a residential house, thereby making the Assessee ineligible for the deduction.2. Ownership and Classification of Vishubag Farm Property:The Assessee argued that the Vishubag Farm property was agricultural land used for commercial purposes, including dairy farming, and not a residential property. The AO, supported by a field inspection report, concluded that the Vishubag property included a bungalow and was used as a residential house. The CIT(A) upheld this view, noting the absence of agricultural income reported by the Assessee and the lack of evidence supporting commercial activities. The Tribunal agreed with the CIT(A), emphasizing that the property was indeed a residential house and not a commercial property.3. Applicability of Joint Ownership for Claiming Deduction under Section 54F:The Assessee contended that the Vishubag property was jointly owned with his wife and daughter, and therefore, should not be considered solely his residential property. The Tribunal rejected this argument, noting that the entire investment in the property was made by the Assessee, and merely registering it in joint names did not alter the ownership for tax purposes. The Tribunal emphasized that joint ownership does not exempt the Assessee from the restrictions under Section 54F if the Assessee is effectively the sole investor.4. Charging of Interest under Sections 234A and 234B:The Assessee challenged the charging of interest under Sections 234A and 234B of the Income Tax Act. However, the judgment primarily focused on the disallowance under Section 54F, and the Tribunal did not specifically address these contentions, implicitly upholding the lower authorities' decisions.5. Initiation of Penalty Proceedings under Section 270A:The AO initiated penalty proceedings under Section 270A for underreporting income due to the disallowance of the Section 54F claim. The Tribunal, while dismissing the appeal, did not explicitly address the penalty initiation, thereby leaving the AO's decision intact.Conclusion:The Tribunal dismissed the appeal, upholding the CIT(A)'s decision that the Assessee was not entitled to the deduction under Section 54F, as the Vishubag property was a residential house, and the Assessee owned more than one residential property at the time of reinvestment. The Tribunal also rejected the arguments regarding joint ownership and the classification of the Vishubag property as a commercial asset. As a result, the disallowance of the deduction and the initiation of penalty proceedings were affirmed. The appeal was pronounced dismissed on 05-07-2024.