Section 54F deduction denied where a habitable bungalow made the Vishubaug property a second residential house.

Deduction under section 54F depends on the assessee not owning more than one residential house on the date of transfer of the original asset. On the facts, the Vishubaug property was treated as a second residential house because it contained a separately built and habitable bungalow with other residential structures, and the assessee failed to show that it was only agricultural or commercial land. The absence of reliable proof of agricultural or business use, and the fact that dairy activity alone does not establish agricultural income, supported that conclusion. Joint ownership was also rejected because the investment was treated as having been made by the assessee, so the section 54F claim on the Colaba property was not available.

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Issues: Whether the assessee was entitled to deduction under section 54F of the Income-tax Act, 1961 in respect of investment in the Colaba residential property when Vishubaug property was treated as a second residential house, and whether the Vishubaug property could be characterised as an agricultural/commercial property rather than a residential house.

Analysis: The claim under section 54F depended on the assessee not owning more than one residential house on the date of transfer of the original asset. On facts, the Vishubaug property was found to contain a separately built and habitable bungalow along with other residential structures, and the assessee's contention that it was only an agricultural farm was not supported by the return of income or reliable proof of agricultural or commercial activity. The finding that dairy activity does not, by itself, amount to agricultural income reinforced the conclusion that the property was not shown to be outside the scope of a residential house. The plea based on joint ownership also failed because the entire investment in the property was treated as having been made by the assessee, and mere registration in the names of close family members did not take the case outside the restriction in section 54F.

Conclusion: The assessee was not entitled to deduction under section 54F, as Vishubaug property constituted a second residential house and the deduction was correctly disallowed.

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