2024 (10) TMI 994 - AT - Income Tax

Assessee gets LTCG exemption under Section 54F for two adjacent flats converted into single dwelling unit

Nakul Aggarwal Versus Assistant Commissioner of Income Tax, Circle-24 (1), Mumbai And (Vice-Versa)

The ITAT Mumbai allowed the assessee's appeal for LTCG exemption u/s 54F. The assessee purchased two adjacent flats and converted them into a single ... LTCG - Exemption u/s 54F - Denial of exemption as nothing on record brought by the assessee to establish his intention to purchase one single unit - interpretation of 'a residential house' in section 54/54F - two units are distantly situated or closely connected HELD THAT:- The claim of the assessee in the present fact is that assessee purchased two flats to be used as a single dwelling unit which is discernible from the plan reapproved by MHADA vide letter dated 24/11/2020. Admittedly, there is a change in the legal position with effect from 01/04/2015, wherein the assessee can claim exemption u/s 54F only on acquisition of one residential house. In the present facts of the case, the revised plan dated 24/11/2020 clearly establish that the two flats though independently purchased by the assessee adjacent to each other was converted to be used as a single unit. As decided in case of CIT vs Suresh Rao [2014 (1) TMI 1585 - KARNATAKA HIGH COURT] considered similar situation wherein the significance of the expression “held” used by the legislature was analysed and explained in a great length. In the case of CIT vs Raman Kumar Suri [2012 (12) TMI 421 - BOMBAY HIGH COURT] observed that, when two flats were joined together before the assessee became the owner of the two flats and certification from the society also establishes that the flats were joined together and were considered as one residential house, AO had to accept these facts and cannot disallow the claim merely because the flats were purchased by two separate agreements. So long as the house is used by the assessee as one single unit, though by conversion, in our view, the exemption cannot be denied to the assessee u/s 54F of the Act. There is nothing on record brought by the revenue other than arguing that, the assessee originally entered into two independent agreements for purchase of the flat. The impediment with the assessee at that stage was because, the builder originally got the plan approved as two separate units, plan was subsequently revised, in order to suit the requirement of the assessee to use it as one single unit. The revised plan very categorically identifies one kitchen and other necessary structures, to be used as a single dwelling unit. The revised plan furnished by the assessee has not been opposed by the revenue with any contrary evidence. Thus the conditions relevant for claiming deduction u/s 54F is fully satisfied in the present facts of the case. At this juncture we refer to the Special Bench decision of this Tribunal in case of ITO vs. Ms.Shushila M. Jhaveri [2007 (4) TMI 289 - ITAT BOMBAY-I] exemption under section 54 was held to be allowable only in case of purchase of a single house as focused their discussion on the word 'a' and held that exemption under section 54/54F would be available in respect of one house only. But where two houses joint together constitutes a single unit for residence, then exemption u/s 54 would be available to such joint residential house. Hon’ble Special Bench, also noted that, where two units are distantly situated, then it could not constitute to be 'a residential house' and, therefore, exemption u/s 54 will be available only to one residential house at the option of the assessee. Thus, no reason to dismiss the claim of the assessee based on surmises and conjectures of the authorities below. We direct the Ld.AO to grant complete deduction under section 54F as claimed by the assessee. Assessee appeal allowed. Issues Involved:1. Incorrect application of facts and interpretation of law by CIT(A).2. Disallowance of exemption claimed under Section 54F of the Income-tax Act.3. Tax implications of conversion of a company into a Limited Liability Partnership (LLP).4. Levy of interest under Sections 234A and 234B of the Act.5. Initiation of penalty proceedings under Section 270A of the Act.Detailed Analysis:1. Incorrect Application of Facts and Interpretation of Law by CIT(A):The assessee contended that the CIT(A) erred by relying on an incorrect application of facts and misinterpretation of the law. The CIT(A) directed the Assessing Officer (AO) to verify additional evidence and grant relief instead of granting full relief directly. The Tribunal found that the CIT(A) has co-terminus powers and is fully equipped to verify additional documents. Therefore, the Tribunal did not find any force in the argument against the CIT(A) considering the revised plan issued by MHADA.2. Disallowance of Exemption Claimed Under Section 54F:The primary issue was whether the assessee was eligible for exemption under Section 54F for purchasing two adjacent flats intended to be used as a single residential unit. The AO disallowed the exemption, arguing that the purchase of two flats violated the condition of acquiring one residential house. However, the assessee submitted a revised plan approved by MHADA, showing the two flats as a single unit. The Tribunal relied on precedents from the Bombay High Court and Karnataka High Court, which held that exemption under Section 54F is available if two units are treated as one residential house. The Tribunal concluded that the assessee's intention was to use the flats as a single unit, and the revised plan supported this. Therefore, the Tribunal directed the AO to grant the full deduction under Section 54F.3. Tax Implications of Conversion of Company into LLP:The assessee argued that the conversion of a company into an LLP is not a taxable transfer under the Act, and thus, no capital gains should accrue. Since the Tribunal allowed the deduction under Section 54F, the issue of conversion became academic and was not adjudicated.4. Levy of Interest Under Sections 234A and 234B:These grounds were deemed consequential in nature. As the Tribunal allowed the deduction under Section 54F, the issues related to the levy of interest under Sections 234A and 234B did not require separate adjudication.5. Initiation of Penalty Proceedings Under Section 270A:The assessee challenged the initiation of penalty proceedings under Section 270A. However, as the Tribunal allowed the primary deduction claim, the penalty proceedings were not addressed separately.Conclusion:The Tribunal allowed the appeal filed by the assessee, granting the full exemption under Section 54F, and dismissed the appeal filed by the revenue. The Tribunal's decision was based on the interpretation of the legislative intent behind Section 54F and the factual evidence presented, including the revised plan approved by MHADA. The order was pronounced in the open court on 14/10/2024.