Deduction 54F-House used for commercial activity not counted for limit of one residential house-ITAT

Deduction 54F-House used for commercial activity not counted for limit of one residential house on the date of transfer of the original asset- ITAT

ABCAUS Case Law Citation:
ABCAUS 2289 (2018) (04) ITAT

The appellant assessee was aggrieved by the order That the CIT(Appeals sustaining the addition made by the AO by not allowing of the deduction claimed by the appellant u/s 54F of the Income Tax Act, 1961 (the Act).

The assessee had sold his land and claimed deduction u/s 54F which has been denied by AO. holding that on the date of sale of original assets, the assessee had owned two residential houses and as per the provision of section 54F of the Act, the assessee having more than one residential houses on the day of transfer of original assets was not eligible fir deduction u/s 54F of the.

Accordingly, the AO has disallowed the assessee’s claim of deduction u/s 54F of the Act. Aggrieved, the assessee appealed before the CIT(A).

The assessee contended that the other two properties were rented to the corporate for the purpose of running business from there, and hence those properties being used for commercial purposes.Thus, they can only be considered as commercial properties not residential properties, therefore, the exemption should be allowed.

The CIT(A) observed that in the light of Sec 54F of the Act, if the income from such residential house, other than the one, residential house owned on the date of transfer of the original asset, is chargeable under the head “Income from house property” then deduction under section 54F is not allowable.

He observed that even though the one house had commercial electricity connection, but both the houses were proper residences not located in any commercial area and hence giving the residential house on rent for the purposes of qodown would not change the basic character of house from residential to commercial. Since both these properties were actually residential houses located in residential colony, on the day of transfer of original asset, assessee had in his possession two residential houses and hence assessee is not entitled for deduction under section 54F.

Accordingly, CIT(A) confirmed the addition.

Before the Tribunal, the assessee contended that the residential houses were used by the lessee for commercial activities, although the assessee owned both the residential houses. For the purpose of allowing of deduction under Section 54F, particularly when he had furnished commercial electric connection, no other evidence in proof of the use of the residential house for commercial purposes was required as per law. He relied upon the decision of ITAT Delhi wherein it was held that property owned by the assessee, which was being used by him as his office during the relevant period could not be treated as residential property simply on the basis of municipal record ignoring the actual user thereof and therefore, the claim of exemption u/s 54F could not be denied on the basis that the assessee was owning more than one residential house (including the said property) on the date of transfer of the original asset.

The Tribunal observed that it was admitted fact that assessee had in his possession two residential houses and that one of the houses was leased out for commercial purpose.

It was seen that the said house was not a residential house property because the assessee had a commercial electricity connection on it and it was let out to a limited company for godown purpose. It was further seen that company had used the said house for stocking of goods which were duly insured.

The ITAT opined that the action of the CIT(A) cannot be justified in holding both these properties as residential houses merely on the basis of their location in residential colony, without appreciating the material facts regarding the purpose for which the properties were used. It was clear that although on the day of transfer of original asset the assessee had in his possession two residential houses, however, one house was let out to a limited company for business purpose and therefore, assessee was legally entitled for deduction under section 54F of the Act.

Accordingly, the Tribunal allowed the appeal and claim of the exemption.

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