For exemption u/s 54F usage of property i.e. residential/commercial decides if assessee owns more than one residential property

For exemption u/s 54F usage of property i.e. residential or commercial has to be considered in deciding if assessee owns more than one residential property

ABCAUS Case Law Citation
ABCAUS 3479 (2021) (04) HC
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Important case law relied referred:
Malabar Industrial Co. Ltd. vs. Commissioner of income tax (2000) 109 taxman 66 (SC)
Commissioner of income-tax vs. M. J. Siwani (2014) 46 170 (Karnataka)
Shri Naveen Jolly vs. Income Tax Officer
Commissioner of Income Tax vs. Sohana Woollen mills, 296 ITR 238
CIT vs. Max India Ltd. 295 ITR 282 (SC)
Ultratech Cement Ltd. and Ors. vs. State of Rajasthan and    Ors.

In the instant case, the Revenue had challenged the order passed by the ITAT in holding that the assessee was eligible to exemption u/s 54F of the Income Tax Act, 1961 (the Act) despite having owned more than one residential house.

The respondent assessee was an individual who filed her income tax return for the relevant Assessment Year declaring an income under the head income from salary, house property and other sources.

During the year the assessee had sold two residential plots and claimed exemption u/s 54F for the investment of the entire sale consideration in construction of a new residential Property. 

At the relevant time, the assessee had two properties, one was occupied for the purposes of residence and another was let out as office space.

The return was processed under Section 143(1) of the Act.  Thereafter, based on the information in Annual Information Return that the assessee had sold immovable properties and the return of income did not reflect the details of the same, the Assessing Officer re-opened the case by issuance of notice u/s 148 of the Act.

The Assessing Officer passed the re-assessment order u/s 147 read with Section 143(3) read of the Act and held that the assessee was entitled to deduction under Section 54F of the Act and did not have any income which escaped assessment. 

However, Commissioner of Income Tax invoked his revisionary powers under Section 263 of the Act and set aside the order passed by the Assessing Officer with a direction to re do the assessment and pass a fresh order of assessment.

The assessee, thereupon filed an appeal before the Income Tax Appellate Tribunal which was allowed. The Tribunal also held that the order passed u/s 263 by the CIT was not erroneous and prejudicial to interest of Revenue.

The Hon’ble High Court opined that at the time of sale of the properties, the assessee owned only one residential property as the usage of the property has to be considered in deciding whether the property is a residential property or a commercial  property.

The Hon’ble High Court noted that the Tribunal had held that the Assessing Officer was of the view that one of the properties was let out for commercial purposes.  Therefore, the assessee was eligible for deduction under Section 54F of the Act was one of the possible views which cannot be termed as unlawful or illegal.

The Hon’ble High Court opined that the above finding of the Tribunal did not suffer from any infirmity warranting interference of the High court.

Accordingly, the substantial question of law framed was answered against the revenue and in favour of the assessee resulting in dismissal of the appeal of the Revenue.  

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