Section 54F exemption not require land on which construction is made must be owned by assessee.

Section 54F exemption not require that land on which construction of property is made must be owned by the assessee. Land and super structure are two different assets

ABCAUS Case Law Citation:
ABCAUS 3064 (2019) (07) ITAT

Important Case Laws Cited/relied upon by the parties:
Shri Ganesh Chawla vs. ACIT

In the instant appeal the assessee was aggrieved by the decision of the CIT(A) in confirming rejection for claim of deduction u/s 54F of the Income Tax Act, 1961 (the Act). 

The assessee had constructed a residential house property on a plot of land belonging to his father. Accordingly the assessee claimed exemption u/s 54F of the Act towards the capital gains. However, the plot of the land did not belong to the assessee.

When the Assessing Officer (AO) on noticing the same, asked about the same, the assessee produced a family settlement deed, as per which the assessee herein got the plot of land on which the house property was constructed.

The AO noticed that the father of the assessee was alive during the relevant assessment year and the family settlement deed was executed just prior to the filing of return of income of the year under consideration and it was not registered.

The AO was also of the view that in order to claim exemption u/s 54F of the Act, the assessee should be owner of the land on which the building was constructed. Since the father of the assessee was alive at the time when construction took place and since the plot of land was owned by him, the AO was of the view that the assessee was not entitled to claim deduction u/s 54F of the Act.

Accordingly, he rejected the claim of the assessee. The CIT(A) also upheld the same by observing that the assessee should be owner of the property for claiming deduction u/s 54F of the Act.

The assessee submitted that section 54F does not stipulate that the plot of land on which house property is construction should be owned by the assessee. He submitted that the land and the super structure are two different assets and the assessee had claimed deduction u/s 54F of the Act only in respect of the cost of super structure only.

The assessee relied upon the judgment passed by the Coordinate Bench of the Tribunal wherein the assessee who had constructed a residential house property on the land owned by his mother was held to be entitled for deduction u/s 54F in respect of investment made in construction of property.

The Tribunal agreed with the contentions of the assessee that the provisions of section 54F do not prescribe any condition that the investment made should be for both land and building. Under General Law also, no prohibition is there to construct building on a land belonging to another by getting due permission or license.

Referring to old section 24 which allowed deduction of ground rent from the House property income, the Tribunal opined that the Act also had recognised the fact that the land may stand in some other person’s name.

Therefore the Tribunal opined that the tax authorities below were not correct in law in holding that the land should also belong to the assessee for the purpose of claiming deduction u/s 54F of the Act.

Accordingly, for examination of the quantum of deduction u/s 54F and satisfaction of other conditions for claiming the exemption, the case was restored to the file of the Assessing Officer (AO).

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