By TIOL News Service
HYDERABAD, JAN 23, 2013: THE two issues before the Bench are - Whether the purchase of textile mill and treating the same as residential property is eligible for exemption u/s 54F and Whether when assessee claims Sec 54F benefits, the settlement cost paid towards purchase of property from official liquidator of the High Court is allowable deduction. The answer to the first question is a remand and NO for the second question.
Facts of the case
The assessee, a Doctor by profession had filed return of income for the concerned A.Y. The assessee had computed Long Term capital gain of Rs.3,66,06,236/- on sale of plot and claimed exemption u/s 54F against the same. The said plot was purchased in the year 2003 and some improvement cost was incurred in the year 2007. The assessee claimed the entire amount exempt u/s 54F after purchasing plot for building a residential house property and incurring cost of development and settlement cost. During the course of assessment u/s 143(3) an enquiry was conducted by the AO. Accordingly, the AO disallowed the exemption u/s 54F stating that the assessee had neither obtained permission for constructing residential property on the newly purchased plot (previously used as a textile mill) nor spent any amount on construction of residential property. Further, the assessee had made advances to various parties for construction after the due date and no evidences pertaining to the same were filed. The AO also disallowed the settlement cost incurred by assessee for purchase of textile mill as the same was not justified.
The assessee submitted that the permission was obtained and minor changes were made to use the place as residence. Also, evidences were provided as to expenditure incurred for development of property up-to the due date of filing returns of income.
In appeal the CIT(A) confirmed the disallowance made by the AO. The CIT(A) was of the view that the assessee had purchased a textile mill and had no intention to build a residential property on the same. Further the CIT(A) also confirmed that the investment in property was made after the due date of filing return of income i.e. 31/07/08. Also, the assessee had not deposited the unspent funds in Capital Gains account scheme as stipulated in the Act. The assessee was thus in appeal.
In appeals, having heard the parties, the Tribunal held that;
++ the learned DR produced a letter dated 10.10.2012 before us that the documents filed by the assessee are not available in the assessment folder. To that extent there is a contradiction between the Assessing Officer and the CIT(A)'s order. These facts are to be examined and further in our opinion, the expression "residential house" used in section 54F has not been defined in the Income-tax Act. The popular meaning of the word "house" is a place or a building used for habitation of persons. "Residential house" is a dwelling house as distinguished from a house of business, warehouse, office, shop, etc. In other words, residential house is a building used as a place of abode in which people reside or dwell in contra distinction in one which is used for commercial or business purposes. Since a house is called residential house with reference to the purpose of its users, it may not be necessary that somebody should live in it continuously. It is enough if it was a house for residence. A farmhouse is also a residential house. A farmhouse, according to the dictionary meaning, is a farmer's house attached to a farm. Therefore, if the assessee constructed or remodelled a building situated in the farmhouse to suit her needs then one could not take the view that what was in question could not be called as a residential house. If the evidence brought on record by the assessee to show that there was a dwelling unit in the present property and the investment has been made by the assessee for construction or remodelling of the existing building as stipulated herein below the claim of the assessee has to be allowed;
++ further claim of the assessee cannot be rejected on any superficial ground that the assessee had not made investment within the time stipulated and the building constructed by the assessee is not a residential house. In our opinion, as there is a contradiction between the findings of the CIT(A) and the Assessing Officer as compared to the evidence produced before us. We feel it appropriate to remit the issue back to the file of the Assessing Officer, who will examine the issue afresh in the light of the evidence brought on record by the assessee as well as our observations. However, we make it clear that the amount incurred by the assessee towards settling certain claims at Rs. 27,03,100 cannot be considered for deduction u/s. 54F as the new property acquired by the assessee is through the High Court order from Official Liquidator and we are unable to see any reason to incur such an amount.
(See 2013-TIOL-69-ITAT-HYD)
