By TIOL News Service

KOLKATA, OCT 29, 2018: THE issue before the Bench is - Whether eligible deduction for capital gains u/s 54F can be denied merely because the construction of building in which the assessee has further invested its capital gain amount, contains both commercial and residential portion. And the verdict is NO.

Facts of the case

THE assessee also sold a land in Bangalore for Rs.2.52 Cr and after adjusting the commission paid and index value, he finally determined the capital gains at around Rs.1.73 Cr. Out of that the assessee invested Rs.50 lakhs by deposited in bonds eligible u/s. 54FC and the balance amount of capital gains of around Rs.1.23 Cr was liable for tax. Out of such amount the assessee claimed that he had invested a sum of around Rs 80.93 lakhs in construction of a residential house and accordingly he assessee claimed a deduction u/s.54F for around Rs.56.52 lakhs and on the balance amount of capital gains for around Rs 66.94 lakhs the assessee offered the same to tax and paid the tax thereon.

During the assessment, the AO issued notices and obtained the sanction plan and found that the building was sanctioned as commercial cum residential building. Therefore, the AO show caused the assessee to explain the issue. The assessee contended that the plot was residential and there was no demarcation of the commercial and residential portion on the date when the return was filed as the building was under construction at that time. However in the assessment proceedings the assessee submitted that the deduction may be restricted to the residential portion of the said house. However, the AO was of the opinion that as the building was both residential and commercial the deduction u/s 54F was not applicable and hence, he the disallowed the entire claim of the deduction.

The Tribunal held that,

++ it clear that taxpayer is very fair in declaring the ground floor of his new house as used for commercial purpose as against the remaining three upper floors taken as a residential unit. The question that arises for our consideration is as to whether the CIT(A) has rightly apportioned assessee's deduction to 25% is to 75%; floor-wise or not. Our instant adjudication supports the CIT(A)'s action to this effect as he has rightly proceeded on an assumption that section 54F is a deduction provision to the liberally construed. This is not the Revenue's case that the 3 floors of the building in question are not used for residential purposes. We therefore affirm the CIT(A)'s findings under challenge restricting the assessee's deduction claim to the extent residential portion of the building only by treating the same to be "a residential house" as per the true legislative intent u/s 54F of the Act.

(See 2018-TIOL-1949-ITAT-KOL)