Dy.CIT, Circle-3(1), Hyderabad V. Sri C.M. Ramesh, Hyderabad

ITA 275/HYD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 2213 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 24-02-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: P MURALI MOHAN RAO
• Section: 54F; 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 275/HYD/2014 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME-TAX, CIRCLE 3(1) HYD. VS. SRI C.M. RAMESH, HYDERABAD. PAN ACYPC 8722 B APPELLANT RESPONDENT REVENUE BY: SMT. SUMAN MALIK ASSESSEE BY: SHRI P. MURALI MOHAN RAO DATE OF HEARING: 11/12/2017 DATE OF PRONOUNCEMENT: 29/12/2017 O R D E R PER S. RIFAUR RAHMAN, AM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF CIT(A) - IV, HYDERABAD, DATED 20/12/2013 RELATES TO THE AY 2009-10. 2. BRIEFLY THE FACTS OF THE CASE ARE, ASSESSEE IS M ANAGING DIRECTOR OF M/S RITHWIK PROJECTS PVT. LTD. AND FILE D HIS RETURN OF INCOME ON 30/09/2009 ADMITTING AN INCOME OF RS. 1,12,59,045/-, AFTER CLAIMING EXEMPTION FOR THE LON G TERM CAPITAL GAINS (LTCG) OF RS. 5,68,63,883/- U/S 54F O F THE ACT. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD SOLD SHARES OF M/S RITHWI K PROJECTS PVT. LTD. FOR RS. 5,68,63,883/-, WHICH WAS CLAIMED AS EXEMPTION U/S 54F ON THE BASIS OF INVESTMENT IN A RESIDENTIAL HOUSE AT PLOT NO. 1308, ROAD NO. 36, JUBILEE HILLS, I.T.A. NO. 275/HYD/2014 SRI C.M. RAMESH, HYD. 2 HYDERABAD. AO NOTED THAT IN THE RETURN OF INCOME F ILED BY THE ASSESSEE, HE HAD DECLARED THE FOLLOWING THREE ASSET S AS RESIDENTIAL HOUSE PROPERTIES: 1. RITHWIK HOUSE, NAVODAYA COLONY, HYDERABAD 34. 2. ALPINE TOWERS, LOWER TANKBUND, HYD. 3. FILM NAGAR SOCIETY BUILDING, JUBILEE HILLS, HYD . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE HAD FILED THE FOLLOWING DOCUMENTS TO CLAIM THAT THE SAID THREE PROPERTIES WERE, IN FACT, LEASED OUT TO OTHER COMPA NIES, WHICH ARE COMMERCIAL IN NATURE AND NO LONGER A RESIDENTIA L UNITS: I. PURCHASE DEED DATED 22.05.2008 IN RESPECT OF LAN D PURCHASED AT JUBILEE HILLS CO-OPERATIVE HOUSE BUILD ING SOCIETY LIMITED, ROAD NO.36, JUBILEE HILLS, HYDERAB AD. II. LEASE DEED DATED 14.12.2005 MADE BETWEEN C.M. RAMESH AND M/S. UDI FOODS & BEVERAGES (INDIA) PVT. LTD. III. LEASE DEED DATED 14.09.2005 MADE BETWEEN C.M. RAMESH AND M/S. UDI FOODS & BEVERAGES (INDIA) PVT. LTD. IV. LEASE DEED DATED 01.08.2007 MADE BETWEEN C.M. RAMESH AND M/S. SREI INFRASTRUCTURE FINANCE LTD. V. LEASE DEED DATED 02.02.2007 MADE BETWEEN C.M. RAMESH AND MIS. VALUELABS. VI. COMMERCIAL PROPERTY TAX PAYMENT RECEIPT FOR THE THREE PROPERTIES. 2.2 AFTER CONSIDERING THE ABOVE SUBMISSIONS, AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE BY OBSERVING THAT AS PER PROVISO (A)(I) TO SECTION 54F, WHEN THE ASSESSE E OWNS MORE THAN ONE RESIDENTIAL HOUSE OTHER THAN A NEW AS SET ON THE TRANSFER OF ORIGINAL ASSET, DEDUCTION U/S 54 CANNOT BE CLAIMED. ACCORDINGLY, AO TREATED THE ABOVE SAID ASSETS AS RE SIDENTIAL UNITS AND DENIED THE CLAIM U/S 54F OF THE ACT. FUR THER, HE NOTED THAT ASSESSEE HAD NOT FURNISHED THE DETAILS O F DATES OF INVESTMENTS IN THE NEW HOUSE PROPERTY. I.T.A. NO. 275/HYD/2014 SRI C.M. RAMESH, HYD. 3 3. AGGRIEVED WITH THE ABOVE ORDER, ASSESSEE PREFERR ED AN APPEAL BEFORE THE CIT(A). 4. DURING THE APPELLATE PROCEEDINGS, ASSESSEE FILED SOME INFORMATION, WHICH WAS FILED BEFORE THE AO AND SUBM ITTED THAT AO HAD NOT CONSIDERED THE SUBMISSIONS OF THE ASSESS EE TO CLAIM THAT THREE RESIDENTIAL HOUSES WERE LEASED OUT TO OTHERS AND THESE ASSETS ARE, IN FACT, COMMERCIAL IN NATURE . BASED ON THE ABOVE SUBMISSIONS, LD. CIT(A) CALLED FOR THE RE MAND REPORT FROM THE AO. AFTER CONSIDERING THE SUBMISSIONS OF T HE ASSESSEE, AO SUBMITTED HIS REPORT ON 19/12/12 WHERE IN IT WAS STATED THAT ASSESSEE HIMSELF ADMITS THAT ASSESSEE O WNS THREE RESIDENTIAL UNITS ON THE DATE OF TRANSFER AND, THER EFORE, THE CLAIM OF THE ASSESSEE CANNOT BE ENTERTAINED. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E AS WELL AS REMAND REPORT OF AO, CIT(A) EXTRACTED THE A GREEMENT CLAUSES OF THE LEASED AGREEMENT ENTERED INTO BY THE ASSESSEE WITH OTHER COMPANIES, WHO ARE THE OCCUPIERS OF THE PROPERTIES, NAMELY, RITHWIK HOUSE, ALPINE TOWERS, AND FILM NAGA R SOCIETY BUILDING, IN HIS ORDER. ACCORDINGLY, HE HEL D THAT THESE ASSETS WERE LEASED OUT TO OTHER COMPANIES FOR COMME RCIAL PURPOSES AND THESE ASSETS CANNOT BE TREATED AS RESI DENTIAL UNITS. THUS, HE ALLOWED THE APPEAL OF THE ASSESSEE. 6. AGGRIEVED WITH THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF A PPEAL: 1. THE LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE. 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE PROPERTIES OWNED BY THE ASSESSEE ARE RESIDENTIAL IN NATURE THOUGH THEY WERE LEASED FOR COMMERCIAL PURPO SE. 3. THE LD. CIT(A) OUGHT TO HAVE APPRECIATED THE FAC T THAT ONE PROPERTY AMONG THE THREE WAS LEASED FOR GUEST I.T.A. NO. 275/HYD/2014 SRI C.M. RAMESH, HYD. 4 HOUSE WHICH ITSELF ESTABLISHES THE FACT THAT THE PR OPERTY WAS RESIDENTIAL IN NATURE. 4. ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIM E OF HEARING. 7. GROUND NOS. 1 & 4 ARE GENERAL IN NATURE. GROUND NOS. 2 & 3 ARE RAISED TO CONTEST THAT ASSETS LEASED OUT AR E RESIDENTIAL IN NATURE EVEN THOUGH THEY ARE LEASED FOR COMMERCIA L PURPOSES AND ALSO IT WAS LEASED FOR GUEST HOUSE, WH ICH ESTABLISHES THAT THE PROPERTY WAS RESIDENTIAL IN NA TURE. 8. LD. DR SUBMITTED THAT AO HAS ESTABLISHED THAT TH ESE ASSETS ARE RESIDENTIAL IN NATURE AND EVEN THOUGH TH ESE ASSETS ARE LEASED OUT FOR COMMERCIAL PURPOSES AND ALSO USE D AS GUEST HOUSE CANNOT LOOSE THE CHARACTER OF RESIDENTI AL PROPERTY. FURTHER, SHE BROUGHT TO OUR NOTICE SCHEDU LE OF BALANCE SHEET SUBMITTED BY THE ASSESSEE BEFORE THE AO, WHICH IS PLACED ON RECORD AT PAGE 43 OF PAPER BOOK, AS PER WHICH, THE ASSETS ARE DECLARED AS RESIDENTIAL PROPE RTIES. FURTHER, SHE SUBMITTED THAT SHE RELIES ON THE DECIS ION OF ITAT, DELHI BENCH IN THE CASE OF AMIT GUPTA VS. DCIT, [20 06] 6 SOT 403 (DELHI), IN WHICH, IT WAS HELD THAT THE PROPERT Y WAS CAPABLE OF BEING USED AS RESIDENTIAL ACCOMMODATION, IT HAS THE CHARACTERISTICS OF RESIDENTIAL PROPERTY. SHE SU BMITTED THAT EVEN THOUGH IN THIS CASE, THE DECISION WAS IN FAVOU R OF THE ASSESSEE, STILL THE RATIO WILL APPLY TO THE CASE IN HAND. 9. LD. AR SUBMITTED THAT ASSESSEE HAS SUBMITTED BEF ORE THE AO THAT THESE ASSETS ARE LEASED OUT TO COMPANIE S AND THE SAME WERE USED FOR COMMERCIAL PURPOSES. HE SUBMITTE D THAT IN THE REMAND REPORT CALLED FOR BY THE CIT(A), AO H AS NOT DISPUTED THE FACT THAT THE ASSETS ARE LEASED OUT TO OTHER COMPANIES AND THESE ASSETS ARE USED FOR COMMERCIAL PURPOSES. HE FURTHER SUBMITTED THAT ASSESSEE HAS FI LED A COPY I.T.A. NO. 275/HYD/2014 SRI C.M. RAMESH, HYD. 5 OF MUNICIPAL TAXES PAID AS COMMERCIAL PROPERTIES ON THE SAID ASSETS IN SUPPORT OF HIS CLAIM THAT THESE ASSETS AR E USED FOR COMMERCIAL PURPOSES. HE SUBMITTED THAT MERE DECLARA TION IN THE SCHEDULE IN BALANCE SHEET, DOES NOT CHANGE THE CHARACTER OF THE ASSETS, AS IT IS IMPORTANT THAT HOW THE ASSE TS ARE BEING USED AND NOT REFERRED. 10. CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL F ACTS ON RECORD. THE ASSESSEE HAS FILED COPIES OF LEASE AGRE EMENTS ALONG WITH MUNICIPAL TAX CHALLANS BEFORE THE AO AND CIT(A). THERE IS NO DISPUTE AS FAR AS THESE ASSETS ARE LEAS ED OUT TO OTHERS FOR COMMERCIAL PURPOSES. AT THE TIME OF HEA RING, WE FIND THAT FOR ONE OF THE PROPERTY I.E. ALPINE TOWER S, ASSESSEE HAS PAID RS. 9,287/- AS MUNICIPAL TAXES ON THE BASI S OF RESIDENTIAL PROPERTY. HOWEVER, OTHER TWO CHALLANS W ERE ASSESSED TO TAX ON THE BASIS OF COMMERCIAL PROPERTI ES. SINCE SECTION 54F ALLOWS DEDUCTION, WHEN ASSESSEE OWNS NO T MORE THAN ONE RESIDENTIAL PROPERTY ON THE DATE OF TRANSF ER OF ORIGINAL ASSETS. LD. AR IMMEDIATELY COULD NOT SUBSTANTIATE T HE ABOVE QUERY. EVEN FOR THE SAKE OF DISCUSSION, IF WE CONSI DER TWO ASSETS ARE COMMERCIAL IN NATURE AND ONE AS RESIDENT IAL IN NATURE, EVEN THEN, ASSESSEE IS ELIGIBLE TO CLAIM DE DUCTION U/S 54F. IN OUR CONSIDERED VIEW, THE RESIDENTIAL PROPER TY CAN BE USED FOR RESIDENTIAL PURPOSE AND IS CAPABLE OF USIN G IT FOR COMMERCIAL PURPOSES ALSO. HOWEVER, IN THE GIVEN CAS E, ASSESSEE HAS LEASED OUT THESE ASSETS TO THE COMPANI ES FOR COMMERCIAL UTILISATION. IT IS NOT IMPORTANT HOW THE SE ASSETS ARE USED BY SUCH COMPANIES WHETHER IT IS USED FOR GUEST HOUSE OR OFFICE PURPOSE, AS LONG AS THESE ASSETS ARE LEASED OUT TO THEM ON COMMERCIAL BASIS AND RELEVANT TAXES LIKE MUNICIP AL AND POWER CHARGES ARE PAID ON THE BASIS OF COMMERCIAL, THEN, THESE ASSETS SHOULD BE TREATED AS COMMERCIAL PROPER TIES. HOWEVER, FOR THE SAKE OF REASSURANCE, WE ARE INCLIN ED TO REMIT I.T.A. NO. 275/HYD/2014 SRI C.M. RAMESH, HYD. 6 THIS CASE BACK TO THE FILE OF THE AO TO VERIFY WHET HER THESE ASSETS ARE CONVERTED AS COMMERCIAL PROPERTIES AND T HE RESPECTIVE TAXES ARE PAID ON COMMERCIAL BASIS AND A LL RELATED TAXES LIKE ELECTRICITY ETC. ARE PAID ON COMMERCIAL BASIS. IN CASE IT IS FOUND THAT THE RESIDENTIAL PROPERTY IS C ONVERTED INTO COMMERCIAL AND RESPECTIVE DUTIES/TAXES ARE PAID ON COMMERCIAL LINES, THESE ASSETS SHOULD BE CONSIDERED AS COMMERCIAL PROPERTIES, THEN, THE AO SHOULD ALLOW TH E CLAIM OF THE ASSESSEE U/S 54F. ACCORDINGLY, GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 10.1 LD. DR RELIED ON THE CASE OF AMIT GUPTA (SUPRA ), IN WHICH, THE ASSESSEE HAS PURCHASED A BASEMENT IN THE RESIDENTIAL BUILDING AND THERE IS NO DETAILS OF BED ROOM, LIVING ROOM OR KITCHEN AND ONLY CONTAINS HALL. ACCORDING TO THE AO, THIS IS NOT MEANT TO USE FOR RESIDENTIAL HOUSE. HOW EVER, IT WAS HELD THAT THE EXPRESSION RESIDENTIAL HOUSE HAS NO T BEEN DEFINED IN THE ACT, THE POPULAR MEANING OF THE WORD IS A PLACE OR BUILDING USED FOR HABITATION OF PEOPLE, BUT, IT IS NOT NECESSARY THAT A PERSON RESIDING IN THE HOUSE TO CA LL IT A RESIDENTIAL HOUSE, IF IT IS CAPABLE OF BEING USED F OR THE PURPOSE OF RESIDENCE, THE REQUIREMENT OF SECTION 54F IS SAT ISFIED. ACCORDINGLY, EXEMPTION U/S 54F WAS ALLOWED. IN THI S CASE, THE BENCH ANSWERED THE FACT THAT THE ASSESSEE DID NOT A CTUALLY USE PROPERTY FOR HIS RESIDENCE WILL NOT DISENTITLE HIM TO CLAIM OF EXEMPTION U/S 54F AND THEREFORE, THE FACTS IN THE S AID CASE ARE DISTINGUISHABLE TO THE FACTS OF THE CASE IN HAN D, HENCE, THE SAME IS NOT APPLICABLE TO THE CASE UNDER CONSIDERAT ION. 11. IN VIEW OF THE ABOVE DISCUSSION, THE GROUNDS RA ISED BY THE REVENUE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. I.T.A. NO. 275/HYD/2014 SRI C.M. RAMESH, HYD. 7 12. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2017 SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER SD/- (S. RIFAUR RAHMAN) ACCOUNTANT MEMBER HYDERABAD, DATED 29 TH DECEMBER, 2017 KV COPY FORWARDED TO: 1. DCIT, CIRCLE 3(1), 7 TH FLOOR, B BLOCK, IT TOWERS, HYD. 2. SRI C.M. RAMESH, PLOT NO. 1295, ROAD NO. 63, JUB ILEE HILLS, HYD 33. 3. CIT(A) - IV, HYDERABAD 4 CIT - III, HYDERABAD 5 THE DR, ITAT, HYDERABAD 6 GUARD FILE