ACIT, Circle-61(1), New Delhi V. Raman Chawla, New Delhi

ITA 3931/DEL/2019

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9461 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 01-08-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 02-05-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Depreciation; Benefit of exemption; TDS; Capital Gains
• Section: 32; 54; 54F; 72; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’, NEW DELHI Before Dr. B. R. R. Kumar, Accountant Member Sh. Yogesh Kumar US, Judicial Member ITA No. 3931/Del/2019 : Asstt. Year 2015-16 ACIT, Circle-61(1), New Delhi-110002 Vs. Raman Chawla, C-4/66, Safdarjung Development Area, New Delhi-110016 (APPELLANT) (RESPONDENT) PAN No. BGFPR6239C Assessee by : Sh. Salil Kapoor, Adv. Revenue by : Sh. Atiq Ahmed, Sr. DR Date of Hearing: 02.08.2022 Date of Pronouncement: 31.10.2022 ORDER Per Dr. B. R. R. Kumar, Accountant Member: The present appeal has been filed by the assessee against the order of ld. CIT(A)-20, New Delhi dated 19.02.2019. Deduction u/s 54F: As per Assessing Officer: 2. Section 54F allows the assessee being an individual/HUF the benefit of exemption of capital gains earned from sale of a long term capital (not being a residential house) if the assessee within the given time limits, either purchased/constructed a residential property. 3. However, as per the Income tax Act 1961 exemption u/s 54F shall not apply if the assessee owns not more than one residential house on date of transfer of original asset. ITA No. 3931/Del/2019 Raman Chawla 2 4. The assessee was the owner of two properties ason the date of transfer of the original asset: i. C-4/66, Safdarjung Development Area, New Delhi- 110016 where he is the joint owner. ii. C-23, Usha Niketan, Safdarjung Development Area, New delhi-110016 5. It is an undisputed fact that the assessee owns and lives in C-4/66, Safdarjung Development Area, New Delhi-110016 which is considered as his self occupied property. The other property C-23, Usha Niketan, Safdarjung Development Area (SDA), New Delhi-110016 is in contention as to whether or not this property should be considered as a residential house for the purposes of Proviso to Section 54F. 6. It is the contention of the assessee that since the practice of Chartered Accountancy of the firm is going on in C-23, Usha Niketan alongwith the registered office of the Devshi Earthmovers Pvt. Ltd. wherein assessee is the Director the same cannot be considered as a residential property. The assessee has filed documents to support his claim that the Chartered Accountancy firm M/s Nagar Goel Chawla is running from the said premises. 7. The Assessing Officer held that the question remains as to whether C-23, Usha Niketan is a residential property or not. The Assessing Officer held that the registered document is the basic certificate to prove a property as to commercial or residential. The AO held that the property since situated in residential area must be considered as residential property irrespective of its ITA No. 3931/Del/2019 Raman Chawla 3 use and hence treated the property as residential and consequently held that the assessee is not eligible for exemption u/s 54F as the assessee is having another residential property i.e. more than one residential property. As per the ld. CIT(A): 8. The ld. CIT(A) held that the assessee is residing at C-4/66 SDA, New Delhi with his wife and children in the said residential property which is jointly owned by him with his wife. The other flat owned by the assessee at C-23, Usha Niketan, SDA, Delhi is being used as the registered office of the company M/s Devshi Earth Movers Pvt. Ltd since 01.04.2013 where he is a Director and the office of the professional firm namely M/s Nagar Goel and Chawla, Chartered Accountants where the assessee is a partner is also running from the same premises. To prove the use of the property for the above two b usiness and professional purposes, the assessee has submitted evidences of ROC record, service tax registration, electricity bills. Placing reliance on the judgments in the case of Sh. Sanjeev Puri Vs. DCIT 72 taxmann.com 147, CIT Vs. Geeta Dugal 357 ITR 153, CIT Vs. O Chacko 271 ITR 29 (Ker.) and ITO Vs. Rasik Lal N. Satra 98 ITD 335 (Mum.), the ld. CIT(A) held that since the second property owned by the assessee has been in use for business and profession and hence the assessee is eligible for claiming exemption u/s 54F. 9. Aggrieved, the revenue filed appeal before us. 10. During the arguments, the revenue relied on the order of the Assessing Officer and the ld. AR supported the order of the ld. CIT(A). ITA No. 3931/Del/2019 Raman Chawla 4 11. Heard the arguments of both the parties and perused the material available on record. 12. We have gone through the order of Co-ordinate Bench of ITAT in the case of ITO Vs. Rasik Lal N. Satra 280 ITR 243 held as under: “The only question remains as to whether assessee can be said to be the owner of that residential house. The legislature has used the word "a" before the words "residential house". In our opinion, it must mean a complete residential house and would not include shared interest in a residential house. Where the property is owned by more than one person, it cannot be said that any one of them is the owner of the property. In such case, no individual person of his own can sell the entire property. No doubt, he can sell his share of interest in the property but as far as the property is considered, it would continue to be owned by co-owners. Joint ownership is different from absolute ownership. In the case of residential unit, none of the co-owners can claim that he is the owner of residential house. Ownership of a residential house, in our opinion, means ownership to the exclusion of all others. Therefore, where a house is jointly owned by two or more persons, none of them can be said to be the owner of that house. This view of ours is fortified by the judgment of the Hon'ble Supreme Court in the case of Seth Banarsi Dass Gupta v. CIT 166 ITR 783, wherein, it was held that a fractional ownership was not sufficient for claiming even fractional depreciation Under Section 32 of the Act. Because of this judgment, the legislature had to amend the provisions of Section 32 with effect from 1.4.1997 by using the expression "owned wholly or partly". So, the word "own" would not include a case where a residential house is partly owned by one person or partly owned by other person(s). After the judgment of Supreme Court in the case of Seth Banarsi ITA No. 3931/Del/2019 Raman Chawla 5 Dass Gupta (supra), the legislature could also amend the provisions of Section 54-F so as to include part ownership. Since, the legislature has not amended the provisions of Ejection 54-F, it has to be held that the word "own" in Section 54-F would include only the case where a residential house is fully and wholly owned by assessee and consequently would not include a residential house owned by more than one person. In the present case admittedly the house at Sion, Mumbai, was purchased jointly by assessee and his wife. It is nobody's case that wife is benami of assessee. Therefore, the said house was jointly owned by assessee and his spouse. In view of the discussions made above, it has to be held that assessee was not the owner of a residential house on the date of transfer of original asset. Consequently, the exemption Under Section 54-F could not be denied to assessee. The order of the Learned CIT (Appeals) is, therefore, upheld.” 13. In this context, we have gone through the order of the Hon’ble Supreme Court in the case of Seth Banarsi Dass Gupta vs. CIT 166 ITR 783. In this case while dismissing the appeal filed by Seth Banarsi Dass Gupta, the Hon’ble Supreme Court held as under: “The High Court referred to section 24 of the Income-tax Act of 1922 and indicated that two conditions had to be ful- filled before the claim of set off of carried forward loss could be admitted, firstly, the income against which the loss has to be set off should be income from business and secondly, the business should be same in which the loss was suffered. The High Court referred to certain decisions including the one of this Court in 26 ITR 765 and ultimately negatived the claim of the assessee by saying that the question would not arise because the letting out of the sugar mill was not the business of the assessee. In fact the receiver was appointed for dissolution of the firm and the main reason. as found by the High ITA No. 3931/Del/2019 Raman Chawla 6 Court. for allowing the sugar factory to work was to dispose it of as a running mill so that proper price would be fetched. Having heard learned counsel for the parties, we are satisfied that there is no merit in the assessee's stand and the same has got to be dismissed. The appeal is accordingly dismissed. Parties are directed to bear their own costs throughout. C.A. No. 941 of 1975 This appeal is by certificate from the judgment of the Allahabad High Court. The assessee is the sugar mill which during the relevant assessment year 1960-61 corresponding to the accounting period ending 30th June, 1959, was in the hands of a Court Receiver. The sugar mill was being assessed as an Association of Persons. Banarsi Dass. a partner, had 1/6th share therein. He had acquired under a deed of ex- change dated 16th July, 1948 1/6th share of Sheo Prasad in exchange of shares held by Banarsi Dass in Lord Krishna Sugar Mills valued at Rs.4,50.000. In this assessment year, the receiver claimed that for the purposes of computing the depreciation allowance, the written down value of the busi- ness assets be enhanced so as to reflect the sum of Rs.4,50,000 in place of 1/6th share representing the share of Sheo Prasad. Similar claim had been raised by Banarsi Dass in his own assessment. The Income-tax Officer rejected the claim and such rejection has been upheld throughout. We have already turned down the claim of Banarsi Dass. This claim has, therefore, to be rejected. We may additionally point out that under the scheme of the Act, it is the assessee who alone is entitled to maintain such claim of depreciation and it would indeed be difficult, within the framework of the scheme contained in the statute, to maintain a separate value of the part of the asset to work out depreciation. The book-value as shown must be applicable to the entire assets of the firm including the 1/6th share which Sheo Prasad had given to Banarsi Dass. The claim has rightly been rejected in the forums below including the High Court. The appeal has no merit and is dismissed. Parties will bear their own costs.” ITA No. 3931/Del/2019 Raman Chawla 7 14. We find that the order of the Hon’ble Supreme Court dealt with the issue of depreciation u/s 32 in relation to profits & gains of business or profession and same was never intended to be extended to computation of capital gains. Thus, we find that the case of Rasik Lal which has been relied upon by the Hon’ble Apex Court cannot be considered in the facts of the instant case. 15. We have gone through the judgment of Hon’ble Kerala High Court in the case of CIT Vs. Ouseph Chacko 271 ITR 29 which reads as under: “ The question now posed before us is that whether the Tribunal was correct in considering that the building at Thodupuzha is not a residential house. Learned counsel for the Department submitted that the fact that the building at Thodupuzha is a residential house is not disputed. What is now stated by the assessee is that the building is not used for residence. On the other hand, it is used for the purpose of a firm and hence the AO was not justified in holding that the benefit of Section 54F is not available to him, According to us, the restricted remand by the Tribunal is not correct. The AO, according to us, should consider again on remand, the question whether the building at Thodupuzha is a residential house, taking into account the proviso of Section 54F also. 4. Hence, the remand made by the Tribunal is set aside. The AO should consider afresh the question whether the building at Thodupuzha is a residential building or not. The Revenue as well as the assessee can take all contentions to find out whether the disputed building was a residential house or not. Hence, we answer question No. 1 in favour of the Department and against the assessee. So far as the second question of law is concerned, it depends upon the ultimate decision, to be taken by the AO. Hence, it is not ITA No. 3931/Del/2019 Raman Chawla 8 necessary for us to decide the question now. The assessee is entitled to produce all evidence before the AO to bring home the points raised by him.” 16. On going through the above judgment which has been relied by the ld. CIT(A) who held that if the building has been put to use for the purpose of business or profession and not for residential house, the same could not be considered as residential house for the purpose of Section 54F of the Act notwithstanding that the building was in the nature of residential building is infact not laid down by the Hon’ble High Court. Hence, an error has been crept in the order of the ld. CIT(A). 17. The Hon’ble High Court of Delhi in the case of CIT Vs. Geeta Dugal in ITA No. 1237/2011 order dated 21.02.2013 dealt with the issue of residential house which consist of two separate floor which have been considered as single unit by the assessee and as separate unit by the revenue. The Hon’ble High Court held that two floors of the same residential building need not be considered as two separate units or “a residential unit” but must be considered as “a residential house”. For the sake of ready reference, the relevant portion of the order of the Hon’ble High Court is reproduced as under: “7. We have considered the facts and taken note of the rival submissions. To complete the narration of facts, it needs to be noticed that the assessee was the owner of property at A/22, Westend Colony, New Delhi comprising of the basement, ground floor, first floor and second floor. She was deriving rental income from the property. On 08.05.2006 she entered into a collaboration ITA No. 3931/Del/2019 Raman Chawla 9 agreement with M/s Thapar Homes Ltd. for developing the property. According to its terms, the assessee being desirous of getting the property redeveloped/reconstructed and not being possessed of sufficient finance and lacking in experience in construction, approached the builder to develop the property for and on behalf of the owner at the cost of the builder. The builder was to demolish the existing structure on the plot of land and develop, construct, and/or put up a building consisting of basement, ground floor, first floor, second floor and third floor with terrace at its own costs and expenses. In addition to the cost of construction incurred by the builder on development of the property, a further payment of `four crores was payable to the assessee as consideration against the rights of the assessee. The builder was to get the third floor. The assessee accordingly handed over vacant physical possession of the entire property along with 22.5% undivided interest over the land. The handing over of possession of the entire property was however only for the limited purpose of development; the undivided interest in the land stood transferred to the developer/builder only to the extent of 22.5% for his exclusive enjoyment. It was on these facts that the assessing officer first took the view that the sale consideration for the transfer of the capital asset should be taken not merely at `four crores which was the cash amount received by the assessee, but the cost of construction incurred by the developer on the development of the property amounting to Rs.3,43,72,529/- should also be added to the sale consideration. The assessee thereupon claimed that if the cost of construction incurred by the builder is to be added to the sale price, then the same should also be correspondingly taken to have been invested in the residential house namely the two floors which the assessee was to get in addition to the cash amount under the agreement with the builder, and the amount so spent on the construction should be allowed as deduction under Section 54 of the Act. It was at this stage that the assessing officer rejected the claim for deduction under Section 54 on the ITA No. 3931/Del/2019 Raman Chawla 10 footing that the two floors obtained by the assessee contained two separate residential units having separate entrances and cannot qualify as a single residential unit. He agreed that the assessee was eligible for the relief under Section 54F in respect of the cost of construction incurred on one unit. He noted that the assessee has retained the ground floor and the basement. He therefore, apportioned the construction cost of Rs.3,43,72,529/- to have been incurred on the basement, ground floor, first floor and second floor in the ratio of 1:1:1:0.5 for second floor, first floor, ground floor, basement respectively. Since he was allowing the relief under Section 54F of the Act only in respect of one unit, he added `98,20,722/- which is the figure arrived at by dividing the total cost of construction of Rs.3,43,72,529/- by 3.5. This is how the assessment was made. What in effect the assessing officer had done was to reject the assessee's claim for deduction under Section 54/54F of the Act in respect of the house/units in the first and second floors holding that they were separate and independent residential units having separate entrances and cannot be considered as one unit to enable the assessee to claim the deduction. This was disapproved by the CIT(Appeals) on the basis of the judgment of the Karnataka High Court (supra) and his decision was approved by the Tribunal. The Tribunal expressed the view that the words "a residential house" appearing in Section 54/54F of the Act cannot be construed to mean a single residential house since under Section 13(2) of the General Clauses Act, a singular includes plural. 8. It is the correctness of the above view that is questioned by the revenue and it is contended that the interpretation placed by the Tribunal gives rise to a substantial question of law. The assessee strongly relies upon the judgment of the Karnataka High Court (supra) which, it is stated, has become final, the special leave petition filed by the revenue against the said decision having been dismissed by the Supreme Court as reported in the annual digest of ITA No. 3931/Del/2019 Raman Chawla 11 Taxman publication. The judgment of the Karnataka High Court supports the contention of the assessee. An identical contention raised by the revenue before that Court was rejected in the following terms: "A plain reading of the provision of section 54(1) of the Income- tax Act discloses that when an individual-assessee or Hindu undivided family- assessee sells a residential building or lands appurtenant thereto, he can invest capital gains for purchase of residential building to seek exemption of the capital gains tax. Section 13 of the General Clauses Act declares that whenever the singular is used for a word, it is permissible to include the plural. The contention of the Revenue is that the phrase "a" residential house would mean one residential house and it does not appear to the correct understanding. The expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should not be understood to indicate a singular number. The combined reading of sections 54(1) and 54F of the Income- tax Act discloses that, a non residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to section 54 of the Income- tax Act, lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gains tax, when he invests the capital gain in purchase of additional residential building." This judgment was followed by the same High Court in the decision in CIT Vs. Smt. K G Rukminiamma in ITA No.783/2008 dated 27.08.2010. ITA No. 3931/Del/2019 Raman Chawla 12 8. There could also be another angle. Section 54/54F uses the expression "a residential house". The expression used is not "a residential unit". This is a new concept introduced by the assessing officer into the section. Section 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the Section should be taken to have been satisfied. There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems to us that the income tax authorities cannot insist upon that requirement. A person may construct a house according to his plans and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. For instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post- retirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. We are therefore, unable to see how or why the physical structuring of the new ITA No. 3931/Del/2019 Raman Chawla 13 residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house. We do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. It is neither expressly nor by necessary implication prohibited. For the above reasons we are of the view that the Tribunal took the correct view. No substantial question of law arises for our consideration. The appeal is accordingly dismissed with no order as to costs.” 18. The said judgment dealt with whether the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. The Hon’ble High Court never dealt with the issue of commercial use Vs. residential use in the said judgment. Thus, an error has been crept in the order of the ld. CIT(A). 19. The property C-23, Usha Niketan, Safdarjung Development area, New Delhi-110016 is situated in a residential area as per the land use pattern of the Municipal Corporation of Delhi. The contention that there has been an office carrying on the business of professionals in the name of M/s Nagar Goel & Chawla ascribes the premises as commercial cannot be accepted owing to the judgment of Hon’ble Supreme Court in V.S. Sasidharan Vs Peter & Karunakar & Ors. delivered on 23.08.1984 authored by then Hon’ble Chief Justice, Y. Chandrachud wherein it was held that the firm of lawyers is not a commercial establishment. The Government of Delhi has allowed the SOHO and allowed the doctors, lawyers and chartered accountants to run their professions at their ITA No. 3931/Del/2019 Raman Chawla 14 residential premises. It doesn’t necessarily mean that such premises have been converted into commercial premises. It simpliciter allowed a designated activity to be run from a residential premises. That doesn’t change the premises from residential to commercial in nature. The nature of residential are commercial premises is determined by the master plans of the municipalities and also by the State Governments which charges the different rates for registration of residential and commercial premises and also determines the circle rates/fair market value based on the allowed use of premises as residential or commercial. A residential premises as per the state revenue authorities for all purposes cannot be treated as commercial for the purpose of Income Tax statute for computation of capital gains. Similarly the designated commercial premises like Barahkhamba Road, Nehru Place or in any central business district (CBD) cannot be treated as a residential premises simply because one or two families are staying in that area. The commercial and residential areas have been designated with a wider purpose of providing better livability to the residents. If any person conducting business activity in a residential area can be deemed to have been conducting such operation in a proscribed manner but it doesn’t alter the composition of residential premises to commercial premises in a residential area. The rules for use of street to commercial shops, professional, mixed use have been notified by the Municipal Corporation of Delhi which is as under: ITA No. 3931/Del/2019 Raman Chawla 15 ITA No. 3931/Del/2019 Raman Chawla 16 ITA No. 3931/Del/2019 Raman Chawla 17 ITA No. 3931/Del/2019 Raman Chawla 18 ITA No. 3931/Del/2019 Raman Chawla 19 ITA No. 3931/Del/2019 Raman Chawla 20 ITA No. 3931/Del/2019 Raman Chawla 21 ITA No. 3931/Del/2019 Raman Chawla 22 ITA No. 3931/Del/2019 Raman Chawla 23 ITA No. 3931/Del/2019 Raman Chawla 24 20. Thus we find the rules and regulations are in force for different types of premises from time to time .Further, we are also not in agreement with the contention that the electricity bills showing use of premises as non-domestic gives the premises, a tinge of commercial property. Deducting of TDS rightly or wrongly must not lead to an irrefutable conclusion that the receipt is taxable. Similarly, payment of electricity and non-domestic rate ipso facto doesn’t convert a residential premises to a commercial premises. 21. The observation of Ld. CIT(A)that the property in which the assessee is residing at C-4-66, SDA, New Delhi along with his wife and children which was joined owned by the assessee and his wife and the other Flats owned by the assessee alone at C-23, Usha Niketan, SDA, Delhi is been used for other than residential purpose i.e. commercial purpose occupied by a company namely M/s Dev Shi Earth Movers Pvt. Ltd. and, therefore, of the opinion that, the conditions mentioned in proviso Section 54F will not applicable to the assessee since the assessee has not ‘owns more than one residential house’ is not acceptable. Merely an assessee jointly owns a property along with his spouse, will not take away the nature of the ownership of the assessee. The assessee remains as a joint owner of the residential property. Any proceeds of selling of such property will be treated as income from selling of residential house. Ownership includes Joint ownership. Therefore, the finding of the Ld. CIT(A) that since the assessee jointly owns the property at C-4/66 SDA, New Delhi therefore, he is eligible for claiming exemption u/s 54F is erroneous. 22. Further, in so far as Flat owned by assessee at C-23, Usha Niketan SDA, Delhi is concerned, admittedly the said Flat is ITA No. 3931/Del/2019 Raman Chawla 25 being a residential flat, which has been used for other than residential purpose i.e. commercial purpose, used by M/s Dev Shi Earth Movers Pvt. Ltd. Merely an assessee has allowed to use the residential property as registered office of a Company will not change the nature of the property itself. The assessee has allowed to use the residential property for other residential purpose which itself is not permissible under law. By applying Latin Maxim “Nullus Commoidum Capere Protect De Injuria” which means no man take advantage of his own wrong. We are of the opinion that the Ld. CIT(A) should not have opined that assessee is eligible for claiming exemption u/s 54F of the Act on the ground that the assessee has used a residential property for non residential use. 23. Thus, the running of M/s Devshi Earth Movers Pvt. Ltd. or having a firm of the professionals in the premises at C-23, Usha Niketan will not destroy the very nature of residential premises and deem it to be a commercial premises. Hence, keeping in view the facts of the case, municipal by laws and judgments on this issue and provisions of the Income tax Act 1961, we hold that the order of the Ld. CIT(A) deleting the addition made by the AO cannot be sustained. In the result, the appeal of the revenue is allowed. Order Pronounced in the Open Court on 31/10/2022. Sd/- Sd/- (Yogesh Kumar US) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 31/10/2022 *Subodh Kumar, Sr. PS*