SMT. TEJAL KAUSHAL SHAH ,MUMBAI V. INCOME TAX OFFICER WARD, 25(1)(5), MUMBAI

ITA 3303/MUM/2024

AI Insights

The case involves Smt. Tejal Kaushal Shah, who appealed against the order of the Commissioner of Income Tax (Appeals) confirming the disallowance of a deduction under Section 54 of the Income Tax Act, 1961, amounting to Rs.1,30,30,729. The deduction was claimed on the sale of a residential property and the purchase of a new one, which was co-owned with her husband. The Assessing Officer had rejected the claim on the grounds that both the assessee and her husband had separately claimed deductions for the same property, which was against the conditions of Section 54. Additionally, an addition of Rs.10,43,158 was made as deemed rental income under Section 23 of the Act for an office premises owned jointly by the assessee and her husband. The Tribunal found merit in the assessee's arguments regarding the deduction under Section 54 and remanded the issue of the annual let out value to the Assessing Officer.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 102785 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Other Referred Cases: Commissioner of Income-tax vs. Ravinder Kumar Arora, CIT v. Podar Cement (P.) Ltd., CIT v. Tip Top Typography, CIT v. Moni Kumar Subha, Smt. Kokilaben D. Ambani v. CIT, CIT v. Natarajan, CIT v. Gurnam Singh
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: REEPAL TRALSHAWALA
• Keywords: Business income; Capital asset; Capital Gains; Deemed owner of house property
• Section: 142(1); 143(2); 54; 54F; 23(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE MS. KAVITHA RAJAGOPAL, JM AND SMT. RENU JAUHRI, AM ITA No. 3303/Mum/2024 (Assessment Year: 2012-13) Smt. Tejal Kaushal Shah B-1102, Water Ford Apartment, Juhu Lane Barfiwala Marg, Andheri (W), Mumbai – 400058. Vs. Income Tax Officer Ward, 25(1)(5) Kautilya Bhavan, Bandra Kurla Complex, Bandra East, Mumbai – 400051. PAN/GIR No. AARPS8702N (Assessee) : (Respondent) Assessee by : Shri. Reepal Tralshawala Respondent by : Shri. Hemanshu Joshi (Sr. DR) Date of Hearing : 21.01.2025 Date of Pronouncement : 17.04.2025 O R D E R Per Kavitha Rajagopal, J M: This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) Delhi (‘ld. CIT(A)’ for short), National Faceless Appeal Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2012-13. 2. The assessee has raised the following grounds of appeal: “A) Disallowance of deduction u/s.54 of the Act of Rs.1,30,30,729/- may be deleted: 1. The Ld. CIT(A) (NFAC) erred in confirming disallowance of deduction u/s.54 of the Act of Rs.1,30,30,729/- without appreciating that- a) the Appellant has sold residential house being long term capital asset and purchased new residential house as co-owner alongwith her husband: ITA No. 3303/Mum/2024 (A.Y. 2012-13) Smt. Tejal Kaushal Shah 2 b) all the conditions of deduction u/s.54 of the Act are duly fulfilled; c) the Appellant has filed all the relevant documentary evidences for claiming the deduction u/s.54 of the Act and the observation in CIT(A) order are contrary to the facts of the case: and hence, the disallowance of deduction u/s.54 of the Act of Rs. 1,30,30,729-is without any justification and needs to be deleted. B) Addition of Rs.10,43,158/- (after allowing standard deduction @30%) u/s.23 of the Act may be deleted: 2. The Ld. CIT(A) (NFAC) erred in confirming the addition made of Rs.10,43,158/- u/s.23 of the Act as deemed rental income [Rs.14.90.227/-before standard deduction @30%) without appreciating that- a) office premises at Masjid Bunder is owned by Appellant (90.90% share) and her husband (9.10% share); b) the said office premises is used for business purposes by both i.e. the Appellant and her husband: c) the quantum of income earned from using the office premises and the head under which the same is offered to tax by Appellant could not be ground to conclude that office premises not used for business purposes; and hence the addition made of Rs. 10,43,158/- as deemed let out value u/s.23 of the Act is unjustified and may be deleted. 3. Without prejudice to the above and without admitting and accepting, the Ld. CIT(A) (NFAC) failed to appreciate that: a) deemed letting out rental value ought to be of the location of business premises and not any other location; b) the deemed rental value ought to be determined based upon Municipal ratable value; and hence, the addition made of Rs. 10,43,158/- is without any justification and liable to be deleted.” 3. Brief facts of the case are that the assessee is an individual and had filed her return of income dated 20.12.2012, declaring total income at Rs. 5,46,104/-. The assessee’s case was selected for scrutiny and notices u/s. 143(2) and 142(1) of the Act were duly issued and served upon the assessee. The learned Assessing Officer (ld. A.O. for short) ITA No. 3303/Mum/2024 (A.Y. 2012-13) Smt. Tejal Kaushal Shah 3 observed that the assessee has shown long term capital gain (LTCG for short) of Rs. 1,30,30,729/- on sale of immovable property after claiming benefit of indexation and further the assessee has claimed exemption u/s. 54 of the Act for the new property purchased in Kailashpuri CHS Ltd., Andheri (West), Mumbai, vide a deed of transfer dated 06.12.2010. The ld. AO observed that the total consideration for purchase of new property was Rs. 2,31,00,000/- out of which the assessee has paid Rs. 1,76,00,000/- and her husband Shri Kaushal Anil Shah has paid Rs. 55,00,000/- where the assessee and her husband were claimed to be co-owners of the new residential house purchased by them. The ld. AO also observed from the return of income of the assessee’s husband that he had sold some other property which resulted in capital gain and that he has also claimed deduction u/s. 54 of the Act with respect to the new property which was jointly purchased by the assessee and her husband. The ld. AO rejected the claim of exemption u/s. 54 of the Act amounting to Rs. 1,30,30,729/- in assessee’s case for the reason that exemption u/s. 54 has been claimed both by the assesse and her husband separately for contributing in purchase of new residential house and further the ld. AO held that the new property has been purchased by transferring two residential houses which is violating the condition of Section 54 of the Act. Further, the ld. AO has stated that the assessee’s husband’s name is mentioned as the ‘First Owner’ in the purchase agreement of the old property which was sold by the assessee in which the assessee’s name is mentioned only as the ‘Second Owner’ for which the assessee contends to be an error crept in the registered agreement. The ld. AO further held that the assessee has failed to furnish documentary evidences such as bank statement to show that the payment for ITA No. 3303/Mum/2024 (A.Y. 2012-13) Smt. Tejal Kaushal Shah 4 purchase of old property was made by the assessee and not her husband and has also failed to furnish copy of purchase and sale agreement of the old property to establish the mode of payment. The ld. AO made an addition/disallowance of Rs. 1,30,30,729/- u/s. 54 of the Act for the same. Further, the ld. AO also made an addition of Rs. 10,43,158/- on the annual let out value of the office premises located at Juhu lane u/s. 23(1) of the Act after considering the fair rental value of office located in the neighborhood as available in the website www.magicbricks.com and determined total income of the assessee at Rs. 1,46,19,990/-. 4. Aggrieved the assessee was in appeal before the first appellate authority, who vide order dated 30.05.2024 dismissed the appeal filed by the assessee on the ground that the assessee has failed to substantiate her case by cogent documentary evidences. 5. The assessee is in appeal before us, challenging the impugned order of the ld. CIT(A). 6. The learned Authorised Representative (ld. AR for short) for the assessee contended that the ground no. A was on disallowance of deduction claimed u/s. 54 of the Act, where the assessee had purchased the property vide agreement dated 03.12.2004 for a total consideration of Rs. 35,00,000/- which is also reflected in the balance sheet filed by the assessee for earlier years. The ld. AR further stated that the assessee has sold the said property vide agreement dated 22.11.2011 for a sale consideration of Rs. 1,90,00,000/-, and had worked out the capital gain of Rs. 1,30,30,729/- after reducing the index cost of Rs. 59,69,271/-. The ld. AR submitted that the assessee had invested Rs. 1,76,00,000/- over and above the capital gains of Rs. 1.30 crores in the new property purchased jointly with her husband vide agreement dated 06.12.2010, where the total ITA No. 3303/Mum/2024 (A.Y. 2012-13) Smt. Tejal Kaushal Shah 5 consideration was Rs. 2,31,00,000/-. The ld. AR also contended that the ld. AO in the case of the assessee’s husband has accepted his claim of deduction u/s. 54 of the Act and as co-owner, the assessee was also entitled to the said claim. The ld. AR stated that the conditions of Section 54 was fulfilled and only the amended provision of Section 54 specifies ‘purchased’ or constructed ‘One’ residential house in ‘India’ instead of ‘a residential house’ which was only w.e.f. 01.04.2015. The ld. AR relied on a catena of decisions and prayed that the assessee’s claim of deduction u/s. 54 of the Act was to be allowed. 7. The learned Departmental Representative (ld. DR for short) on the other hand controverted the said fact and stated that the assessee has violated the conditions of Section 54 where exemption has claimed against sale of two residential houses one by the assessee and by her husband where they have invested in a single residential property. The ld. DR further stated that the assessee has failed to establish that the old property which was sold was purchased by the assessee, where from the sale agreement it is evident that the assessee’s husband’s name is mentioned first as the purchaser. The ld. DR relied on the order of the lower authorities. 8. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has challenged the additions/disallowance made by the ld. AO u/s. 54 of the Act. The assessee is said to have purchased a property at Flat No. 701 in Building No. 1 of The Gulshan Villa Premises Co-Operative Society Limited for a consideration of Rs. 35,00,000/- which aggregates to Rs. 36,50,000/- including stamp duty and registration charges which the assessee claims that the same was reflected in ITA No. 3303/Mum/2024 (A.Y. 2012-13) Smt. Tejal Kaushal Shah 6 the assessee’s balance sheet for F.Y. 2006-07 to 2010-11. Thereafter, the property was sold on 22.11.2021 for a sale consideration of Rs. 1,90,00,000/- and the capital gain was arrived at Rs. 1,30,30,729/- after reducing the indexation cost. It is observed that the assessee along with her husband had purchased a property in Flat No. 1102, B Wing, 11th Floor, Waterford Building in Kailashpuri Co-operative Housing Society Limited for a total consideration of Rs. 2,31,00,000/- out of which the assessee’s investment is said to be Rs. 1,76,00,000/-. The reason for denial of the claim of deduction u/s. 54 by the lower authorities is that the assessee has purchased the old property along with her husband where she has failed to establish that the sale consideration was paid by her and not her husband. Also, there has been a sale of two residential houses by the assessee and her husband and has invested the consideration for purchase of one residential house which the department claims to be a violation of the conditions prescribed u/s 54 of the Act. For this, it is trite to consider the provisions of Section 54 before the amendment w.e.f. 01.04.2015 for deciding the issue in hand. We hereby cite the provision herein under for ease of reference: \"54 (1) Subject to the provisions of sub-section (2), where, in the case of an assessee, being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head \"income from house property\" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then instead of the capital gains being charged to income-tax as income of previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section.........” 9. On a perusal of the above provision, it is observed that the capital gain which arises from the transfer of a long term capital asset being buildings or lands appurtenant ITA No. 3303/Mum/2024 (A.Y. 2012-13) Smt. Tejal Kaushal Shah 7 thereto and the same being a residential house where the assessee has within a period of one year before or two years after the transfer purchased or within a period of 3 years after the date of transfer constructed a residential house is entitled to claim deduction under this provision. Upon considering the same, we do not find any embargo for the assessee to claim deduction under this provision either as a co-owner, or on sale of one or two residential properties or on purchase of a residential property as a co-owner. We do not find any express bar for the assessee to claim the said deduction on a property which has been jointly purchased by the assessee. Further, the ld. AO's contention that the old property was purchased jointly by the assessee’s husband and the assessee is to be taken into view only to find out if the assessee’s husband has also claimed deduction u/s. 54 of the Act pertaining to the sale of this property and purchase of the new residential house. If as per the contention, the old property belongs to the assessee and the sale consideration received out of the transfer was invested by the assessee in the new property, the assessee is entitled to claim deduction u/s. 54 to the extent of her investment in the new residential property. The ld. AO has also not brought on record any fact to show that the assessee has sold more than one property and merely because the assessee’s husband has transferred his other property, which detail is not before us, it cannot be said that the assessee has transferred two properties. Even otherwise, assuming that the old property which was sold belonged to the assessee’s husband then the assessee’s husband was entitled to claim the entire benefit u/s. 54, though the property was purchased jointly. In the present case in hand, it is not the case of the revenue that both the assessee and her husband has claimed benefit u/s. 54 twice for the ITA No. 3303/Mum/2024 (A.Y. 2012-13) Smt. Tejal Kaushal Shah 8 entire sale consideration but it is a case where they have claimed proportionately to the extent of investment made by either of them in the purchase of the new property. Pertinently, courts have taken a liberal view with regard to the claim of Section 54 and Section 54F which are beneficial provisions that are to be interpreted liberally in favour of the assessee and deduction should not be merely denied on hyper-technical ground. We would like to place our reliance on the decision of Delhi High Court in the case of Commissioner of Income-tax vs. Ravinder Kumar Arora [2011] 15 taxmann.com 307 (Delhi)/[2011] 203 Taxman 289 (Delhi)/[2012] 342 ITR 38 (Delhi)/[2012] 252 CTR 392 (Delhi)[27-09-2011], where the relevant extract of the said decision is cited herein under for the ease of reference: “10. Even when we look into the matter from another angle, facts remain that the assessee is the actual and constructive owner of the house. In CIT v. Podar Cement (P.) Ltd. [1997] 92 Taxman 541 / 226 ITR 625 (SC), the Supreme Court has also accepted the theory of constructive ownership. Moreover, Section 54F mandates that the house should be purchased by the assessee and it does not stipulate that the house should be purchased in the name of the assessee only. Here is a case where the house was purchased by the assessee and that too in his name and wife's name was also included additionally. Such inclusion of the name of the wife for the above-stated peculiar factual reason should not stand in the way of the deduction legitimately accruing to the assessee. Objective of Section 54F and the like provision such as Section 54 is to provide impetus to the house construction and so long as the purpose of house construction is achieved, such hyper technicality should not impede the way of deduction which the legislature has allowed. Purposive construction is to be preferred as against the literal construction, more so when even literal construction also does not say that the house should be purchased in the name of the assessee only. Section 54F of the Act is the beneficial provision which should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied on hyper technical ground. Andhra Pradesh High Court in the case of Mir Gulam Ali Khan v. CIT [1987] 165 ITR 228 /[1986] 28 Taxman 572 has held that the object of granting exemption under Section 54 of the Act is that an assessee who sells a residential house for purchasing another house must be given exemption so far as capital gains are concerned. The word \"assessee\" must be given wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word \"assessee\" as that would frustrate the object of granting exemption. 11. We also find judgments of other High Courts giving benefit of Section 54F(1) of the Act when the house of the assessee is purchased jointly with his wife. In the case of CIT v. Natarajan [2006] 287 ITR 271/ 154 Taxman 399 (Mad.), though this case was decided in relation to Section 54 of the Act, the said Section is pari materia of Section 54F(1) of the Act. Likewise, the Punjab & Haryana High Court in the case of CIT v. Gurnam Singh [2010] 327 ITR 278/[2008] 170 Taxman 160 took the same view while discussing the provisions of Section 54 of the Act which is again pari materia of Section 54F(1) of the Act.” ITA No. 3303/Mum/2024 (A.Y. 2012-13) Smt. Tejal Kaushal Shah 9 10. From the above, it is evident that benefit u/s. 54 cannot be denied merely because the property was purchased jointly in the name of the assessee and her husband, where in case of property held jointly the capital gain shall be calculated for each owner in accordance with the funding and allocation of shares of the house properties for claiming tax benefits. We find justification in allowing ground no. A with the direction that the ld. AO shall verify that there has been no double deduction claimed by the assessee and her husband on the capital gain arising out of the sale of property claimed by the assessee and to allow deduction u/s. 54 to the extent of the investment made by the assessee on the purchase of the new property. Ground no. A(1) is hereby allowed. 11. Ground No. B(2) pertains to the addition of Rs. 10,43,158/- u/s. 23 of the Act being the deemed rental income of the office premises at Masjid Bunder which the assessee alleged to be owned by the assessee and her husband jointly at 90.90% and 9.10% share respectively and the same was used as office premises for business purpose by the assessee. Without prejudice the assessee claims that the deemed rental value has to be determined based on the municipal ratable value. The ld. AO during the assessment proceeding observed that the assessee has not offered any income under the head ‘income from house property’ out of the three properties owned by her, as per the deeming provision of Section 23 of the Act. The assessee submitted that the flat at Waterford was self-occupied and the flat at Juhu Lane was let out and vacant during the year under consideration and the same was covered u/s. 23(1)(c) of the Act. The assessee further submitted that the office at Masjid Bunder was occupied by her and her husband for their business purpose and the same cannot be deemed to be let out. ITA No. 3303/Mum/2024 (A.Y. 2012-13) Smt. Tejal Kaushal Shah 10 The ld. AO rejected the assessee’s contention on the ground that the assessee has not shown any business income except commission income under the head ‘other sources’ and has failed to furnish documentary evidences such as electricity bill and other bills related to office expense in support of her contentions. The ld. AO also held that the assessee has showed only a single receipt of commission income of Rs. 1,10,999/- for the whole year under consideration and even otherwise if the property has been occupied by the husband for office premises, the assessee should have offered annual let out value as per the deeming provision. The ld. AO computed the ALV at Rs. 10,43,158/- after taking the annual value at Rs. 14,90,227/- less 30% based on the rate available at www.magicbricks.com on similar office premises located in the neighborhood. The ld. CIT(A) upheld the addition made by the ld. AO. 12. The assessee is in appeal before us, challenging the impugned addition. 13. The ld. AR for the assessee contended that merely because the assessee has earned a meager income as commission income does not entitle the ld. AO to come to a conclusion that the office premises is not used as business premises. The ld. AR further stated that the ld. AO has erroneously considered a different location for determining the ALV and has also not taken into consideration the judicial precedents which has held that only the municipal rentable value should be considered for determining the ALV of the property. The ld. AR relied on the following decisions: a. CIT v. Tip Top Typography [2014] 368 ITR 330 (Bom) b. CIT v. Moni Kumar Subha [2011] 333 ITR 38 (Del.)(FC) c. Smt. Kokilaben D. Ambani v. CIT [2010] 323 ITR 104 (Bom.) ITA No. 3303/Mum/2024 (A.Y. 2012-13) Smt. Tejal Kaushal Shah 11 14. The ld. DR on the other hand controverted the said fact and stated that the assessee has failed to furnish any documentary evidences to establish the fact that the said property was used by the assessee and her husband for their business purposes. The ld. DR relied on the order of the lower authorities. 15. After considering the rival submissions, it is observed that the assessee has failed to furnish documentary evidences to demonstrate the fact that the said property was used by the assessee and her husband for their business purposes. We are also conscious of the fact that there are various judicial precedents which has held that the ALV of a property has to be determined based upon the municipal rentable value which in the present case has not been considered by the ld. AO. We therefore deem it fit to remand this issued to the ld. AO to the limited extent of determining the ALV of the said property as per the municipal rentable value to the extent of the holding of the assessee in the said property as per the judicial decision relied upon by the ld. AR. Ground no. B(2) is partly allowed as per the above terms. 16. Therefore, Ground No. A(1) is allowed and Ground No. B(2) is partly allowed. 17. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 17.04.2025 Sd/- Sd/- (RENU JAUHRI) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 17.04.2025 Karishma J. Pawar (Stenographer) Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Mumbai ITA No. 3303/Mum/2024 (A.Y. 2012-13) Smt. Tejal Kaushal Shah 12 5. Guard File BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai "