Section 54F of the Income-tax Act, 1961

Last updated: 18 September 2007

Court :
IN THE ITAT MUMBAI BENCH ‘A’

Brief :
Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption of, in case of investment in residential house - Assessment years 1997-98 and 1998-99 - Assessing Officer denied exemption under section 54F on ground that assessee was in possession of a plot of land wherein a farm-house existed and as farm-house was a residential house, benefit of section 54F was not available to assessee - It was found from record that said piece of land was an agricultural plot consisting of huts and out-houses, which in turn were being used as cattle sheds and said huts were in a dilapidated condition and had never been used or occupied by assessee - Whether it could not be said that assessee was owner of another residential house - Held, yes - Whether therefore, assessee was eligible for exemption under section 54F - Held, yes During the previous year, the assessee had sold the shares held by her and claimed the capital gains arising on the sale of the shares to be exempt by availing the benefit under section 54F on account of investment in a residential property. The Assessing Officer denied the exemption on the ground that the assessee was in possession of a plot of land wherein a farm-house existed and as the farm-house was a residential house, the benefit of section 54F was not available to the assessee. On appeal, the assessee contended that no farm-house or any other house existed on said plot of land and that land was leased to Punjab State Electricity Board (PSEB) and certain residential buildings had been put up by the PSEB for its staff quarters. The Commissioner (Appeals) directed the Assessing Officer that on-site verification should be carried out to re-examine the matter after considering the evidence produced by the assessee and also the lease agreement with PSEB. In the second round of assessment, no on-site verification was carried out by the Assessing Officer and he again rejected the claim of the assessee for exemption under section 54F. On appeal, the Commissioner (Appeals) allowed the assessee’s claim for exemption under section 54F. On revenue’s appeal :

Citation :
Income-tax Officer, Ward 16(2)-1, Mumbai v. Smt. Anjali Mehra

The provision of section 54F provides the exemption from capital gains on sale of any capital assets other than a residential property if the sale proceeds are invested in a residential house. The proviso to section 54F categorically provides that the said exemption shall be allowed to the assessee only if the assessee does not own any other property on the date of transfer of the capital asset other than the one purchased by the assessee. In the instant case, it was found from the record that the said piece of land was an agricultural plot consisting of huts and out-houses, which in-turn were being used as cattle sheds. It was further found that the huts were in dilapidated condition and had never been used or occupied by the assessee. In view of said facts there was no merit in the stand of the Assessing Officer that a building existed on the aforesaid piece of land, without carrying out any on-site verification though directed by the Commissioner (Appeals). No doubt, there might be some huts and out-houses but the same could not be interpreted as a residential property of the assessee. Though at present there existed a building which had been constructed on the said piece of land by PSEB, yet the same in no way gave rise to any finding that any other building existed prior to the one constructed by the PSEB. Accordingly, during the year under consideration, the assessee was not the owner of any other residential property, income from which was taxable under the head ‘Income from house property’. Therefore, the assessee was entitled to exemption under section 54F as claimed. Therefore, the Commissioner (Appeals) was justified in his action. [Para 8]