TheChennai bench of Income Tax Appellate Tribunal (ITAT) has recently held that capital gain exemption under section 54 of Income Tax Act 1961 should not be allowed in respect of two independent residential units.
Section 54 of Income Tax Act, 1961 provides that is if any individual or HUF can claim capital gain exemption in relation to purchase or sale of capital asset.
Assessee Mohamed Ibrahim is a non-resident. After filing the return of income the case was selected for limited scrutiny. In the assessment order, the Assessing Officer has noted that the assessee had sold two immovable properties two different sale deeds. Subsequently, the assessee has purchased another property in Chennai.
The property consists of the ground floor, first floor, second floor, third floor, and fourth floor. The ground floor and first floor let out for tenancy and the balance other floors used for his residential purpose.
The assessee claimed 50% of total consideration of purchased property for availing exemption under section 54 of the Act.Therafter the assessing officer computed the income and allowed deduction under section 54 of the Income Tax Act 1961 at Rupees 33,72,669/ only /- as against deduction claimed of Rupees 78,19,945/- Against the order assessee filed an appeal before the ITAT.
T. Vasudevan, counsel for submits that assessee has claimed exemption under section 54 of the Income Tax Act 1961 only for the residential portion of the property to the extent of Rupees.78,19,945/- out of a total reinvestment of Rupees.2.40 crores and hence further restricting exemption only for the 3rd floor at Rupees.33,72,669 was arbitrary and unreasonable.
D. Hema Bhupal, counsel for the revenue confirmed the decision of the lower authorities.
After considering the contentions of the both side the division bench of the ITAT comprising V. Durga Rao, Judicial (Member) and G. Manjunatha, (Accountant Member) confirmed the decision of the lower authority and observed that,
“The Assessing Officer restricted the deduction under section 54 of the Income Tax Act, 1961 to the investment in 3rd floor keeping in view of the amendment to section 54 of the Act eligible for one residential house. Admittedly, the assessee has not been able to establish that 3rd and 4th floor are not independent and thus, the Assessing Officer has correctly allowed the claim of deduction under section 54 of the Act for 3rd floor”.
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