Income Tax Appellate Tribunal - Hyderabad
Dy.Cit, Circle-3(1),, Hyderabad vs Sri C.M. Ramesh, Hyderabad on 29 December, 2017
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 vs. Sri C.M. Ramesh,
Income-tax, Circle - 3(1) Hyderabad.
Hyd.
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 RDE R
PER S. RIFAUR RAHMAN, AM:
This appeal is filed by the revenue against the order 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 Managing Director of M/s Rithwik Projects Pvt. Ltd. and filed his return of income on 30/09/2009 admitting an income of Rs. 1,12,59,045/-, after claiming exemption for the Long Term Capital Gains (LTCG) of Rs. 5,68,63,883/- u/s 54F of the Act.
2.1 During the course of assessment proceedings, AO noticed that assessee had sold shares of M/s Rithwik 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, 2 I.T.A. No. 275/Hyd/2014 Sri C.M. Ramesh, Hyd.
Hyderabad. AO noted that in the return of income filed by the assessee, he had declared the following three assets 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 assessee had filed the following documents to claim that the said three properties were, in fact, leased out to other companies, which are commercial in nature and no longer a residential units:
" i. Purchase deed dated 22.05.2008 in respect of land purchased at Jubilee Hills Co-operative House Building Society Limited, Road No.36, Jubilee Hills, Hyderabad.
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 assessee owns more than one residential house other than a new asset on the transfer of original asset, deduction u/s 54 cannot be claimed. Accordingly, AO treated the above said assets as residential units and denied the claim u/s 54F of the Act. Further, he noted that assessee had not furnished the details of dates of investments in the new house property.
3 I.T.A. No. 275/Hyd/2014Sri C.M. Ramesh, Hyd.
3. Aggrieved with the above order, assessee preferred an appeal before the CIT(A).
4. During the appellate proceedings, assessee filed some information, which was filed before the AO and submitted that AO had not considered the submissions of the assessee 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 remand report from the AO. After considering the submissions of the assessee, AO submitted his report on 19/12/12 wherein it was stated that assessee himself admits that assessee owns three residential units on the date of transfer and, therefore, the claim of the assessee cannot be entertained.
5. After considering the submissions of the assessee as well as remand report of AO, CIT(A) extracted the agreement 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 Nagar Society Building, in his order. Accordingly, he held that these assets were leased out to other companies for commercial purposes and these assets cannot be treated as residential 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 appeal:
" 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 purpose.
3. The ld. CIT(A) ought to have appreciated the fact that one property among the three was leased for Guest 4 I.T.A. No. 275/Hyd/2014 Sri C.M. Ramesh, Hyd.
House which itself establishes the fact that the property was residential in nature.
4. Any other ground(s) that may be urged at the time of hearing."
7. Ground Nos. 1 & 4 are general in nature. Ground Nos. 2 & 3 are raised to contest that assets leased out are residential in nature even though they are leased for commercial purposes and also it was leased for guest house, which establishes that the property was residential in nature.
8. Ld. DR submitted that AO has established that these assets are residential in nature and even though these assets are leased out for commercial purposes and also used as guest house cannot loose the character of residential property. Further, she brought to our notice schedule 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 properties. Further, she submitted that she relies on the decision of ITAT, Delhi Bench in the case of Amit Gupta Vs. DCIT, [2006] 6 SOT 403 (Delhi), in which, it was held that the property was capable of being used as residential accommodation, it has the characteristics of residential property. She submitted that even though in this case, the decision was in favour of the assessee, still the ratio will apply to the case in hand.
9. Ld. AR submitted that assessee has submitted before the AO that these assets are leased out to companies and the same were used for commercial purposes. He submitted that in the remand report called for by the CIT(A), AO has 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 filed a copy 5 I.T.A. No. 275/Hyd/2014 Sri C.M. Ramesh, Hyd.
of municipal taxes paid as commercial properties on the said assets in support of his claim that these assets are used for commercial purposes. He submitted that mere declaration in the schedule in balance sheet, does not change the character of the assets, as it is important that how the assets are being used and not referred.
10. Considered the rival submissions and material facts on record. The assessee has filed copies of lease agreements along with municipal tax challans before the AO and CIT(A). There is no dispute as far as these assets are leased out to others for commercial purposes. At the time of hearing, we find that for one of the property i.e. Alpine Towers, assessee has paid Rs. 9,287/- as municipal taxes on the basis of residential property. However, other two challans were assessed to tax on the basis of commercial properties. Since section 54F allows deduction, when assessee owns not more than one residential property on the date of transfer of original assets. Ld. AR immediately could not substantiate the above query. Even for the sake of discussion, if we consider two assets are commercial in nature and one as residential in nature, even then, assessee is eligible to claim deduction u/s 54F. In our considered view, the residential property can be used for residential purpose and is capable of using it for commercial purposes also. However, in the given case, assessee has leased out these assets to the companies for commercial utilisation. It is not important how these 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 municipal and power charges are paid on the basis of commercial, then, these assets should be treated as commercial properties. However, for the sake of reassurance, we are inclined to remit 6 I.T.A. No. 275/Hyd/2014 Sri C.M. Ramesh, Hyd.
this case back to the file of the AO to verify whether these assets are converted as commercial properties and the respective taxes are paid on commercial basis and all related taxes like electricity etc. are paid on commercial basis. In case it is found that the residential property is converted into commercial and respective duties/taxes are paid on commercial lines, these assets should be considered as commercial properties, then, the AO should allow the 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. However, it was held that the expression 'residential house' has not 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 call it a residential house, if it is capable of being used for the purpose of residence, the requirement of section 54F is satisfied. Accordingly, exemption u/s 54F was allowed. In this case, the Bench answered the fact that the assessee did not actually use property for his residence will not disentitle him to claim of exemption u/s 54F and therefore, the facts in the said case are distinguishable to the facts of the case in hand, hence, the same is not applicable to the case under consideration.
11. In view of the above discussion, the grounds raised by the revenue are treated as allowed for statistical purposes.
7 I.T.A. No. 275/Hyd/2014Sri C.M. Ramesh, Hyd.
12. In the result, appeal of the revenue is allowed for statistical purposes.
Pronounced in the open court on 29 th December, 2017 Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER 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, Jubilee Hills, Hyd - 33.
3. CIT(A) - IV, Hyderabad 4 CIT - III, Hyderabad 5 The DR, ITAT, Hyderabad 6 Guard File