S. 54F Exemption Not Available On Property Predominantly Being Used For Religious Purposes: ITAT

The Hyderabad Bench of Income Tax Appellate Tribunal (ITAT) has held that exemption under Section 54F of the Income Tax Act is not available on property predominantly being used for religious purposes.

The bench of R.K. Panda (Vice President) and Laliet Kumar (Judicial Member) has observed that the property is predominantly being used for religious purposes, namely mosques, orphanages, and staff quarters. Therefore, it does not fit within the definition of a residential house as contemplated under Section 54F of the Income Tax Act. However, there is a report stating that the 3rd floor of the property is being used for residential purposes and is being used for the residence of the assessee. The report suggesting the 3rd floor being residential is contrary to the statement of the assessee filed before the GHMC seeking regularization of the property, wherein it was submitted that the property was being used for a mosque, orphanage school, and residence for the staff. The statement shows that the assessee has not used the property for residential purposes within the time granted by the statute, and furthermore, there is no evidence to show that the assessee has invested in the construction of a residential house. Therefore, the assessee is not entitled to any relief under Section 54F.

The assessee/respondent has offered long-term capital gains for the assessment year 2013–14, besides house property income and business losses. With regard to the claim of capital gains exemption, the Assessing Officer noted that the assessee has sold two properties during FY 2012–13 at Hafeezpet, Serilingampally Mandal, for a consideration of Rs. 2,14,90,500 and Rs. 6,76,97,000. As per the details furnished by the assessee, the assessee has acquired Acre 3.11 guntas, which equals 15,851 sq yds, in the year 1981.

The assessee acquired the land in 1981, and due to disputes incurred, the legal expenses incurred from time to time were incurred. Finally, the land was received as a family settlement by the High Court of Andhra Pradesh in 2010 and was registered under document No. 3939/2010. The assessee has claimed exemption under Section 54F of the Income Tax Act against the cost of acquisition.

The assessee claimed exemption under Section 54F of the Income Tax Act. The assessee constructed a building in Sultan Shahi, Moghalpura, Hyderabad. The assessee was asked to submit the details of land holdings and evidence for municipal approval for the construction of the building, as well as details of evidence for expenditures claimed.

In response, the assessee submitted a copy of a will said to have been given by his mother in the year 2003, which was not registered, and the title deeds of the land are in the name of the assessee. The assessee has submitted a plan that was not approved by the municipal authorities. The assessee has not taken any municipal permission but constructed ground-plus three-story buildings in the above area before the due date for filing the return of income.

According to the Assessing Officer, it is also doubtful that a building with an area of 9692 sq ft of ground plus three floors could be constructed in a period between September 2012 and July 2013, i.e., 10 months.

Feeling aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the CIT (A), who granted partial relief to the assessee.

The department contended that the assessee had claimed deduction under Section 54 of the Income Tax Act in respect of the property, which is in the nature of a mosque, and therefore, the assessee is not entitled to relief under Section 54 of the Income Tax Act.

The department argued that the municipal application filed by the assessee for the purposes of regularization was for the mosque only. The nature of the usage of the property being used for “Madrasa activities and mosques” only. The assessee filed an application with the Property Tax Department of the State, and as per the same document, the property is not subject to tax as it is an exempt property. The property being constructed by the assessee was in the nature of a mosque, and therefore, the assessee has not fulfilled the condition or criteria laid down for the grant of deduction under Section 54 of the Income Tax Act, and therefore, the assessee is not entitled to deduction. There is no provision for the grant of pro-rata deduction under Section 54F; hence, the CIT (A) was wrong in granting pro-rata deduction for the 1st, 2nd, and 3rd floors of the property.

The assessee contended that the inspection of the premises was carried out by the department, and during the course of the inspection, a report was prepared, and as per the report, the top floor of the property was used for the residence of the assessee. Therefore, the order of the learned CIT (A) granting pro-rata benefit under Section 54F was in accordance with the law.

The tribunal held that the literal reading of Section 54F makes it abundantly clear that there is no scope for the grant of pro-rata deduction, particularly when no provision of residence can be made in a mosque.

Counsel For Appellant: Mohd. Afzal

Counsel For Respondent: Sheetal Sarin

Case Title: Asstt. CIT Versus Iqbal Ali Khan

Case No.: ITA No.505 /Hyd/2020

Click Here To Read The Order