Facts of the Case

The assessee, Himanshu Garg, sold certain lands during Assessment Year 2014–15 for a consideration of ₹3,23,88,500/- and declared long-term capital gains of ₹1,84,23,729/-. He claimed exemption under Section 54F on the ground that he had invested his share of the sale consideration in purchase of a new property jointly with two other co-owners through a registered sale deed dated 11.07.2013.

The sale deed described the property as land measuring about one acre with a “makaan” having a covered area of approximately 500 sq. ft. The assessee claimed that his proportionate share in the property constituted investment in a residential house. The Assessing Officer, on inspection, found existence of a brick kiln and sheds on the property and rejected the claim of exemption. The CIT(A) allowed the exemption, but the ITAT reversed the decision and denied Section 54F relief.

Issues Involved

Whether the assessee was entitled to exemption under Section 54F where the property purchased contained a brick kiln and was not established to be a residential house, and whether the ITAT’s findings were perverse so as to raise a substantial question of law.

Petitioner’s Arguments

The assessee argued that a residential house existed on the property purchased and that the word “makaan” in the registered sale deed indicated a residential structure. It was contended that the brick kiln was situated on the portion of land belonging to other co-owners and that sufficient evidence, including lease documents, was produced to show residential use of the assessee’s share.

Respondent’s Arguments

The Revenue contended that inspection and photographic evidence clearly showed that the property was primarily used for a brick kiln with sheds and not as a residential house. It was argued that the registered sale deed did not describe the structure as a residential house and that revenue records classified the land as agricultural.

Court Order / Findings

The Delhi High Court held that the issue involved appreciation of evidence and factual determination. The Court noted that the registered sale deed did not describe the structure as “rihayasi makaan” and that brick kiln and sheds admittedly existed on the property. The ITAT had examined photographs, inspection reports, and revenue records and concluded that the investment was not in a residential house.

The Court held that the assessee’s contention regarding allocation of brick kiln to other co-owners could not be accepted in view of the joint nature of the purchase and absence of clear demarcation in the sale deed. The findings of the ITAT were held to be reasonable and not perverse.

Important Clarification

The Court clarified that whether a residential house exists on a property is essentially a question of fact. Where factual findings are based on evidence and reasonable appreciation thereof, the High Court will not interfere under Section 260A unless perversity is shown.

Final Outcome

The appeal was dismissed. The Delhi High Court held that no substantial question of law arose and upheld the ITAT’s order denying exemption under Section 54F of the Income-tax Act, 1961.

 Link to download the order - https://www.mytaxexpert.co.in/uploads/1769850656_HIMANSHUGARGVsASSISTANTCOMMISSIONEROFINCOMETAXCIRCLE361.pdf

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