Operational/ Exemption under S. 54F of IT Act

Court – Income Tax Appellate Tribunal (ITAT) Hyderabad ‘B’ Bench
Key Issue –Operational/ Exemption under S. 54F of IT Act
Subject – Exemption under Section 54F of IT Act not available on property predominantly being used
for Religious purposes
Parties – Asst. CIT vs Shri Iqbal Ali Khan
Adjudication – Sh. R.K. Panda, Vice President and Sh. Laliet Kumar, Judicial Member
Date of Pronouncement of Order – 12.01.2024
Prayer of the Petition – To set aside the order issued by CIT(A)-6, Hyderabad dated 27.02.2020 granting
partial relief to the Respondent and to restore the order of the Assessing Officer (AO) disallowing
exemption under Section 54F.
Facts of the matter –
The Assessee had claimed exemption of Rs. 5,47,20,000/- under Section 54F of the IT Act against
acquisition of property. The Assessee claimed to have constructed a building in Sultan Shahi,
Moghalpura area of Hyderabad. The assessee was asked to submit the details of land holding and the
evidence for municipal approval for construction of the above building and submit details of evidence
for expenditure claimed. In response, the assessee submitted a copy of will said to have been given
by his mother in the year 2003 which was not registered nor the title deeds of the land are in the name
of the assessee. Further, the assessee has submitted a plan which was not approved by the Municipal
The AO held that due to the above-mentioned facts, it can be concluded that the assessee had not
received any Municipal permission for the construction of ground plus three floors on the property
before the due date for filing the return of the income. After analysis of the bank accounts of the
assessee and the failure of assessee to furnish bills to substantiate the claim, the AO also concluded
that there was no expenditure does not show that the assessee has incurred any expenditure towards
construction of the house.
During the Appellate proceedings with the CIT(A), the assessee submitted copies of the translated gift
deed, a detailed estimation for the expenditure incurred for construction of the building, bills for
expenditure incurred, construction site pictures, etc. The same were forwarded to the AO by the CIT
for submission of remand report. The AO in his remand report submitted that since the vouchers were
manmade, they do not have any sanctity. The AO also contended that the assessee has constructed a
Mosque and not a residential house and, hence, is not eligible for claim of exemption under Section
A verification report was forwarded by the office of Directorate of Income Tax (Intelligence &Criminal
Investigation) stating that the constructed property was being used by the assessee for running a
Madarasa on the ground floor and a prayer hall on the first floor. Also, the Municipal plan was
approved for a Mosque and not for a residential unit.
In the view of the above, CIT directed the AO to workout proportionate disallowances of the
exemption claimed with respect to the ground floor which is being used a prayer hall and thus granted
partial relief to the assessee.
Plea by Appellant –
The Appellant contended that the assessee had claimed deduction u/s 54F in respect of the property
which is being used for religious purposes i.e., a Mosque and a Madarasa and therefore, the assessee
is not entitled to the relief u/s 54 of the IT Act. The Appellant also submitted that the findings of the
AO that the properties were not registered in the assessee’s name but were only received by way of
unregistered will, the construction of ground plus 3 floors was finished within a span of just 10 months,
absence of evidence of expenditure towards construction, etc. were legible.
The Appellant also contended that the CIT(A) erred while issuing the impugned order as there was no
importance given by the CIT to the fact that there was no Municipal approval for a residential unit and
that the plan was approved for a Mosque. Evidences produced included the application filed by the
assessee before the Municipal Corporation wherein the nature of the usage of the property was
mentioned as ‘Madarasa Activities and Mosque’ and the application filed with the Property Tax
Department where in the property is not assessed to tax as the property was shown to be an exempt
Defense of the Respondent –
The Respondent submitted that the premises was inspected by officials appointed by the CIT and the
report prepared by them states that the top floor of the property was used as residence by the
assessee and thus, the benefit granted by the CIT(A) was in accordance with law.
Conclusion –
The ITAT found the reliance of the CIT(A) on the report of the Inspector for the inspection conducted
in 2018 to be problematic as what was required to be seen was whether the assessee had constructed
the house within the period granted u/s 54F i.e., 3 years from the date capital gain arose to the
assessee. The ITAT relied on the application filed by the Assessee for the regularization of the
constructed property instead wherein the property was mentioned to be used for Mosque, Orphanage
School and Staff Quarters.
The bench concluded that the property is predominantly being used for religious purposes namely
Mosque, Orphanage School and Staff Quarters and therefore, it does not fit within the definition of
the residential house as contemplated u/s 54F of the IT Act. As for the contention that the 3rd floor of
the property is being used for residential purposes, the bench found it contrary to the statement of
the assessee filed before the Municipal Corporation through the application for regularization of the
constructed property that clearly showed that the assessee has not used the property for the
residential purpose within the time granted by the statute.
Furthermore, the Bench held that there was no evidence to show that the assessee had incurred
expenditure towards construction of a residential house and therefore, the assessee is not entitled to
any relief u/s 54F of the IT Act. The Bench held that a literal reading of Section 54F makes it abundantly
clear that there is no scope of grant of pro-rata deduction, more particularly when no provision of

residence can be made in a Mosque and accordingly, the appeal was allowed and the order of the AO
was upheld.
i)This opinion/clarification note is based on the facts provided to us and the same is
being issued without any knowledge of intent, prejudice, non-disclosure,
misrepresentation, or concealment of facts if any. 
ii)We have not done investigation of correctness of facts and the limited opinion
represents our understanding of the provisions of the law on the matter. The
compliance mentioned above is not exhaustive and other compliance may also be
involved depending on case to case basis.
iii)The conclusions reached and views expressed are matters of opinion based on
our understanding of the related laws, rules, notifications, Citations, circulars, etc.
iv)Alacrity Corporate Solution Private Limited shall not be held liable for any
action/ consequence arising out of any contrary view(s) taken by any other party or
statutory authority

One Thought to “Operational/ Exemption under S. 54F of IT Act”

  1. I’m not that much of a online reader to be honest but your blogs
    really nice, keep it up! I’ll go ahead and bookmark your site to come back later on.
    All the best

Leave a Comment