HRA tax exemption for rent paid to the spouse (wife) of the assessee is allowed by the Ahemdabad Bench of the Income Tax Appellate Tribunal in the case of Bajrang Prasad Ramdharani Vs. ACIT in ITA No. 715/Ahd/2013 and held that the house owned by the wife of the assessee is occupied by the assessee and has paid the rent through bank transfers. Therefore, the assessee has fulfilled twin requirements of the provision i.e. occupation of the house and the payment of rent. Under these circumstances, the assessee is entitled for exemption under section 10(13A) of the Act.
Read the case details.
Case Title
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Bajrang Prasad Ramdharani Vs. ACIT, Ahmedabad
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Court
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ITAT, Ahemdabad Bench, Ahemdabad
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Appeal No./Citation
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ITA No. 715/Ahd/2013
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Section covered
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10(13A)
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Order Result
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Appeal allowed. Decided in favour of assessee.
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Date of judgment
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12.07.2013
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Facts of the case:
The case of the assessee was picked for scrutiny assessment and the assessment was framed u/s 143(3) of the Income Tax Act, 1961 (the Act).
In the assessment order, inter alia, the Assessing Officer disallowed the claim of the assessee under section 10(13A) for rent paid to the wife of the assessee against house rent allowance. On appeal to CIT(A), he confirmed the addition made by the AO.
The assessee has one house property which was claimed as self-occupied house property but the AO has given a finding of the fact that the assessee had his wife were living together as a family.
In the assessment order, inter alia, the Assessing Officer disallowed the claim of the assessee under section 10(13A) for rent paid to the wife of the assessee against house rent allowance. On appeal to CIT(A), he confirmed the addition made by the AO.
The assessee has one house property which was claimed as self-occupied house property but the AO has given a finding of the fact that the assessee had his wife were living together as a family.
Issues:
Whether assessee can claim HRA tax exemption from house rent allowance for rent paid to the wife of the assessee?
Arguments of the assessee:
Before the Tribunal, assessees' submission was that a bare reading of the provision would make it ample clear that the assessee is entitled for exemption u/s 10(13A) of the Act. In support of the expenditure on account of rent expenditure, requisite details and evidences were filed before the CIT(A) who had called for a remand report from the AO.
Arguments of the department:
Before the Tribunal, the Ld. D/R relied upon the orders of the lower authorities. The Ld. D/R pointed out that the assessee has claimed the house owned by him as self-occupied house property.
The AO in his assessment order disallowed the claim of the assessee on the ground that the assessee and his wife were living together, hence the claim of payment of rent is just to avoid the payment of taxes and to reduce the tax liability. The Ld. CIT(A) confirmed the addition on the ground that the rent is paid by the assessee as a tenant to his wife who is a landlord and he found that the landlord and tenant are living together in the same house property which indicates the whole arrangement is of the nature of colourable device.
The Decision:
The Tribunal stated that both the AO and the CIT(A) has disallowed the claim of the assessee on the ground that assessee and his wife were living together but not on the ground that in return of income the house owned by the assessee was declared as self-occupied house property. The Tribunal only examined whether the assessee is entitled for exemption u/s 10(13A) or not.
On the examination of section 10(13A) and the explanation appended thereto, the Tribunal inferred that the house owned by the wife is occupied by the assessee and the assessee had submitted the rent receipts and paid the rent through bank transfers and since the assessee has fulfilled the twin requirements of the provision i.e. occupation of the house and payment of rent, the assessee is entitled for exemption u/s 10(13A) of the Act and deleted the addition made by the AO.
Analysis:
The text of section 10(13A) is reproduced below-
The Tribunal decided that the issue based on the above-mentioned provision only. The provision requires fulfillment of two conditions for claiming exemption from the house rent allowance received by the employee from the employer-
(i) The house is not owned by the assessee i.e. one cannot pay rent to himself, and
(ii) The assessee has actually paid the rent.
If the above two conditions are satisfied one can claim the exemption for rent paid even though the landlord is the assessee's wife and both the tenant and landlord are living together in the same house as a family.
This decision is contrary to the decision of the ITAT, Mumbai in the case of Mrs. Meena Vaswani vs ACIT (ITA No. 1983/Mum/2015) where the Tribunal decided the case against the assessee and disallowed the HRA tax exemption u/s 10(13A) to the assessee since in that case, the assessee failed to satisfy the twin conditions as stipulated in the provision.
(13A) any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations.
Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply in a case where—
(a) the residential accommodation occupied by the assessee is owned by him; or
(b) the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him;
The Tribunal decided that the issue based on the above-mentioned provision only. The provision requires fulfillment of two conditions for claiming exemption from the house rent allowance received by the employee from the employer-
(i) The house is not owned by the assessee i.e. one cannot pay rent to himself, and
(ii) The assessee has actually paid the rent.
If the above two conditions are satisfied one can claim the exemption for rent paid even though the landlord is the assessee's wife and both the tenant and landlord are living together in the same house as a family.
This decision is contrary to the decision of the ITAT, Mumbai in the case of Mrs. Meena Vaswani vs ACIT (ITA No. 1983/Mum/2015) where the Tribunal decided the case against the assessee and disallowed the HRA tax exemption u/s 10(13A) to the assessee since in that case, the assessee failed to satisfy the twin conditions as stipulated in the provision.
Full text of the judgment:
IN THE INCOME TAX APPELLATE TRIBUNAL
“ C” BENCH, AHMEDABAD
BEFORE SHRI A.MOHAN ALANKAMONY,ACCOUNTANT MEMBER
And SHRI KUL BHARAT,
JUDICIAL MEMBER
I.T.A. No.715/Ahd/2013
Assessment Year :
2009-10
Bajrang Prasad Ramdharani
B/5/204, La Habitat
Opp.Ayan Complex Hebatpur Road
Thaltej
Ahmedabad-380 055
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Vs.
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Asst.CIT Circle-14
Ahmedabad
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PAN/GIR No. : ABKPR
4453 K
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||
(Appellant)
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..
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(Respondent)
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Appellant by :
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Ms. Nikita Brahmbhatt
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Respondent
by :
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Shri D.K.Singh, Sr.DR
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Date of Hearing : 28/6/2013
Date of Pronouncement : 12/07/2013
O R D E R
PER SHRI KUL BHARAT, JUDICIAL MEMBER :
This appeal by the assessee is directed against the
order of the Commissioner of Income Tax (Appeals)-XXI-Ahmedabad (‘CIT(A)’ for
short) dated 27.12.2012 for Assessment Year 2009-10.
2. Facts in brief are that the case of assessee was
picked up for scrutiny assessment and
the assessment was framed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). The
Assessing Officer (AO) has made various additions on account of short- tem
capital gain, disallowance of interest claimed u/s.24, disallowance of
exemption u/s.10(13A) and addition u/s.68 of the Act. The assessee feeling
aggrieved by this order, filed an appeal before the ld.CIT(A) who after
considering the submissions of the assessee, partly allowed the appeal.
3. While allowing the appeal, ld.CIT(A) confirmed the
addition of Rs.42,371/- in respect of the disallowance of interest and the
disallowance u/s.10(13A) of Rs.1,11,168/-. Against these two confirmation of
additions, the assessee is further in appeal before this Tribunal.
4. The first ground relates to the disallowance of
Rs.42,371/- being disallowance of interest while computing the capital gain
from sale of house-property. The Ld. counsel for the assessee submitted that
the ld.CIT(A) erred in confirming the addition. Ld. counsel for the assessee
submitted that admittedly this amount pertained to previous year and the
interest being related to the pre-construction period on borrowed capital. She
submitted that the interest on borrowed capital of pre-construction period is
allowable u/s.24(b) of the Act. She further submitted that since the property
was sold, therefore this pre-construction interest period should form part of
the cost of acquisition of property. She
submitted that alternatively this interest amount is allowable u/s.24(b) of the
Act. In support of her contention about
pre-construction period, interest ought to have been allowed as a cost of acquisition of property and relied on
the decision of Hon’ble High Court of Madras rendered in the case of CIT vs.
K.Raja Gopala Rao reported at [2001] 252 ITR 459 (Mad.) and also the decision
of Hon’ble High Court of Karnataka rendered in the case of CIT vs. Sri Hariram
Hotels (P.) Ltd. reported at [2010] 325 ITR 136 (Kar.).
On the contrary, ld. Sr. DR supported the orders of
the authorities below and submitted that this amount cannot form part of the
cost of acquisition as the assessee himself has claimed it as an interest of
pre- construction period.
5. We have heard the rival submissions, perused the
material available on record and the judgements relied upon by the Ld. counsel
for the assessee. We find that the AO disallowed this claim of the assessee
without assigning any reason and the ld.CIT(A) has simply confirmed the amount
without assigning reason as to how this amount is not admissible. The
contention of the counsel is that the assessee has paid interest on borrowed
capital for construction of house to City Bank of Rs.52,964/- which was related
to pre-construction period. The assessee has claimed this interest as part of
cost of construction and accordingly claimed in the return of income. It is
further submitted that the interest expense related to pre-construction period
either can be added to cost of construction or can be claimed 1/5th
every year. The assessee has claimed the interest as part of cost of construction
and assessee could avail the deduction only once and, therefore, the unabsorbed interest of Rs.42,371/- shall become part of the cost of the property. It is also submitted that this cost
towards unabsorbed interest should be considered as cost of acquisition of
property and allowed to be deducted at the time of sale of the property.
Alternatively, it is submitted by the Ld.counsel for the assessee that even if
adverse view is taken deduction u/s.24 of the Act is allowable. So far the
contention of the assessee is concerned that this amount is required to be
treated as cost of acquisition of granting deduction qua the interest on
borrowed capital related to pre-construction period is allowable u/s.24(b) of
the Act. However, this claim of the assessee would be allowable u/s.24(b) of
the Act, therefore, in our considered opinion, the assessee is entitled for
deduction u/s.24(b) of the Act. The AO is directed accordingly and the addition
is hereby deleted. This ground of appeal is allowed.
6. Now coming to the second ground which relates to the
disallowance of exemption u/s.10(13A) of the Act of Rs.1,11,168/- for house
rent allowance. Ld.counsel for the assessee submitted that the assessee claimed deduction u/s.10(13A)
of the Act amounting to Rs.1,11,168/- in respect of house rent allowance and
the authorities below grossly erred in not allowing the exemption. She further
submitted that a bare reading of the provision would make it ample clear
that the assessee is entitled for exemption u/s.10(13A) of the Act. She
submitted that in support of the expenditure of house rent, requisite details
and evidences were filed before the ld.CIT(A) who had called for a remand
report from the AO. She submitted that the reasoning given by the AO and the
ld.CIT(A) are different in disallowing the exempt.
On the contrary, Sr.DR for the Revenue supported the
orders of the authorities below. Sr.DR pointed out that the AO in the remand
report has submitted that the assessee has claimed the house owned by him as
self-occupied and therefore, the authorities below were justified in
disallowing the claim of the assessee.
7. We have heard the rival submissions, perused the
material available on record and the orders of the authorities below. We find
that the AO disallowed the claim of the assessee on the ground that the
assessee has not given details of payment and evidences and also on the basis
that the assessee and his wife are living together, hence the claim of payment
of rent is just to avoid payment of taxes and to reduce the tax liability. Ld.CIT(A) confirmed the addition on the
ground that the rent is paid by the
assessee as a tenant to his wife who is a landlord and he found that the
landlord and tenant are living together in the same house- property and the
very fact that the landlord and tenant are staying together which indicates
that the whole arrangement is of the nature of colourable device as pointed out
by the AO. He observed that since it is evidently a colourable device, even
though the amount purportedly paid as a rent will not qualify for exemption
u/s.10(13A). The AO and CIT(A) have
disallowed the claim of the assessee on the ground that assessee and his wife
are living together but not on the ground that in return of income a house
owned by him is declared as a self-occupied, however, we find a mention in the
remand report (annexed at page-61), where the AO has commented that it is not ascertainable whether the assessee stayed with his wife’s house or at his own house which he
claimed self occupied and claimed the relief u/s.24 of the Act. Under these
circumstances, we have to only examine whether the assessee is entitled for
exemption u/s.10(13A) or not. For the sake of clarity, section 10(13A) is
reproduced hereinbelow:-
Section 10(13A):-
(13A) any special allowance
specifically granted to an assessee by his employer to meet expenditure
actually incurred on payment of rent (by whatever name called) in respect of
residential accommodation occupied by the assessee, to such extent as may be prescribed
having regard to the area or place in
which such accommodation is situate and other relevant considerations.
Explanation.-For
the removal of doubts, it is hereby declared that nothing contained in this
clause shall apply in a case where-
(a)
the residential accommodation occupied by the assessee is
owned by him; or
(b)
the
assessee has not actually incurred expenditure on payment of rent (by whatever
name called) in respect of the
residential accommodation occupied by him;
From the reading of the above section, it is clear
that the requirement of the section is that any allowance (by whatever name
called) granted to an assessee by his employer to meet expenditure actually
incurred on payment of rent in respect of residential accommodation occupied by
the assessee, to such extent as may be prescribed. However, the exemption is
not available in case the residential accommodation occupied by the assessee is
owned by him or the assessee has not actually incurred expenditure on payment
of rent (by whatever name called) in respect of the residential accommodation
occupied by him. Admittedly, the AO has given a finding of fact that the
assessee and his wife are living together as a family. Therefore, it can be inferred that the house owned by wife of the assessee is occupied by the
assessee also and in remand report it has been submitted that the assessee has
submitted the rent receipt(s) of Rs.15,000/- dated 3.7.2008 and Rs.1,65,000/-
dated 31.3.2009 and stated that the payments have duly been paid through bank
transfer entry. A verification of the said entry shows the transfer on the
given dates but the receipts date and amount of Rs.1,65,000/- not reflecting as
transfer. Therefore, in our considered opinion, the assessee has fulfilled twin
requirements of the provision, i.e. occupation of the house and the payment of
rent. Under these circumstances, the assessee is entitled for exemption
u/s.10(13A) of the Act. Since we have observed that the ld.CIT(A)’s chose not
to make enhancement and disallow the relief u/s.24 of the Act, therefore we
cannot comment upon this aspect of the matter. In this view of the matter, we delete the addition and direct the
AO to allow exemption u/s.10(13A) of the Act to the assessee. This ground is
also allowed as indicated above.
8. In the result, appeal of the assessee is allowed.
Order pronounced in Open Court on the date mentioned hereinabove
Sd/- Sd/-
( A. MOHAN ALANKAMONY ) (
KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 12/ 07 /2013
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