AMRATLAL JETHALAL MEHTA (DECEASED) vs. I.T. OFFICER

O/TAXAP/134/2002 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 134 of 2002

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI

and HONOURABLE MR.JUSTICE K.J.THAKER

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ AMRATLAL JETHALAL MEHTA (DECEASED)....Appellant(s) Versus I.T. OFFICER....Opponent(s) ================================================================ Appearance: MR HARESH H PATEL, ADVOCATE for the Appellant(s) No. 1.1 - 1.7 MR JM BAROT, ADVOCATE for the Appellant(s) No. 1.1 - 1.7 MR PRANAV G DESAI, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 8

O/TAXAP/134/2002 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER

Date : 10/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this appeal, the appellant has challenged the judgment and order dated 16.10.2001 passed by the Income-Tax Appellate Tribunal, Rajkot Bench ‘SMC’ Rajkot in Income Tax Appeal No. 91/Rjt/97 for AY 1989-90. 2. While admitting this appeal, this Court has framed the following substantial question of law: “Whether on the facts and in the circumstances

the

case,

the ‘compound’ of the bungalow is a part and parcel of composite residential house property for the purpose of section 53 of the Income Tax Act, 1961 ?” 3. The facts of the present case are that the Appellant’s father owned a house property comprising of a residential house with compound in Jamnagar. The total land area of the property was 867.40 sq.mtrs. With building structure of 520 sq.mtrs. The property was self occupied and the income from the same was being charged under the head “Income from house property” since last several years. The ori. Appellant had made Page 2 of 8

O/TAXAP/134/2002 JUDGMENT equitable mortgage of the entire property on 16.9.1985. Subsequently, he sold a part of the land so as to obtain release of the remaining part from the mortgage. The appellant obtained a sanction from the Mahanagarpalika dividing the original house property into two portions identified as 2A and 2B. Portion 2A comprises of the building structure and part of the open land, while portion 2B comprises of remaining open land measuring 341.96 sq. mtr. The Floor Space Index permissible to the property had been actually utilised up to the permissible limit of 60/40. While disclosing the capital gain from the sale of portion 2B, the ori. Appellant claimed deduction under section 53(b) of th At. The Assessing Officer denied the claim of the appellant by pointing out that the property sold is an open plot of land and no property income from it is chargeable under the head ‘income from house property.’ 4. Since the AO has rejected the claim of exemption under section 53 of the Income-tax Act, the appellant preferred an appeal before the CIT(A), which was allowed. Against the said order, the Revenue has preferred an appeal before the ITAT which was allowed. Against the said order, the present Tax Appeal has been preferred by the ori. Assessee. 5. Heard the learned advocates appearing for the Page 3 of 8

O/TAXAP/134/2002 JUDGMENT parties and considered the submissions. Mr. Barot learned advocate for the appellant has taken us through the order of CIT(A) and pointed out that the CIT(A) has rightly allowed the appeal preferred by the ori. Assessee. Mr. Desai learned counsel for respondenthas submitted that the Tribunal has rightly set aside the order of CIT(A). In para-8, the Tribunal has observed as under: “8. The thrust of assessee’s argument is that the land which he has sold is land appurtenant thereto and because it is disjointed by the word “Or”, the assessee would be entitled to exemption u/s. 53. For the proposition that the asset sold by the assessee is a land appurtenant to the residential house, the assessee has relied on the decision of the Andhra Pradesh High Court in the case of Zaibunnisa Begum (supra). The Andhra Pradesh High Court has laid down certain tests to be applied for the determination of the extent of land appurtenant to a building. However, before laying down the tests, the court has cautioned that it is not possible to lay down infallible tests for such determination as the tests would vary depending upon the facts and attendant circumstances of each case. Accordingly, Page 4 of 8

O/TAXAP/134/2002 JUDGMENT the tests laid down by the court are illustrative and not exhaustive. The tests laid down are as follows: (1) If the building together with the land is treated as indivisible unit and enjoyed as such by the persons occupying the building, it is an indication that the entire extent of land is appurtenant to the building. In the present case, no doubt, before the land was sold by the assessee, assessee used to enjoy the saids land while occupying the building. However, the very fact that he erected a wall and separated the land to be sold shows that it is not an indivisible unit and that the building can be occupied and enjoyed without such land. Therefore, in the very first test laid down by the court, the assessee’s case fails. (2) Where there are extensive lands appurtenant to the building, an enquiry could be made to find out whether any part of the land contiguous to the building can be put to independent user without causing any detriment to the effective and proper enjoyment of Page 5 of 8

O/TAXAP/134/2002 JUDGMENT the building as such. Such an enquiry has to be conducted from the point of view of the persons occupying the building. Again, in the present case, till the land was sold, it may not have been put to any independent user. But the fact that assessee could demarcate it and sell it goes to show that it could be put to independent user without causing any detriment to the effective and proper enjoyment of the building as such. (3) If there is any evidence to indicate that any portion of the land contiguous to the building was put to user other than the enjoyment of the building, then that provides a safe indication regarding the extent of land put for such user. In the instant case, as mentioned earlier, it was not put to any commercial,

agricultural, horticultural or such other use and hence we need not go into this test. (4) If the owner or occupier is deriving any income from the land which is not liable to be assessed as income from house property, then Page 6 of 8

O/TAXAP/134/2002 JUDGMENT the extent of such land does not qualify to be treated as land appurtenant to the building. The test is also not applicable in the present case. (5) Any material pointing to the attempted user of the building for purposes other than the effective and proper enjoyment of the house would also afford a safe guide to determine the extent of surplus land not qualifying to be treated as land appurtenant to the building. In the present case, no doubt, till it was sold, the land was appurtenant to the building. But no sooner assessee sold such land, it discontinued to be appurtenant to the building and hence here also the assessee’s case fails. 6. It can safely be held that from the above discussion, it emerges that till the land was demarcated by compound wall, land may have been appurtenant to the building. However, once it got demarcated,it no longer remained land uppertenant to the building. Further, the test laid down by the Andhra Pradesh High Court are mutually exclusive and even if the assessee fails in one test, the land would not be regarded as appurtenant. In the present case, we have seen Page 7 of 8

O/TAXAP/134/2002 JUDGMENT that the assessee has failed in more than one test. Even otherwise, there is no necessity to undertake all these exercises to determine whether the land is appurtenant or not. This is because the assessee has not fulfilled the basic condition i.e. of selling the residential house. The assessee contends that it is not necessary to sell the house and the argument is based on the word “or” used in the main provisions of sec. 43. In our opinion, the interpretation placed by the ld. Counsel is not proper. 7. In that view of the matter, the view taken by the Tribunal is required to be accepted inasmuch as twin condition of sec. 53 of the Act are not fulfilled. In that view of the matter, the question posed is required to be answered negatived i.e. whether on the facts and in the circumstances of the case, the “compound” of the bungalow is a part and parcel of composite residential house property for the purpose of section 53 of the Income-Tax Act, 1961. Hence, the question is answered against the assessee and in favour of the revenue. The present Tax Appeal is dismissed. (K.S.JHAVERI, J.) (K.J.THAKER, J) mandora Page 8 of 8