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Income Tax Appellate Tribunal, DELHI BENCH : D : NEW DELHI
Before: SHRI R.K. PANDA & MS SUCHITRA KAMBLE
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.1367/Del/2020 Assessment Year: 2017-18 Charu Agarwal, Vs DCIT (International Taxation), Tower B-3, Flat 1203, Circle Gurgaon. Parsvnath Exotica, Golf Course Road, Sector 53, Gurgaon (Haryana). PAN: ACLPA8443J ITA No.1794/Del/2020 Assessment Year: 2017-18 DCIT (International Taxation), Vs. Charu Agarwal, Circle Gurgaon. Tower B-3, Flat 1203, Parsvnath Exotica, Golf Course Road, Sector 53, Gurgaon (Haryana). PAN: ACLPA8443J (Appellant) (Respondent) Assessee by : Shri Rakesh Garg, Advocate Revenue by : Shri M.K. Jain, Sr. DR Date of Hearing : 10.11.2021 Date of Pronouncement : 08.02.2022 ORDER PER R.K. PANDA, AM: These are cross appeals. The first one is filed by the assessee and the second one is by the Revenue and are directed against the order dated 27th May, 2020 of
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the CIT(A)-43, New Delhi relating to assessment year 2017-18. For the sake of convenience, these were heard together and are being disposed of by this common order.
Facts of the case, in brief, are that the assessee is an individual and a non- resident and filed her return of income on 20th July, 2017 declaring an income of Rs.98,52,080/-. The case was selected for complete scrutiny through CASS and notice u/s 143(2) of the Act was issued. During the course of assessment proceedings, the AO noted that the assessee has sold a residential house in two parts situated in India during the year for a total consideration of Rs.7,31,76,075/- wherein long-term capital gains of Rs.6,57,25,559/- has accrued. The assessee purchased a new residential house property in India for Rs.5,66,89,527/- during the year itself which includes an investment of Rs.9,28,079/- to make it habitable and claimed exemption u/s 54 of the IT Act. The AO asked the assessee to justify the claim made u/s 54 of the Act since the assessee has sold two plots of land instead of a residential house. It was explained by the assessee that exemption claimed u/s 54 of the Act should be allowed. It was argued that the assessee inherited 1/4th share in the ancestral residential house property No.22, Radice Road (Gokhley Marg), Lucknow on 21.02.1997 by way of will of her grandfather. The said house was being used for residential purposes. The said residential house with land appurtenant thereto was demarcated between the appellant and other three co- owners as a result of which part of the existing house property along with part of
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the land appurtenant to the house building had fallen to the share of the assessee. The nature of the property right from the date of its purchase in 1959 was ‘residential’ and continued to be ‘residential’ till the time it was inherited and sold. The property bequeathed was a residential bungalow with land appurtenant thereto to the four legal heirs. The assessee sold her demarcated share in the residential house property being part of premises No.22 on which a big residential house was situated. The assessee also filed documentary evidences relating to house tax deposited upto the date of sale of the property.
However, the AO was not satisfied with the arguments advanced by the assessee and rejected the claim of deduction u/s 54 of the Act. He noted that at the time of execution of the sale deed, the capital assets are plot instead of a house which is evident from the sale deed of both the plots wherein the property is described as a plot. Furthermore, also at the time of executing the agreement to sell on 2nd September, 2016, the said property was described as a plot. There is no reference whether there was a house in the past or not and the only fact is that at the time of executing the sale deed the capital asset is a plot and, therefore, the exemption claimed by the assessee cannot be allowed. Accordingly, he made an addition of Rs.6,11,47,309/- under the head ‘Capital gains’ and rejected the claim of improvement of the house to the tune of Rs.9,28,079/-. For the purpose of computing indexed cost of acquisition, the AO adopted the cost of acquisition at
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Rs.30,48,998/- as against Rs.74,50,517/- claimed by the assessee on the basis of the valuation report.
Before the CIT(A), the assessee made elaborate arguments and submitted that the residential property was acquired in Mumbai and the will of the house property was given during the course of assessment proceedings. The documents relating to purchase of the flat on 14.09.2016 was also furnished evidencing the investment of Rs.5,66,89,527/- which includes the investment of a sum of Rs.9,28,079/- to make the house habitable. It was argued that only one other residential house was owned by the assessee at the time of acquisition or investment in residential property in FY 2016-17. The assessee has fulfilled the requirements under sub-section (2) of section 54F of the Act. Therefore, the assessee is entitled to deduction u/s 54F to the extent the consideration is invested in acquisition of new residential house. The details of expenditure incurred to make the house habitable was given according to which an amount of Rs.3,84,963/- related to wood work, chimney, bathroom, etc. and an amount of Rs.5,43,116/- relates to various other items such as blinds, Eureka Forbes Air Purifier, LG Refrigerator, Panasonic MW, LG Washing Machine, dining table, study table, etc.
Based on the arguments advanced by the assessee, the ld.CIT(A) directed the AO to recompute the capital gains after allowing deduction u/s 54F to the extent of amount invested in residential house and also the amount spent on
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necessary furnishing and fittings on the said house so as to make the house habitable totaling to Rs.3,84,963/-.
Aggrieved with such order of the CIT(A), the assessee as well as the Revenue are in appeal before the Tribunal by raising the following grounds:- Assessee’s Appeal (ITA No.1367/Del/2020) “1) Because the CIT(A) has failed to appreciate the facts of the case and erred in law in arbitrarily holding that the appellant is not eligible for deduction u/s.54 of the Act, 1961 on account of sale of the residential house with land appurtenant thereto, treating it to be a case of sale of land, thereby denying the deduction u/s.54 as claimed, which is contrary to the provisions of law, the deduction claimed of the appellant be allowed. 2) Because on a proper appreciation of the facts and circumstances of the case, it would be found that the appellant having sold her residential house along with land appurtenant thereto, is eligible for deduction / claim u/s.54, and the same be allowed. 3) Because the CIT(A) has failed to appreciate the facts of the case and has erred in holding that the assessee is eligible for deduction u/s.54F as against u/s.54 as claimed by the appellant, the finding of the CIT(A) is misconceived erroneous and against the principles of law, the deduction claimed u/s.54 be allowed. 4) Because the CIT(A) has failed to appreciate the facts of the case and has erred in law in denying the indexed cost (CII) of the residential house with land appurtenant thereto owned by the appellant and as claimed at Rs.74,50,516/- as determined by the Approved Valuer overlooking the provisions of section 55 and 55A, thereby upholding the erroneous computation of capital gains, as computed by the AO, the indexed cost of the property as claimed by the appellant be allowed. 5. Because CIT(A) has failed to appreciate the facts of the case and has erred in law restricting the claim of expenditure of Rs.9,28,079/- incurred on furnishing and woodwork at Rs.3,84,965/- which was necessary to incur to make the “new asset” i.e. house property habitable immediately after purchase the same, the balance deduction of Rs.5,43,116/- as claimed by the appellant be allowed. 6. Because the jurisdiction over the appellant’s case (being an NRI) was with the AO International Tax, initial notice u/s.143(2) itself should 5
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have been issued by DCIT/ACIT, International Taxation, no such notice having being issued by him, the entire assessment framed is without jurisdiction, bad in law and be quashed.”
Revenue’s appeal (ITA No.1794/Del/2020) “1. Whether on fact and the circumstances of the case, the Ld. CIT(A) erred in holding that the assessee is eligible for claiming deduction U/s 54F of the Income Tax Act, 1961 in spite of knowing the facts that the assessee has neither claimed this benefit during the course of assessment nor provided the complete evidences in support of this claim. 2. Whether on fact and the circumstances of the case, the Ld. CIT(A) erred in allowing deduction u/s 54F of the Income Tax Act, 1961 relying upon fresh evidence without providing an opportunity to the assessing officer for verifying it or calling the remand report? 3. Whether on fact and the circumstances of the case, the Ld. CIT(A) erred in allowing the deduction u/s 54 of the Income Tax Act, 1961 without appreciating or indicating in his order as to how and on what evidence he has come to conclusion that the assessee satisfied the condition for allowing of deduction of u/s 54F of the IT Act 1961 including that the assessee had only one house in India. 4. The appellant craves to add, amend, modify or alter any grounds of appeal at any time or before the hearing of the appeal.”
The ld. Counsel for the assessee stronglychallenged the order of the CIT(A) in not allowing the benefit of section 54 of the IT Act as claimed by the assessee. Referring to the last two lines of page 2 of the paper book, the ld. Counsel drew the attention of the Bench to the same and submitted that the dispute in the present appeal centres around the computation of long term capital gains and deduction of the same u/s 54/54F of the IT Act, 1961. Referring to page 278 and 279 of the paper book, the ld. Counsel drew the attention of the Bench to the last will of Smt. Lakshmi Aggarwal. Referring to page 280 to 283 of the paper book, the ld.
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Counsel for the assessee drew the attention to the last will of Shyam Krishna Aggarwal. Referring to page 79 of the paper book, the ld. Counsel for the assessee drew the attention of the Bench to the following clause in the agreement to sell dated 2nd September, 2016 where it is mentioned as under:- “WHEREAS Smt. Laxmi Agarwal wife of Sri Shyam Krishna Agarwal has purchased the Bunglow No. 22 situate at Radice Road (Gokhaley Marg), Lucknow from Sri Amba Prasad vide registered Sale deed dated 19-06-1959 registered in Book No. I Volume 1620 Pages 252/256 at No. 2547 on 22-06- 1959 in the office of Sub-Registrar, Lucknow ; AND”
Referring to pages 107 to 125 of the paper book, the ld. Counsel for the assessee drew the attention of the Bench to the copy of the sale deed dated 19.01.2017 between the assessee and Shri Vishnu Ballabh Rastogi and Others where the description of the property has been mentioned as part of Plot No.22, Municipal No.23062/02, Radice Road, Gokhaley Marg, Lucknow. Referring to page 95 of the paper book, the ld. Counsel drew the attention of the Bench to the following clause in the agreement to sell. “WHEREAS Smt. Laxmi Agarwal wife of Sri Shyam Krishna Agarwal has purchased the Bunglow No. 22 situate at Radice Road (Gokhaley Marg), Lucknow from Sri Amba Prasad vide registered Sale deed dated 19-06-1959 registered in Book No. I Volume 1620 Pages 252/256 at No. 2547 on 22-06- 1959 in the office of Sub-Registrar, Lucknow ; AND”
The ld. Counsel for the assessee, referring to page 26 of the paper book, drew the attention of the Bench to the water tax and house tax receipt. He submitted that the annual value has been determined by the Municipal authorities at Rs.7200/- against house No.23/052/2 in the name of Charu Aggarwal, i.e., the
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assessee. Referring to pages 234 to 242 of the paper book, the ld. Counsel drew the attention of the Bench to the copy of the valuation report dated 11th April, 2016 by the registered valuer who has valued the cost of acquisition for AY 2016-17 at Rs.149.01 lakhs, he submitted that when the assessee has filed the copy of the valuation report of the property by registered valuer who valued the same after inspection of the property, the assessee has filed the Municipal receipts relating to the house property situated on the land sold, the lower authorities should not have considered the property sold as mere sale of land instead of land and building and, thereby denying the benefit of deduction u/s 54 of the Act.
9.1 Referring to the decision of the Hon’ble Andhra Pradesh High Court in the case of Zaibunnissa Begum, reported in 151 ITR 320, he submitted that the Hon’ble High Court has explained the meaning of ‘land appurtenant’ and has laid down certain guidelines which is squarely applicable to the facts of the present case. Referring to the decision of the Hon’ble Karnataka High Court in the case of C.N. Anantharam vs ACIT, vide ITA No.1012 to 2008, order dated 10th day of October, 2014, copy of which is placed at pages 43 to 55 of the paper book, he submitted that the Hon’ble High Court, following the decision of the Hon’ble Karnataka High Court in the case of Azra Abdulla vs. CIT, ITRC No.146 of 1995 dated 9th April, 1997, has allowed the claim of deduction u/s 54 of the IT Act. He submitted that since the assessee, in the instant case, has conclusively proved that the property sold was a land with building over it, therefore, merely because in the
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sale deed only land was mentioned cannot be a ground to deny the benefit of deduction u/s 54 of the IT Act as claimed by the assessee. He also relied on the following decisions:- (i). Adarsh Kumar Swarup vs. DCIT, ITA No. 1228/Del/2016 Order dt. 28.03.2017, ITAT Delhi Bench; (ii). Mrs. Guishanbanoo R. Mukhi vs. JCIT, [2002] 83 ITD 649 (Mum); (iii) Smt. Raj Rani Gulati vs. CIT, ITA No 54 of 2007- High Court of Allahabad; (iv) CIT vs. Pruthvi Brokers & Shareholders, [2012] 23 taxmann.com 23 (Bom); & (vi) CIT vs. Jai Parabolic Springs Ltd. [2008] 172 Taxman 258 (Delhi); (vii) Circular No. 667 dated 18.10.1993; & (viii) ITO vs. Anirudha Ashok Jajoo, ITA No.1924/NP/2013, ITAT Pune Bench.
The ld. DR, on the other hand, heavily relied on the order of the AO. He submitted that the AO has conclusively proved that the property that was sold by the assessee is only a piece of land and even if any house existed on it, there was no mention of the same in the sale deed, therefore, the assessee is not entitled to deduction u/s 54 of the IT Act. So far as the order of the CIT(A) allowing the claim of deduction u/s 54F is concerned, he submitted that the assessee has not claimed the same in the return of income and, therefore, the ld.CIT(A) was not
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justified in allowing the benefit of deduction u/s 54F of the IT Act by relying upon fresh evidence from the assessee and without giving an opportunity to the AO. He accordingly submitted that the order of the AO be restored and the grounds raised by the assessee should be dismissed and the grounds raised by the Revenue should be allowed.
We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A), and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee, in the instant case, has sold a residential house in two parts for a total consideration of Rs.7,31,76,075/- and computed long-term capital gain of Rs.6,57,25,559/-. The assessee purchased a new residential house property for Rs.5,66,89,527/- which includes an amount of Rs.9,28,079/- to make it habitable and claimed exemption u/s 54 of the Act. We find, the AO denied the claim of the assessee on the ground that the assessee, during the year under consideration and at the time of execution of sale deed has described the property as a plot. He, therefore, held that there is no relevance whether there was a house in the past or not and the only fact is that at the time of executing the sale deed the capital asset is a plot and, therefore, the exemption claimed by the assessee u/s 54 cannot be allowed. The AO further held that the assessee did not furnish the satisfaction of condition u/s 54F and, therefore, the same cannot be allowed to the assessee. We find, before the CIT(A) the assessee submitted certain detail, on being asked by
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him. Based on the details and considering the fact that the assessee has invested an amount of Rs.5,66,89,527/- including the expenditure of Rs.9,28,079/- to make the house habitable, allowed the claim of deduction u/s 54F, but, restricted the cost of making the house habitable to Rs.3,84,963/- as against Rs.9,28,079/- claimed by the assessee meaning thereby that the ld.CIT(A) considered the asset sold by the assessee as a piece of land and not land and building. It is the submission of the ld. Counsel that the property that was sold is a house property and land appurtenant thereto. The assessee has furnished the copy of the valuation report by the registered valuer who valued the property after inspection of the same and the assessee has also filed house tax and water tax receipts, etc. to evidence that the property that was sold was a building along with land and not only land. Merely because in the sale deed and agreement to sell the description of the property was mentioned as land, the same cannot go against the assessee to deny the benefit of deduction u/s 54 of the IT Act.
We find some force in the above argument of the ld. Counsel for the assessee. During the course of assessment proceedings, the assessee has filed before the AO the copy of will of Smt. Lakshmi Aggarwal and Shri Shyam Krishna Aggarwal, copy of house tax bills for AY 2016-17 and copy of the valuation report dated 11th April, 2016 before the AO. A conjoint reading of the copy of the sale deed, copy of the agreement to sell and the will of Smt. Lakshmi Aggarwal and Shri Shyam Krishna Aggarwal shows that the assessee had sold 1/4th
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share in the ancestral residential house property No.2,Radice Road, Gokhale Marg, Lucknow on 21.02.1997 by way of will executed by her grandfather Late Shri Shyam Krishna Aggarwal who breathed his last on 11.02.1997. The said house was being used for residential purposes. The above residential house was purchased by Smt. Lakshmi Aggarwal, w/o Shri Shyam Krishna Aggarwal by one Shri Amba Prasad vide registered sale deed dated 19th September, 1959 which was registered in Book No.1, Volume 1620, pages 252 to 256 at No.2547 on 26th June, 1959. Smt. Lakshmi Aggarwal executed her will dated 30th January, 1990 and Smt. Lakshmi Agarwal breather her last on 27.11.1990 and by virtue of the said will she had bequeathed her property to and in favour of her husband Shri Shyam Krishna Aggarwal. Shri Shyam Krishna Aggarwal breathed his last on 11th February, 1997 leaving behind him two sons, namely, Shri Yogesh Aggarwal and Shri Akhilesh Aggarwal. By virtue of the will executed on 17th February, 1991, Shri Shyam Krishna Aggarwal bequeathed the said property to and in favour of his four grand children, namely, Pallavi Aggarwal, Charu Agarwal, both daughters of Shri Yogesh Agarwal and Abhishek Agarwal and Shri Anubhav Aggarwal, both sons of Shri Akhilesh Aggarwal. On the demise of Shri Shyam Krishna Aggarwal, the property was inherited by above four grandchildren, all being coowners. As per the demarcation of the property, each coowner got the specified area in the house and the assessee Smt. Charu Aggarwal got 10840.90 sq. ft. The assessee, during the instant year, has sold her 1/4th share in the immovable property i.e., the residential house at 22, Radice Road, Gokhale Marg, Lucknow. The assessee has 12
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executed two separate agreement to sell on 2nd September, 2016: one with Ravinder Kumar Gupta and the others and the other with Vishnu Ballabh Rastogi and others to sell the property falling to her share. These agreements were registered with Sub-Registrar at Kolkata. As per the above sale deed, the total consideration received was Rs.7,31,76,075/- and the assessee, after deducting the indexed cost of land and building at Rs.74,50,516/-, determined the long-term capital gain at Rs.6,57,25,559/-. After deducting the deduction u/s 54F towards cost of new house property including the cost of improvement to make it habitable at Rs.5,66,89,527/- determined the capital gain at Rs.90,36,032/-. As mentioned earlier, the assessee has filed the copy of house tax bill for AY 2016-17, copy of registered valuer’s report and copy of the will of Shri Shyam Krishna Aggarwal and Smt. Lakshmi Aggarwal. We find, somewhat identical issue has been decided by the Hon’ble Andhra Pradesh High Court in the case of Zaibunnisa Begum (supra) where the Hon’ble High Court has observed as under:- “Section 54 of the I.T. Act, 1961, grants a concession where capital gains arise from the transfer of buildings or lands appurtenant thereto used by the assessee in the two years immediately preceding the date of transfer as his own or his parent’s residence, if he constructs a house property or purchases one for purposes of residence within the time specified in the provision. The expression “ land appurtenant thereto ” occurring in s. 54 has not been defined. It must, therefore, be understood in its popular and non-technical sense. It is not possible to accept the contention that cl. (b) of the Explanation to s. 5(1)(ivc) of the W.T. Act, 1957, defining “ land appurtenant ” for the purpose of that clause should be considered equally applicable for the purpose of understanding that expression occurring in s. 54 of the I.T. Act. The Explanation in the WT Act is only for the purpose of s. 5(l)(ivc) because it is specifically stated so. The meaning assigned to that expression in the Urban Ceiling and Regulation Act is also not relevant. The tax authorities will have to determine the extent of land appurtenant to a building transferred, taking into consider a variety of circumstances that may be relevant for the purpose. 13
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It is not possible to lay down infallible tests to be applied as the tests would vary depending upon the facts and circumstances of each case. For instance : (1) If the building together with the land is treated as an 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 ; (2) If the building has extensive lands appurtenant thereto and even if the building and the land have treated as one single unit and enjoyed as such by the occupiers, 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 enjoyment of the building as such. Such an enquiry should be conducted not based on any artificial considerations but from the point of view of the persons occupying the building. The number of persons or different branches of families residing in building, the requirements of the persons occupying the building, consistent with their social standing, etc., are relevant for the purpose. If any surplus is arrived at on such enquiry, then the extent of such surplus land may not qualify be treated as land appurtenant to the building ; (3) if there is any evidence to indicate that any portion of the land contiguous to the building was applied to user other than the enjoyment of the building, then that provides a safe indication regarding the extent of land applied for such user. For instance, the land used by the occupiers for commercial or agricultural purposes although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to the building; (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 under s. 22 of the I.T. Act, then the extent of such land does not qualify to be treated as land appurtenant to the building ; and (J) 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 building. The above tests are illustrative and by no means exhaustive. It is for the tax authorities to apply their mind properly to the facts of each case and to devise tests suitable and appropriate to each case.”
We find, the Hon’ble Karnataka High Court in the case of C.N. Anantharam vs. ACIT (supra) has observed as under:- “1. The assessee has preferred this appeal challenging the finding recorded by the authorities below where in they have held that the assessee is not entitled to benefit of Section 54(1) of the I.T.Act, 1961 in respect of the land sold by him.
The Assessee obtained the site on settlement and constructed a three storied building i.e., ground plus two floors. The first and second floors of the building 14
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together with the proportionate share in the land on which the building stands is the subject matter of transaction in question. There is no dispute that the building as such was held by the assessee for a period of less than 36 months prior to the date of transfer. However the land was a long term capital asset. The computation of capital gains as is attributable to the building and the land as set out in the assessment order is not disputed. The land has been treated as long term capital asset and the capital gains treated accordingly. There is no dispute about the cost of ' construction of another residential house and such residential house has been constructed within the period stipulated under Section 54. The only dispute relates to the availability of Section 54.
The Income Tax Officer is of the view that the capital gains as is attributable to long term capital asset viz land will not qualify for relief under section 54 even though it is a long term capital asset as the building which stood on the same and which was the subject matter of transfer was a short term capital asset.
Aggrieved by the order, the assessee initially preferred an appeal which came to be dismissed. The second appeal preferred by the assessee also came to be dismissed by the tribunal holding that any used buildings or lands appurtenant thereto as mentioned in Section 54 is also appeared in Section 22 of the Act. Thus the meaning of the word building in Section 54 has to be construed in the same way as to be considered in the way considered for the purpose of Section 22. The rental income from the land is not taxable under Section 22.
The Tribunal held as follows :
The word 'or' in law relating to statutory interpretation need not be disjunctive, thought it is normally so. The word 'and' is normally used where the intention is not disjunctive but it is not unusual to use the word or' to mean 'and' in a statute. 'Or' can be disjunctive word. The clear intention elsewhere in the provision requires to be so understood as "and" in the context of section 54, the reasoning is that section does not contemplate two separate sales of building and appurtenant land. If appurtenant land can be sold independently, it ceases to be appurtenant which goes with the building. Hence the deduction under Section 54 will be admissible in case the capital asset is a residential house. Such capital asset must be a long term capital asset. A house consists of building and land appurtenant thereto. Hence building as well as appurtenant land should be long term capital asset. In the instant case, land is long term
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capital asset while the building constructed on it is a short term capital asset. Hence, the house, which was transferred, is not a long term capital asset because part of it is short term. Section 54 does not provide bifurcation of capital gain arising from the sale of land and building separately and to allow deduction in case any one of them-as long term capital asset.
The tribunal relied on the judgment of the Kerala High Court in the case of Vasavan v. CIT [1992] 197 ITR 163/60 Taxman 278 to substantiate its contentions and thus the appeal filed by the assessee came to be dismissed. Aggrieved by the said order the assessee is in appeal. 7. This appeal is admitted to consider the following substantial questions of law: "1. Whether the Tribunal is justified in law under the facts and circumstances of the case in negating the appellant claim under Section 54(1) of the Income Tax Act, 1961 ? 2. Whether the Tribunal is justified in law in holding that capital gains is chargeable under Section 45(1) on the facts and circumstances of the case?" 8. Learned counsel for the assessee assailing the impugned order contends that it is clear from Section 54(1) of the Act, the benefit under the said provision is available to a transfer of long term capital asset being buildings or lands appurtenant thereto and being a residential house, the income of which is chargeable under the head 'Income from the House Property'. Therefore, the said section cannot be confined only to a residential house and cannot be interpreted to mean it has no application to the land appurtenant to a residential building when the legislature has confirmed the said benefit of an individual family or a Hindu Undivided Family in respect of the buildings or lands appurtenant thereto. The said provision being a beneficiary provision, should be liberally and harmoniously interpreted so as to give the benefit even in respect of land which is appurtenant to residential house. If a land appurtenant to a residential land is entitled to the said benefit, the land on which the residential house is put up is also should be gaining benefit. Otherwise section looks absurd. 9. Per contra, learned counsel appearing for the Revenue submitted the word "or" should be read as "and" as held by the Tribunal. The benefit is not available to sale of lands independent of the buildings, and therefore, he submits no cause for interference with the impugned orders is made out. 10. In fact, it is useful to refer to a judgment of this court in the case of Smt. Azra Abdulla v. CIT in I.T.R.C.No. 146/1995 decided on 09.04.1997 where the questions which arose for consideration was whether land appurtenant 16
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thereto the sale of land appurtenant is entitled to the benefit of Section 54(1) of the Act?. This court after referring to - several judgments has held as under: "Section 54 of the Act deals with capital gain arising from transfer of a long term. capital asset being building or lands appurtenant thereto and being a residential house the income of which is chargeable under the head 'Income from House Property', in the present case, it is not in dispute that entire property held by the assessee prior to sale was subject matter of assessment under the Head 'Income from House Property'. What was sold was a part of that property now which is contiguous to the same. The test whether the sale is in relation to a residential house is satisfied. The sale is in relation to a residential house and what was sold was land contiguous thereto. If land is contiguous to the house, it cannot be taken to be separate and apart from the residential house. When land and house form one contiguous whole, the two cannot be separated for purpose of taxation. If that is so, a part of such property which is now sold, even though it may not be a residential house still it must be held it was a ' land appurtenant to a residential house. Understood in that manner we think the authorities below and the Tribunal were not justified in the view taken by them. We are fortified in our view by the decision of the Andhra Pradesh High Court in CIT v. Zaibunniasa Begum 151 ITR 320. The land appurtenant thereto has not been defined under the Act and it is understood in popular non-technical sense The definition given to the same either under the Wealth Tax Act or Urban Land (Ceiling & Regulation) Act are not relevant. In that decision, however, certain tests were laid down to find out whether the vast extent of land sold therein was part of the residential unit so that it may be treated as land appurtenant thereto. Indeed, it was noticed there that in deciding as to whether any land is appurtenant thereto a residential house, the requirements of the persons occupying the building, consistent with their social standing etc., are relevant for the purpose. Thereafter, certain other tests were set out. In Bangalore City, years ago, the style of life was such that persons would purchase property with bungalows having sprawling ground around it and the bungalow and grounds thereto formed one unit. The land around it would not be put to any separate use for that would invade their privacy. If these aspects are borne in mind, we do not think any point is made out in this case to apply the tests laid down in the decision in Zaibunnisa Begum's case. In that case, the Andhra Pradesh High Court was dealing with a land spread over a vast area of about 13,029 sq. yards; whereas in the present case we are concerned with only 56,000 sq. feet i.e. 200' x 280' in which there is more than 56 squares house. AS stated earlier that house was situate in the centre of the property. Thus, the intention of the owner was to enjoy the entire land as appurtenant thereto." 11. When the legislature has used the word 'or' which means the word buildings or lands appurtenant thereto to should be understood disjunctively having regard to the context in which it is used. It cannot be read as 'and'. If it is read as 'and', it amounts to court rewriting the section by substituting the
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word 'and' in place of the word "or" which is not permissible in law. A person may be residing in a residential house and the land pertinent thereto. That house he may be using it for his benefit. As long as the said land is not used for any commercial or non-residential purpose, the user of the land by the resident is for residential purpose only. If such a person chooses to sell only the land which he was using for residential purpose, the legislature has conferred the benefit in respect of/to the capital gains arising there from under Section 54(1) of the Act. If a land appurtenant to a residential house is entitled to the said benefit, we find it difficult to accept that the land on which the residential building is constructed is not entitled to the said benefit. 12. When a property, residential house is sold, the sale consideration includes the value of the land and the value of the construction. Though there is no two sale transactions involved for the purpose of the Act, in order to calculate the capital gains as rightly done by the Assessing authority, he has treated the sale of land on which the residential house is constructed as a long term capital gain and he has treated the building as short term capital gain. If, for levying tax under the Act, such a distinction could be made, we fail to understand why that distinction should not be kept in mind in extending the benefit under Section 54(1) of the Act. If the If the land on which the building is constructed is a long term capital gain and the amount received towards the sale of such land when it is assessed as a long term capital gain and taxed. In view of Section 54(1) if that consideration from the sale of the land is utilized in acquiring a residential house, the benefit from exemption is to be extended. Otherwise, the section looks absurd. The land which is adjoining the residential house is entitled to benefit under Section 54(1) of the Act but the land on which the residential house would not be entitled to such benefit, we cannot impute any such intention to the legislature. 13. On the contrary, the legislative intent is manifest. The assessee is entitled to the benefit of Section 54(1) of the Act in respect of land and building. That land may be the land on which the residential house is constructed or the land appurtenant to the residential house. In that view of the matter, the impugned orders passed by the authorities cannot be sustained. Accordingly they are hereby set aside. The appeal is allowed. The substantial questions of law in this appeal are answered in favour of the assessee and against the revenue.”
Since the assessee, in the instant case, has sold 1/4th share in the property 14. No. 22, Radice Road, Gokhaley Marg, Lucknow and has filed the requisite details before the AO to substantiate that the property that was sold was, in fact, a building 18
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with land appurtenant thereto, therefore, respectfully following the decisions cited above, we are of the considered opinion that the assessee is entitled to claim the benefit of deduction u/s 54 of the IT Act on account of sale of the property and the subsequent investment in the residential property. However, the cost of the property declared by the assessee at Rs.5,66,89,527/- includes an amount of Rs.9,28,079/- for making the house habitable which includes certain items as per serial No.1 to 16 of the table at para 5.5. of the CIT(A) amounting to Rs.5,43,116/- which in our opinion is not allowable as a deduction for making the house habitable because these are all luxury items. The ld.CIT(A) has rightly determined the amount at Rs.3,84,963/- for making the house habitable. Therefore, the assessee is entitled to get the benefit of deduction u/s 54 of the Act to the extent of Rs.5,61,46,411/- [Rs.5,66,89,527/- (-) Rs.5,43,116]. The AO shall verify the calculation. The grounds raised by the assessee are accordingly allowed. Since we have decided the grounds raised by the assessee in her favour, the grounds raised by the Revenue becomes infructuous and are accordingly dismissed.
In the result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 08.02.2022. Sd/- Sd/- (SUCHITRA KAMBLE) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 08th February, 2022 19
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dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi