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Facts
The Revenue appealed against the CIT(A)'s order allowing the assessee's claim for deduction under Section 54F for the cost of land purchased for constructing a residential house. The assessee also filed a cross-objection against the disallowance of the cost of improvement for land sold.
Held
The Tribunal held that the cost of land acquired for constructing a residential house is includible in the cost of the new asset for the purpose of Section 54F deduction, following the jurisdictional High Court's decision. The Tribunal also allowed the cost of improvement claimed by the assessee for the land sold.
Key Issues
Whether the cost of land purchased for construction of a residential house is eligible for deduction under Section 54F, and whether the cost of improvement for land sold is allowable.
Sections Cited
54F, 54
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeal preferred by the revenue and the cross objection filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC (hereinafter in short "the Ld.CIT(A)”), Delhi, dated 18.07.2023 for the Assessment Year (hereinafter in short "AY”)
2015-16.
The revenue’s grounds of appeal are as under:-
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1. The order of the CIT(A) the CIT(A) is contrary to law, facts and circumstances of the is contrary to law, facts and circumstances of the case.
2. The learned CIT(A) erred in not considering learned CIT(A) erred in not considering the fact that the assessee the fact that the assessee has purchased residential building residential building on 01.02.2013 and the sale of land of land took place on 31.03.2015 which is is more than one year from the date of investment in the date of investment in residential building i.e01.02.2013. 01.02.2013.
3. The learned CIT(A) learned CIT(A) erred in not considering the fact that the that the assessee has failed to invest in the to invest in the residential building within the specified period period of one year u/s 54F of the before from the date of of sale as mandated for claiming deduction u/ Act.
4. The Ld. CIT(A) erred CIT(A) erred in not considering the fact, against the relied relied upon the decision of the learned CIT(A) learned CIT(A) in the case of C. AryamaSundaramvs AryamaSundaramvsPCIT-3, the Supreme Court disposed the SLP on account of low tax effect and the Supreme Court disposed the SLP on account of low tax effect and the Supreme Court disposed the SLP on account of low tax effect and not on merits.
5. For these and other grounds that may be adduced at the time of heating, For these and other grounds that may be adduced at the time of heating, For these and other grounds that may be adduced at the time of heating, it is prayed that the order of the learned prayed that the order of the learned CIT(A) may be set aside and may be set aside and that of the Assessing Officer restored. Assessing Officer restored.
3. The cross objection preferred by the assessee are ion preferred by the assessee are as under: as under:-
The order of the learned Commissioner of Income Tax (Appeals) 1. The order of the learned Commissioner of Income Tax (Appeals)-NFAC is wrong, NFAC is wrong, illegal and opposed to law. illegal and opposed to law.
2. The CIT(A) has dismissed the claim of the appellant, that the value of the land 2. The CIT(A) has dismissed the claim of the appellant, that the value of the land 2. The CIT(A) has dismissed the claim of the appellant, that the value of the land that had been gifted to twenty people who had illegally occupied a portion of the land that had been gifted to twenty people who had illegally occupied a portion of the land that had been gifted to twenty people who had illegally occupied a portion of the land sold by the appellant costing Rs.98,12,720/ sold by the appellant costing Rs.98,12,720/- as cost of improvement/ cost incurred as cost of improvement/ cost incurred to complete the sale of land. complete the sale of land.
3. At the time of completion of assessment the appellant was not able to give a 3. At the time of completion of assessment the appellant was not able to give a 3. At the time of completion of assessment the appellant was not able to give a certificate from the Local Body administrator that the lands gifted were taken certificate from the Local Body administrator that the lands gifted were taken certificate from the Local Body administrator that the lands gifted were taken possession by the occupants. But before CIT (A) the appellant had sub possession by the occupants. But before CIT (A) the appellant had sub possession by the occupants. But before CIT (A) the appellant had submitted (i) Documents to prove that the said occupants were occupying the said land and (ii) Documents to prove that the said occupants were occupying the said land and (ii) Documents to prove that the said occupants were occupying the said land and (ii) Aerial photographs showing their residence in the gifted land. Aerial photographs showing their residence in the gifted land.
4. The A.O had given a remand report recommending the claim of the appellant 4. The A.O had given a remand report recommending the claim of the appellant 4. The A.O had given a remand report recommending the claim of the appellant based on the documents based on the documents submitted in support of his claim. The Local Body submitted in support of his claim. The Local Body authorities declined to give a certificate that people are occupying the said land as it authorities declined to give a certificate that people are occupying the said land as it authorities declined to give a certificate that people are occupying the said land as it does not come under their scheme of things to give such a certificate. Instead, they does not come under their scheme of things to give such a certificate. Instead, they does not come under their scheme of things to give such a certificate. Instead, they suggested that the aerial photog suggested that the aerial photographs to prove the occupation by those people in the raphs to prove the occupation by those people in the reallocated land may be taken. But enough documents like Ration Card, Electricity reallocated land may be taken. But enough documents like Ration Card, Electricity reallocated land may be taken. But enough documents like Ration Card, Electricity Bills etc of the occupants showing the address of the land along with Patta and Bills etc of the occupants showing the address of the land along with Patta and Bills etc of the occupants showing the address of the land along with Patta and Encumbrance certificate issued by the Sta Encumbrance certificate issued by the State Government authorities were submitted te Government authorities were submitted to convince the A.O. that the illegal occupants have taken possession of the to convince the A.O. that the illegal occupants have taken possession of the to convince the A.O. that the illegal occupants have taken possession of the reallocated land gifted by the appellant to them and they have started living there. reallocated land gifted by the appellant to them and they have started living there. reallocated land gifted by the appellant to them and they have started living there.
5. Hence based on the above submissions and also bas 5. Hence based on the above submissions and also based on the submission to be ed on the submission to be rendered at the time of rendered at the time of hearing, it is most humbly prayed that the Hon'ble Tribunal it is most humbly prayed that the Hon'ble Tribunal & CO No. 18/Chny/2024 CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan Vellore Subramanian Saravanan :: 3 ::
may be pleased to allow the claim of the appellant of Rs.97,07,735/ o allow the claim of the appellant of Rs.97,07,735/ o allow the claim of the appellant of Rs.97,07,735/- from the Capital Gains. (The value of the land gifted was Rs.98,12,720/ The value of the land gifted was Rs.98,12,720/-)
4. At the outset, it is noted that the cross set, it is noted that the cross-objection objection (CO) has been filed by the assessee after a delay of filed by the assessee after a delay of ‘179’ days. The assessee has filed days. The assessee has filed condonation application which is placed on record. condonation application which is placed on record. A perusal of the same perusal of the same reveals that the assessee came to know about the appeal preferred by the reveals that the assessee came to know about the appeal preferred by the reveals that the assessee came to know about the appeal preferred by the revenue only when he got the notice from the Tribunal dated 20.02.2024 revenue only when he got the notice from the Tribunal dated 20.02.2024 revenue only when he got the notice from the Tribunal dated 20.02.2024 and the assessee immediately filed the cross immediately filed the cross-objection against the objection against the impugned order by suppor by supporting the order of the Ld.CIT(A) and has raised ting the order of the Ld.CIT(A) and has raised one ground which was decided decided against him by the Ld.CIT(A). It is noted against him by the Ld.CIT(A). It is noted that the assessee has filed the cross filed the cross-objection on 18.05.2024 objection on 18.05.2024, meaning that within three months of notice from the Tribunal that within three months of notice from the Tribunal, the , the assessee has filed the cross-objection. However, objection. However, the Registry has brought to our the Registry has brought to our notice that there was a delay of 179 days and considering the fact that the that there was a delay of 179 days and considering the fact that the that there was a delay of 179 days and considering the fact that the delay has been caused not by any deliberate omission on the part of the has been caused not by any deliberate omission on the part of the has been caused not by any deliberate omission on the part of the assessee and the assessee filed an assessee and the assessee filed an affidavit explaining the reasons for explaining the reasons for cause of the delay, we find there we find there was excusable cause for condoning the excusable cause for condoning the delay and we do so, and proceed to hear the appeal of the revenue as and proceed to hear the appeal of the revenue as and proceed to hear the appeal of the revenue as well as the cross objection preferred well as the cross objection preferred by the assessee.
5. The sole ground of ground of the revenue is against the action of the the revenue is against the action of the Ld.CIT(A) allowing deduction u/s.54 of the Income Tax Act, 1961 Ld.CIT(A) allowing deduction u/s.54 of the Income Tax Act, 1961 Ld.CIT(A) allowing deduction u/s.54 of the Income Tax Act, 1961 (hereinafter in short “the Act”) (hereinafter in short “the Act”) in respect of cost of the land of the land purchased & CO No. 18/Chny/2024 CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan Vellore Subramanian Saravanan on 01.02.2013 (i.e. more than 2 years on 01.02.2013 (i.e. more than 2 years & 1 month before the sale of 1 month before the sale of long term capital asset on 31.03.2015 m capital asset on 31.03.2015).
Brief facts are that the assessee purchased a land on 01.02.2013 Brief facts are that the assessee purchased a land on 01.02.2013 Brief facts are that the assessee purchased a land on 01.02.2013 at a cost of Rs.11,43,90,477/ a cost of Rs.11,43,90,477/- and has claimed exemption and has claimed exemption u/s.54F of the Act, an amount of Rs. an amount of Rs.13,43,90,479/- which included construction of a which included construction of a residential building costing Rs.1,89,22,000/ residential building costing Rs.1,89,22,000/- out of the capital gains of out of the capital gains of Rs.87,39,060/- on the premise that the on the premise that the assessee's case falls within the ssessee's case falls within the purview of Section 54F(1) as the assessee has carried out the purview of Section 54F(1) as the assessee has carried out the purview of Section 54F(1) as the assessee has carried out the construction of a residential building f a residential building, which includes the purchase of the purchase of land, and therefore, the assessee was entitled to the benefit of the assessee was entitled to the benefit of the assessee was entitled to the benefit of sec.54F for the above said amount. said amount. However, during the assessment proceedings during the assessment proceedings, the AO had denied the benefit of ed the benefit of sec.54F in respect of the cost of land of the cost of land of Rs.11,43,90,479/- as the said land was acquired by the assessee as the said land was acquired by the assessee as the said land was acquired by the assessee on 01.02.2013 which event happened 01.02.2013 which event happened before one year of the sale of the of the sale of the capital asset on 31.03.2015, but allowed the cost of construction of on 31.03.2015, but allowed the cost of construction of on 31.03.2015, but allowed the cost of construction of residential building cost of Rs.1 residential building cost of Rs.1,89,22,000/-.
Aggrieved by the decision of the AO, the assessee preferr by the decision of the AO, the assessee preferr by the decision of the AO, the assessee preferred an appeal before the Ld.CIT Ld.CIT(A) who allowed the claim of the assessee the claim of the assessee by relying on the decision of the decision of the jurisdictional Hon’ble Madras High Court in Hon’ble Madras High Court in the case of C. Aryama Sundaram v. CIT reported in [2018] 97 the case of C. Aryama Sundaram v. CIT reported in [2018] 97 the case of C. Aryama Sundaram v. CIT reported in [2018] 97 taxmann.com 74/258 Taxman 10/407 ITR 1 [Mad 8 Taxman 10/407 ITR 1 [Mad-HC].
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Aggrieved by the aforesaid action of the Ld.CIT(A), the Revenue is Aggrieved by the aforesaid action of the Ld.CIT(A), the Revenue is Aggrieved by the aforesaid action of the Ld.CIT(A), the Revenue is before us.
We have heard both the parties a We have heard both the parties and perused the records. The nd perused the records. The assessee in this case had this case had claimed exemption u/s.54F of the Act for the 54F of the Act for the investment of Rs.13,43,90,477/ investment of Rs.13,43,90,477/- in respect of construction of respect of construction of residential house at T. Nagar which was partly allowed to the extent of only house at T. Nagar which was partly allowed to the extent of only house at T. Nagar which was partly allowed to the extent of only Rs.1,89,22,000/- being the cost of construction of the residential building. being the cost of construction of the residential building. being the cost of construction of the residential building.
The AO is thus noted to have disallowed the claim of cost of land at is thus noted to have disallowed the claim of cost of land at is thus noted to have disallowed the claim of cost of land at Rs.11,43,90,477, since land was acquired by the assessee before one since land was acquired by the assessee before one since land was acquired by the assessee before one year of sale of capital asset which earned him capital ga year of sale of capital asset which earned him capital gain. On appeal, in. On appeal, the Ld.CIT(A) has allowed the claim made by the assessee he Ld.CIT(A) has allowed the claim made by the assessee he Ld.CIT(A) has allowed the claim made by the assessee u/s.54 of the Act by holding that assessee is entitled Act by holding that assessee is entitled for deduction u/s.54F of the Act deduction u/s.54F of the Act for the investment made in purchase of land for the investment made in purchase of land also. Meaning Meaning, while computing cost of the asset computing cost of the asset constructed by the assessee to claim constructed by the assessee to claim deduction u/s.54F, it was held that cost of the land would be included deduction u/s.54F, it was held that cost of the land would be included deduction u/s.54F, it was held that cost of the land would be included towards the cost of new asset by relying on the towards the cost of new asset by relying on the decision decision of the Hon’ble Madras High Court in the cas Madras High Court in the case of C. Aryamma Sundram (supra) which e of C. Aryamma Sundram (supra) which action is challenged before us challenged before us; and the only question is whether the he only question is whether the action of the Ld.CIT(A) i action of the Ld.CIT(A) in following the decision of the Hon’ble Madras following the decision of the Hon’ble Madras High Court in the case of C. Aryamma Sundram (supra) in the case of C. Aryamma Sundram (supra) is erroneous or is erroneous or & CO No. 18/Chny/2024 CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan Vellore Subramanian Saravanan not? For that let us have look at the facts of the c not? For that let us have look at the facts of the case as noted by the ase as noted by the Hon’ble Madras High Court Hon’ble Madras High Court in the case of C. Aryamma Sundram (supra) in the case of C. Aryamma Sundram (supra):-
The appellant assessee sold a residential house property at No.137, Sundar 4. The appellant assessee sold a residential house property at No.137, Sundar 4. The appellant assessee sold a residential house property at No.137, Sundar Nagar, New Delhi on 15.1.2010 in favour of one Smt.Vanadana Manchanda, for Nagar, New Delhi on 15.1.2010 in favour of one Smt.Vanadana Manchanda, for Nagar, New Delhi on 15.1.2010 in favour of one Smt.Vanadana Manchanda, for a total consideration of Rs.12,50,00,000/ consideration of Rs.12,50,00,000/- and the total long term capital gain and the total long term capital gain that arose to the appellant assessee was Rs.10,47,95,925/ that arose to the appellant assessee was Rs.10,47,95,925/-. In the meanwhile, . In the meanwhile, on on on 14.5.2007, 14.5.2007, 14.5.2007, the the the appellant appellant appellant assessee assessee assessee purchased purchased purchased the the the property property property with with with superstructure thereon at No.138, JorBagh superstructure thereon at No.138, JorBagh, New Delhi for a total consideration , New Delhi for a total consideration of Rs.15,96,46,446/-. After demolishing the existing superstructure, the . After demolishing the existing superstructure, the . After demolishing the existing superstructure, the appellant appellant appellant assessee assessee assessee constructed constructed constructed a a a residential residential residential house house house at at at a a a cost cost cost of of of Rs.18,73,85,491/-. Thus, the appellant assessee claimed entire long term . Thus, the appellant assessee claimed entire long term . Thus, the appellant assessee claimed entire long term capital gain as exempt from tax under Section 54 of the said Act. gain as exempt from tax under Section 54 of the said Act.
The Assessing Officer held that only that part of the construction 5. The Assessing Officer held that only that part of the construction 5. The Assessing Officer held that only that part of the construction expenditure incurred after the sale of the original asset would be eligible for expenditure incurred after the sale of the original asset would be eligible for expenditure incurred after the sale of the original asset would be eligible for exemption under Section 54 of the said Act and b exemption under Section 54 of the said Act and based on records held that ased on records held that cost of construction incurred after the sale of the original asset was cost of construction incurred after the sale of the original asset was cost of construction incurred after the sale of the original asset was Rs.1,14,81,067/-. Exemption of Rs.1,14,81,067/ . Exemption of Rs.1,14,81,067/- was allowed as relief under was allowed as relief under Section 54 of the said Act. Section 54 of the said Act.
Following question of law question of law are noted to have been admitted admitted by the Hon’ble Madras High Court Court on the aforesaid facts, as under: as under:-
i. When capital gain arises from sale of building and/or land appurtenant When capital gain arises from sale of building and/or land appurtenant When capital gain arises from sale of building and/or land appurtenant thereto and a residential house is constructed within three years from thereto and a residential house is constructed within three years from thereto and a residential house is constructed within three years from the date of such sale, whether the co the date of such sale, whether the cost of the new asset, which is st of the new asset, which is eligible for set- -off against capital gain, would include the cost of the off against capital gain, would include the cost of the land, if such land had been purchased three years prior to sale of the land, if such land had been purchased three years prior to sale of the land, if such land had been purchased three years prior to sale of the property from which capital gain arose? from which capital gain arose? ii. Whether, in computation of cost of new as Whether, in computation of cost of new asset contemplated in Section set contemplated in Section 54(1) of the Income Tax Act, the cost of land can be segregated from 54(1) of the Income Tax Act, the cost of land can be segregated from 54(1) of the Income Tax Act, the cost of land can be segregated from the cost of the constructed house property ? the cost of the constructed house property ?
And the Hon’ble High Court has decided the question of law by he Hon’ble High Court has decided the question of law by he Hon’ble High Court has decided the question of law by holding as under:
The question is, whether a 18. The question is, whether any part of the capital gain from transfer of the ny part of the capital gain from transfer of the residential house is exempt from the capital gain tax and if so to what extent? residential house is exempt from the capital gain tax and if so to what extent? residential house is exempt from the capital gain tax and if so to what extent?
The conditions precedent for exemption of capital gain from being charged 19. The conditions precedent for exemption of capital gain from being charged 19. The conditions precedent for exemption of capital gain from being charged to income tax are:
(i)The assessee should have pu (i)The assessee should have purchased a residential house in India rchased a residential house in India either one year before or two years after the date of transfer of the either one year before or two years after the date of transfer of the either one year before or two years after the date of transfer of the & CO No. 18/Chny/2024 CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan Vellore Subramanian Saravanan residential house which resulted in capital gain or alternatively residential house which resulted in capital gain or alternatively residential house which resulted in capital gain or alternatively constructed a new residential house in India within a period of three constructed a new residential house in India within a period of three constructed a new residential house in India within a period of three years from the date of the transfer of the residential property which e date of the transfer of the residential property which e date of the transfer of the residential property which resulted in the capital gain. resulted in the capital gain.
(ii)If the amount of capital gain is greater than the cost of the (ii)If the amount of capital gain is greater than the cost of the (ii)If the amount of capital gain is greater than the cost of the residential house so purchased or constructed, the difference between residential house so purchased or constructed, the difference between residential house so purchased or constructed, the difference between the amount of the capital gain an the amount of the capital gain and the cost of the new asset is to be d the cost of the new asset is to be charged under Section 45 as the income of the previous year. charged under Section 45 as the income of the previous year.
(iii)If the amount of the capital gain is equal to or less than the cost of (iii)If the amount of the capital gain is equal to or less than the cost of (iii)If the amount of the capital gain is equal to or less than the cost of the new residential house, the capital gain shall not be charged under the new residential house, the capital gain shall not be charged under the new residential house, the capital gain shall not be charged under Section 45.
What has to be adjusted and/or set off against the capital gain is, the cost 20. What has to be adjusted and/or set off against the capital gain is, the cost 20. What has to be adjusted and/or set off against the capital gain is, the cost of the residential house that is purchased or constructed. Section 54(1) of the of the residential house that is purchased or constructed. Section 54(1) of the of the residential house that is purchased or constructed. Section 54(1) of the said Act is specific and clear. It is the cost of the new residential house and not said Act is specific and clear. It is the cost of the new residential house and not said Act is specific and clear. It is the cost of the new residential house and not just the cost of construction of the new residential house, which is to be ost of construction of the new residential house, which is to be ost of construction of the new residential house, which is to be adjusted. The cost of the new residential house would necessarily include the adjusted. The cost of the new residential house would necessarily include the adjusted. The cost of the new residential house would necessarily include the cost of the land, the cost of materials used in the construction, the cost of cost of the land, the cost of materials used in the construction, the cost of cost of the land, the cost of materials used in the construction, the cost of labour and any other cost relatable labour and any other cost relatable to the acquisition and/or construction of to the acquisition and/or construction of the residential house.
A reading of Section 54(1) makes it amply clear that capital gain is to be 21. A reading of Section 54(1) makes it amply clear that capital gain is to be 21. A reading of Section 54(1) makes it amply clear that capital gain is to be adjusted against the cost of new residential house. The condition precedent for adjusted against the cost of new residential house. The condition precedent for adjusted against the cost of new residential house. The condition precedent for such adjustment is that the new such adjustment is that the new residential house should have been purchased residential house should have been purchased within one year before or two years after the transfer of the residential house, within one year before or two years after the transfer of the residential house, within one year before or two years after the transfer of the residential house, which resulted in the capital gain or alternatively, a new residential house has which resulted in the capital gain or alternatively, a new residential house has which resulted in the capital gain or alternatively, a new residential house has been constructed in India, within three years fr been constructed in India, within three years from the date of the transfer, om the date of the transfer, which resulted in the capital gain. The said section does not exclude the cost of which resulted in the capital gain. The said section does not exclude the cost of which resulted in the capital gain. The said section does not exclude the cost of land from the cost of residential house. land from the cost of residential house.
It is axiomatic that Section 54(1) of the said Act does not contemplate that 22. It is axiomatic that Section 54(1) of the said Act does not contemplate that 22. It is axiomatic that Section 54(1) of the said Act does not contemplate that the same money received the same money received from the sale of a residential house should be used from the sale of a residential house should be used in the acquisition of new residential house. Had it been the intention of the in the acquisition of new residential house. Had it been the intention of the in the acquisition of new residential house. Had it been the intention of the Legislature that the very same money that had been received as consideration Legislature that the very same money that had been received as consideration Legislature that the very same money that had been received as consideration for transfer of a residential house should be us for transfer of a residential house should be used for acquisition of the new ed for acquisition of the new asset, Section 54(1) would not have allowed adjustment and/or exemption in asset, Section 54(1) would not have allowed adjustment and/or exemption in asset, Section 54(1) would not have allowed adjustment and/or exemption in respect of property purchased one year prior to the transfer, which gave rise respect of property purchased one year prior to the transfer, which gave rise respect of property purchased one year prior to the transfer, which gave rise to the capital gain or may be in the alternative have expressly made the to the capital gain or may be in the alternative have expressly made the to the capital gain or may be in the alternative have expressly made the exemption in case of prior purchase, subject to purchase from any advance exemption in case of prior purchase, subject to purchase from any advance exemption in case of prior purchase, subject to purchase from any advance that might have been received for the transfer of the residential house which that might have been received for the transfer of the residential house which that might have been received for the transfer of the residential house which resulted in the capital gain. resulted in the capital gain.
At the cost of repetition, it it reiterated that exemption of capital 23. At the cost of repetition, it it reiterated that exemption of capital gain from gain from being charged to income tax as income of the previous year is attracted when being charged to income tax as income of the previous year is attracted when being charged to income tax as income of the previous year is attracted when another residential house has been purchased within a period of one year another residential house has been purchased within a period of one year another residential house has been purchased within a period of one year before or two years after the date of transfer or has been constructed within a before or two years after the date of transfer or has been constructed within a before or two years after the date of transfer or has been constructed within a period of three years after the date of transfer of the residential house. It is years after the date of transfer of the residential house. It is years after the date of transfer of the residential house. It is not in dispute that the new residential house has been constructed within the not in dispute that the new residential house has been constructed within the not in dispute that the new residential house has been constructed within the time stipulated in Section 54(1) of the said Act. It is not a requisite of Section time stipulated in Section 54(1) of the said Act. It is not a requisite of Section time stipulated in Section 54(1) of the said Act. It is not a requisite of Section 54 that construction could not 54 that construction could not have commenced prior to the date of transfer of have commenced prior to the date of transfer of the asset resulting in capital gain. If the amount of capital gain is greater than the asset resulting in capital gain. If the amount of capital gain is greater than the asset resulting in capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital gain the cost of the new house, the difference between the amount of capital gain the cost of the new house, the difference between the amount of capital gain and the cost of the new asset is to be charged and the cost of the new asset is to be charged under Section 45 as the income under Section 45 as the income of the previous year. If the amount of capital gain is equal to or less than the of the previous year. If the amount of capital gain is equal to or less than the of the previous year. If the amount of capital gain is equal to or less than the & CO No. 18/Chny/2024 CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan Vellore Subramanian Saravanan :: 8 ::
cost of the new residential house, including the land on which the residential cost of the new residential house, including the land on which the residential cost of the new residential house, including the land on which the residential house is constructed, the capital gain is not to be charged under house is constructed, the capital gain is not to be charged under Section 45 of Section 45 of the said Act.
For the reasons discussed above, the appeal is allowed. The questions 24. For the reasons discussed above, the appeal is allowed. The questions 24. For the reasons discussed above, the appeal is allowed. The questions framed above are answered in favour of the appellant assessee and against framed above are answered in favour of the appellant assessee and against framed above are answered in favour of the appellant assessee and against the respondent revenue. The first question is answered in the affirmative and the respondent revenue. The first question is answered in the affirmative and the respondent revenue. The first question is answered in the affirmative and the second question is answered in the negative. No costs. the second question is answered in the negative. No costs.
From perusal of the aforesaid order of the Hon’ble Madras High perusal of the aforesaid order of the Hon’ble Madras High perusal of the aforesaid order of the Hon’ble Madras High Court, we find that there is there is similarity in the facts of present case with that of present case with that of C. Aryamma Sundram (supra) C. Aryamma Sundram (supra) and the question of law raised and the question of law raised before the Hon’ble Madras High Court is identical with that of the present case, the Hon’ble Madras High Court is identical with that of the present case, the Hon’ble Madras High Court is identical with that of the present case, and therefore the case law is squarely applicable to the facts of the and therefore the case law is squarely applicable to the facts of the and therefore the case law is squarely applicable to the facts of the present case and the Ld.CIT(A) rightly followed it; and present case and the Ld.CIT(A) rightly followed it; and further, further, we note that there is no dispute that the new residential house has been there is no dispute that the new residential house has been there is no dispute that the new residential house has been constructed within the time stipulated u/s.54(1) of the Act constructed within the time stipulated u/s.54(1) of the Act constructed within the time stipulated u/s.54(1) of the Act, because, the AO has allowed the deduction claimed for construction of the house to the AO has allowed the deduction claimed for construction of the house to the AO has allowed the deduction claimed for construction of the house to the tune of Rs.1,89,22,000/ tune of Rs.1,89,22,000/-; and since, the amount of capital gain from sale ount of capital gain from sale of three properties [one at Perambakkam & two at Coimbatore] [one at Perambakkam & two at Coimbatore] [one at Perambakkam & two at Coimbatore] is less than the cost of new residential house e cost of new residential house including the land on which including the land on which residential house is constructed residential house is constructed, the capital gain need not he capital gain need not be charged u/s.45 of the Act and therefore, we confirm the action of the u/s.45 of the Act and therefore, we confirm the action of the u/s.45 of the Act and therefore, we confirm the action of the Ld.CIT(A) and dismiss the grounds of appeal raised by the Revenue in this regard. and dismiss the grounds of appeal raised by the Revenue in this regard. and dismiss the grounds of appeal raised by the Revenue in this regard.
13. Before parting, we would like to address Ground No.4 we would like to address Ground No.4 we would like to address Ground No.4 of the Revenue that, dismissal of that, dismissal of SLP preferred by the Revenue against rred by the Revenue against the order of the Hon’ble Madras High Court order of the Hon’ble Madras High Court in the case of C. Aryamna in the case of C. Aryamna & CO No. 18/Chny/2024 CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan Vellore Subramanian Saravanan :: 9 ::
Sundaram (supra) for low tax for low tax- effect, doesn’t mean that the view that the view of the Hon’ble Madras High Court Hon’ble Madras High Court has been upheld by the Hon’ble Supreme ld by the Hon’ble Supreme Court, and therefore Ld CIT(A), erred in following it. d CIT(A), erred in following it. We don’t find any We don’t find any force in the said ground of Revenue for the reason stated infra. force in the said ground of Revenue for the reason stated infra. force in the said ground of Revenue for the reason stated infra. There is no quarrel that the Hon’ble Supreme Court has dismissed the SLP no quarrel that the Hon’ble Supreme Court has dismissed the SLP no quarrel that the Hon’ble Supreme Court has dismissed the SLP preferred by the Revenue against the order of the Hon’ble Madras H preferred by the Revenue against the order of the Hon’ble Madras H preferred by the Revenue against the order of the Hon’ble Madras High Court in the case of C. Aryamna Sundaram (supra) Court in the case of C. Aryamna Sundaram (supra) only for only for low tax effect and therefore, we accept that we accept that the principle of doctrine of doctrine of merger didn’t happen. However, the . However, the jurisdictional Hon’ble Madras High Court decision Hon’ble Madras High Court decision in the facts of the present case is squarely applicable in the facts of the present case is squarely applicable to the facts of to the facts of present assessee’s case, present assessee’s case, and therefore, no error can be attributed against and therefore, no error can be attributed against the impugned action of the Ld.CIT(A) the impugned action of the Ld.CIT(A), unless the department department is able to place on record that the Hon’ble Supreme Court the Hon’ble Supreme Court by subsequent by subsequent decision has overturned the aforesaid view rendered by the Hon’ble Madras High the aforesaid view rendered by the Hon’ble Madras High the aforesaid view rendered by the Hon’ble Madras High Court. Therefore, there is no merit in the contention of the Revenue and Court. Therefore, there is no merit in the contention of the Revenue and Court. Therefore, there is no merit in the contention of the Revenue and so, it is dismissed.
The only issue rais raised by the assessee in his Cross Cross-Objection is against the action of the Ld.CIT(A) disallowing the against the action of the Ld.CIT(A) disallowing the deduction deduction claimed on cost of improvement of land cost of improvement of land at Perambakkam to the tune of Perambakkam to the tune of Rs.97,07,735/- while computing the LTCG on sale of that property while computing the LTCG on sale of that property while computing the LTCG on sale of that property.
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14.1 Brief facts as noted noted by the AO are that the assessee has claimed that the assessee has claimed cost of improvement on land at Perambakkam to the tune of on land at Perambakkam to the tune of Rs.97,07,735/- [while computing the capital gains from sale of property in [while computing the capital gains from sale of property in [while computing the capital gains from sale of property in the relevant year]. Therefore Therefore, the AO asked the assessee , the AO asked the assessee for the proof of expenses, for which, the assessee brought to the assessee brought to his notice that there were notice that there were twenty (20) unauthorized unauthorized occupants/families on the main part of the land part of the land at Perambakkam, which was creating hindrance in selling the property; , which was creating hindrance in selling the property; , which was creating hindrance in selling the property; and in order to clear the unauthorized/adverse possession e unauthorized/adverse possession [from the main part of the land], it was agreed to give ], it was agreed to give them free of cost a piece of land at a piece of land at the corner of the same land the corner of the same land in lieu of them vacating from the main in lieu of them vacating from the main-part of the property; and for which, and for which, twenty (20) Gift Deeds were executed by the re executed by the assessee after they had had also undertaken not reclaim the land occupied by not reclaim the land occupied by them. According to the assessee, total value of the land gifted by the According to the assessee, total value of the land gifted by the According to the assessee, total value of the land gifted by the assessee to the ‘20’ persons persons/families were to the tune of Rs. were to the tune of Rs.98,12,720/- which has been claimed as cost of improvement while calculating the Long which has been claimed as cost of improvement while calculating the Long which has been claimed as cost of improvement while calculating the Long Term Capital Gain (LTCG) on sale of land at Perambakkam and Term Capital Gain (LTCG) on sale of land at Perambakkam and Term Capital Gain (LTCG) on sale of land at Perambakkam and in order to prove the aforesaid facts, prove the aforesaid facts, the assessee is noted to have filed before the filed before the AO, the twenty (20) Gift Deeds Gift Deeds executed on 21.12.2017. How 21.12.2017. However, the AO disallowed the ibid claim AO disallowed the ibid claim on the specious plea that the assessee failed on the specious plea that the assessee failed to produce any clinching eviden clinching evidence by adducing any certificate from the by adducing any certificate from the local body that ‘20’ persons were staying in the main part of the land at local body that ‘20’ persons were staying in the main part of the land at local body that ‘20’ persons were staying in the main part of the land at Perambakkam i.e, the twenty (20) illegal twenty (20) illegal occupants had occupied had occupied the said & CO No. 18/Chny/2024 CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan Vellore Subramanian Saravanan land at Perambakkam. Meaning, the AO disbelieved the veracity of the the AO disbelieved the veracity of the claim made by the assessee in incurring such expenses. claim made by the assessee in incurring such expenses.
14.2 Aggrieved, the assessee preferred an appeal before the Ld Aggrieved, the assessee preferred an appeal before the Ld Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) who dismissed the same on the who dismissed the same on the very same reasoning.
14.3 Aggrieved, the assessee is before us. Aggrieved, the assessee is before us.
14.4 We have heard both the parties and We have heard both the parties and perused the records. On this perused the records. On this issue, it is noted that the assessee had sold the land at Perambakkam on he assessee had sold the land at Perambakkam on he assessee had sold the land at Perambakkam on 31.03.2015 for a sal for a sale consideration of Rs.9,26,58,520/ consideration of Rs.9,26,58,520/- and for computing the the capital capital gains gains had had claimed claimed expenditure expenditure (cost (cost of of improvement) to the tune of Rs.97,07,735/ to the tune of Rs.97,07,735/- by bringing to the notice of by bringing to the notice of the AO that there were the AO that there were ‘20’ illegal/unauthorized families who families whom all were in possession [adverse possession without any title] on the main part of the possession [adverse possession without any title] on the main part of the possession [adverse possession without any title] on the main part of the said land. Therefore, it was not possible land. Therefore, it was not possible for the assessee for the assessee to sell the property without clearing them from the land. t clearing them from the land. After protracted After protracted negotiations, they conveyed their they conveyed their willingness to clear from from the main part of the land provided, they were they were allotted free of cost land at the corner of land at the corner of the same land, which was accepted which was accepted by the assessee ;and ;and by virtue of such agreement, twenty (20) such agreement, twenty (20) Gift Deeds were executed in favour of s were executed in favour of ‘20’ families which was valued at Rs.98,12,720/ s valued at Rs.98,12,720/- and in order to prove the in order to prove the claim, assessee is noted to have is noted to have produced the copy of copy of all Gift Deeds & CO No. 18/Chny/2024 CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan Vellore Subramanian Saravanan before the AO. But the AO didn’t . But the AO didn’t allow the claim only on the ground that only on the ground that the assessee didn’t file evidence/certific the assessee didn’t file evidence/certificate from local bo ate from local body to establish that there were illegal that there were illegal ‘20’ families occupying the main part of the the main part of the Perambakkam property property and that they were relocated in the said they were relocated in the said land.
During the appellate proceedings During the appellate proceedings, we note that the Ld.CIT(A) had called , we note that the Ld.CIT(A) had called for a Remand Report to find out the truth Report to find out the truth/veracity of the claim made by of the claim made by the assessee and pursuant to it pursuant to it, the AO has filed Remand Report the AO has filed Remand Report, contents of which is reproduced as under: contents of which is reproduced as under:
Sir Saravanan - ITA - Sub: Submission of remand report Sub: Submission of remand report - in the case of Sri Saravanan AAWPS3926R - AY 2015 2015-16 · regarding.
Ref: T. Letter in No.
Ref: T. Letter in No. dated24.10.2019 18 dated24.10.2019 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- -----------------------------------------------------------------------------
With reference to the above following report With reference to the above following report is submitted.
2. The CIT(A) vide her letter dated 24.10.2019 directed the assessing officer to vide her letter dated 24.10.2019 directed the assessing officer to vide her letter dated 24.10.2019 directed the assessing officer to verify the claim on cost of improvement for Rs. verify the claim on cost of improvement for Rs.97,07,735/- under the garb that part the garb that part of land was given as to the dwellers who sai to be residing in the said land sold. to the dwellers who sai to be residing in the said land sold. to the dwellers who sai to be residing in the said land sold.
2.1: Letter dated 01.11.2019 was issued to the assessee seeking the .11.2019 was issued to the assessee seeking the (i) details/documents to prove that the said occupants were occupying earlier details/documents to prove that the said occupants were occupying earlier details/documents to prove that the said occupants were occupying earlier in the said land in the said land
(ii) Present aerial aerial photographs showing their residence in the gifted land. in the gifted land.
In reply, assessee produced the In reply, assessee produced the relevant copies of gift deeds executed in favour relevant copies of gift deeds executed in favourof the 20 occupants. Also, patta and encumbrance certificate for Also, patta and encumbrance certificate for the said 20 occupants said 20 occupants were submitted and perused. Aerial photographs showing the occupants occupying in were submitted and perused. Aerial photographs showing the occupants occupying in were submitted and perused. Aerial photographs showing the occupants occupying in the reallocated land called for were a the reallocated land called for were also submitted and verified.
4. Hence the claim of the assessee may be considered on merits. 4. Hence the claim of the assessee may be considered on merits.
11. Aggrieved by the aforesaid action of the Ld.CIT(A), the assessee is before us. Aggrieved by the aforesaid action of the Ld.CIT(A), the assessee is before us. Aggrieved by the aforesaid action of the Ld.CIT(A), the assessee is before us.
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14.5 A perusal of the Remand Report A perusal of the Remand Report filed by the AO clearly shows that clearly shows that the assessee had produced before the AO rele assessee had produced before the AO relevant copies of the ant copies of the Gift Deed executed in favour of executed in favour of ‘20’ occupants and also Patta & nts and also Patta & Encumbrance Certificate for the said ‘ ‘20’ occupants and the aerial photographs showing nts and the aerial photographs showing the occupants occupying in the reallocated lan occupants occupying in the reallocated land; and and the AO has acknowledged to have verified the same and didn’t raise a the same and didn’t raise any adverse observation about it, m observation about it, meaning, accepted the veracity of the documents accepted the veracity of the documents produced by assessee to prove the veracity of his claim produced by assessee to prove the veracity of his claim. In the light of the aforesaid report of the AO, we are of the view that the assessee has the AO, we are of the view that the assessee has discharged his burden to prove that the assessee had gifted to discharged his burden to prove that the assessee had gifted to discharged his burden to prove that the assessee had gifted to ‘20’ families property worth Rs.97,07,735/ ies property worth Rs.97,07,735/- and relocated them from the main and relocated them from the main part of land which was sold on 31.03.2015. And part of land which was sold on 31.03.2015. And without incurring s without incurring such expenses, the assessee couldn’t have sold the property at Perambakkam expenses, the assessee couldn’t have sold the property at Perambakkam expenses, the assessee couldn’t have sold the property at Perambakkam for a value of Rs.9,26,58,520/ for a value of Rs.9,26,58,520/-. Therefore, expenses claimed . Therefore, expenses claimed as cost of improvement of Rs.97,07,735/ improvement of Rs.97,07,735/- needs to be allowed and we order so. to be allowed and we order so.
In the result, appeal filed by the Re In the result, appeal filed by the Revenue is dismissed venue is dismissed and Cross- Objection filed by the assessee is allowed. Objection filed by the assessee is allowed.
Order pronounced on the 25th day of March, 2025, in Chennai. Order pronounced on the , in Chennai.