SMT. MANISHABEN RAKESHBHAI NAIK,,NA vs. ARIVS.THE INCOME TAX OFFICER, WARD-3,, NAVSARI

आदेश /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. This appeal filed by the Assessee directed against the order of Learned Commissioner of Income Tax (Appeals), [CIT(A)], Valsad, dated 20.02.2015 for the assessment year 2010-11 which

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in turn has arisen from the order of the ITO, Ward-3, Vapi (the “AO”) dated 14.03.2013 for the assessment year 2010-11 passed u/s.143(3) r.w.s 147 of the Income Tax Act, 1961 (in short ‘the Act’). 2. The sole ground of appeal is reads as under : “1. The learned CIT (A), Valsad grossly erred in not giving the deduction of Rs.27,42,930/- in respect of full ½ value of plot no. 16, 17 & 18 all adjoining used for construction of house against the capital gain on sale of land as per provisions of section 54F of the Act “.

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has started construction of building of said plot of land on which construction cost was worked out at Rs.15,25,000/- which was completed within the time limit provided as per section 54F of the Act. Thus, the total construction cost on plot of land has been claimed at Rs.6,26,350/-. However, on verification of conveyance deed of N.A.Lands purchased by the assessee, it was noticed that the assessee has purchased 3 plots located at survey no.18 on 31.03.2010 for Rs.34,08,450/- survey no.17 on 07.05.2010 for Rs.32,74,800/- and survey no.16 on 07.10.2010 for Rs.27,70,650/- aggregating to Rs.94,54,700/- in which one of the shares of the assessee comes to Rs.47,27,352/-. The AO was, therefore, of the view that all the N.A.plots being new assets were purchased within a period of one year from the date of transfer of original assets. However, the alleged N.A.Plots of land bearing survey no’s.16, 17 & 18 are independent and did not adjoined to each other as is appeared from the register conveyance deed. Since the alleged lands were converted into non-agricultural land by separate orders of Taluka Panchayat Office for each survey no which is evidenced from registered conveyance deed. Thus, the assessee had purchase of said N.A.Plots of land on different dates

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by separate conveyance deed. If any person intended to combine two pieces of land each other having different survey no, one has to take permission from State Government Authority and after the order of concerned State Government Authority that piece of lands are joined together with survey no. The AO further noted that the assessee has taken permission for construction of residential house of survey no.18 only, therefore, the benefit of section 54F of the Act cannot be extended to other N. A. Plots of land and registered to the only one. Therefore, the AO considered the cost of plot of survey no.18 at Rs.34,09,250/- in which assessee one of the sharers comes to Rs.17,04,625/-, hence, the AO held that the assessee is entitled for deduction u/s.54F of the Act for Rs.17,04,625/- only on purchases of plot of land and construction thereon. Thus, the AO took this sum of Rs.17,04,625/- as eligible for deduction and calculated the deduction allowable u/s.54F of the Act at Rs.14,80,511/- which has resulted into the addition of Rs.27,40,526/-. 4. Being aggrieved, the assessee filed an appeal before the CIT(A), wherein it was contended that the assessee has fulfilled all the conditions of section 54F of the Act and therefore the

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assessee is entitled to claim deduction u/s.54F of the Act. It was submitted that there were instances wherein 2 or 3 plots, are adjoining on same plot were purchased and since it was used as a single residential house, the entire investment in 2/3 plots were eligible deduction as held in the case of CIT vs. Smt. K.G.Rukhmaniamma [2011] 331 ITR 211 (Kerala High Court). It was further contended that the appellant had jointly purchased 3 plots bearing survey no.16,17 and 18, are adjacent to one another, and therefore, practically it was a single plot, wherein she had one half of the share. The appellant and the other co-owner had decided to construct 2 residential houses on the entire piece of land bearing no.16, 17 and 18 and accordingly the one half investment in the land and construction by each person would be eligible for deduction u/s.54F of the Act. The appellant has invested ½ of her shares in the total investment Rs.47,27,350/- in aggregate purchase of plot which were to be used for construction of residential houses. The ld.Counsel has also placed reliance in the case of Smt. Hansabai Sanghi vs. ITO [2004] 89 ITD 239 (Hyd- Tribunal) in which it was held that there would not be any denial of deduction u/s.54F merely because the assessee purchased

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ground floor and first floor by two separate sale deeds and therefore applying this analogy even if the plots are purchased by separate purchase deeds, the deduction u/s.54F is eligible, if they are adjacent to each other and a combined floor can be used for construction of residential house. The appellant has also filed the sketch situation of plot of land no.16, 17 and 18 duly certified by Shri J. G. Mehta (B.E., Civil) and it was claimed that it is apparent that they are adjoining to each other. The AR also relied in the case of CIT vs. D. Anand Basappa [2009] 309 ITR 329 (Kerala) of which SLP was also dismissed by the Hon'ble Supreme Court reported in [2010] 320 ITR (ST) 19 wherein it was held that purchase of ground floor, adjoining to each other and can be of being used as one residential house is eligible for deduction u/s.54F of the Act. However, the ld.CIT(A) has upheld the findings of the AO by observing that the appellant has not been able to rebut the findings given by the AO in regard to plots so far as the fact of their adjoining is concerned. Therefore, the disallowance made by the AO u/s.54F of the Act were upheld. 5. Being aggrieved, the assessee has filed this appeal before this Tribunal. The ld.Counsel for the assessee submitted that the

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assessee has sold piece of land with other four co-owners and resultant capital gains was claimed as deduction u/s.54F of the Act on the plea that subsequent to the sale of plot, the assessee has purchased 3 plots of land bearing survey no.16, 17 and 18 within the stipulated period of sale of original asset. The assessee has constructed a residential house of plot no, survey no.16, 17 being land appurtenant to the constructed house i.e. new asset. Therefore, the plot bearing no. 16 and 17 are nothing but a land appurtenant to the building constructed on the first floor. Therefore, by placing reliance in the case of ACIT vs. N. M. Uniyal [2009] 34 SOT 152 (Delhi-Tribunal), the ld.Counsel contended that the assessee was entitled to claim deduction u/s.54F of the Act in respect of land appurtenant to the construction of residential house. It was further submitted that the Hon'ble Tribunal in the case of N.M.Uniyal had followed the decision of Hon'ble Delhi High Court in the case of Sunita Agarwal [2006] 284 ITR 20 (Del). The AR strongly contended that merely because the plots were purchased through 3 conveyance deed, it should not be considered as 3 different plots. The appellant strongly alleged that, if 2 or 3 different plots are purchased as per the Revenue records through

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different conveyance deed, does not make any difference if the same is being used for construction of single house.The ld.Counsel also cited the decision of Hon'ble Kerala High Court in the case of CIT vs. D. Anand Vasappa [2009] 309 ITR 329 (Kerala) of his SLP was dismissed in [2010] 320 ITR (ST) 19. 6. Per contra, the ld. Senior Departmental Representative (Sr. DR) supported the orders of the Lower Authorities and submitted that permission for construction of house was taken by the assessee in respect of plot of land survey no.18 only, therefore, the plot of land bearing survey no.16 and 17 though adjacent to the Survey No.18 cannot be considered as land appurtenant to the constructed building. Therefore, the AO and CIT(A) has rightly disallowed the claim. 7. We have considered the facts and circumstances of the case and perused the material available on record. We find that the assessee has sold non-agricultural land at Udhna, Surat on 16.07.2010 for Rs. 2.43 crores along with 4 other co-owners in which assessee share was at Rs. 48.60 lakhs. The assessee has purchased three plot of land being Survey No.16, 17 and 18 for Rs. 94,54,700 in which assessee `s share was ½ at Rs. 47.27 lakhs.

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The assessee has constructed a residential house by investing Rs. 15.25 Lakh which was completed within specified period as per provision of section 54F of the Act . The AO was of the view that the assessee has is not entitled to deduction in respect of Survey No. 16 & 17 as there is no construction on these plot of land. However, the assessee has claimed that these plot of land are land appurtenant to the construction on Survey No. 18. Therefore, the assessee is entailed for deduction under section 54F of the Act. In order to appreciate the facts and law clearly the provisions of Section 54F which deal with provisions of Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house, read as under:- "54F. (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the

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capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,..........................."

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16 & 17 purchased by the assessee was adjacent to the plot already purchased during the relevant year itself out of capital gains. Only because construction was made on Survey No. 18 one plot of land, the exemption claimed in respect of investment made in adjacent plot of land cannot be declined when all the other conditions as stipulated u/s 54F are being satisfied. These three plots formed part of one residential unit and are contiguous and adjoining to each other. The comments of the AO to the effect that exemption u/s 54F is eligible only for construction of house is not tenable insofar as even cost of land forming part of the residential unit on which no construction is done is also eligible for exemption u/s 54F. Thus, the cost of vacant land appurtenant to and forming part of the residential unit is to be considered for claim of exemption u/s 54F even if no construction has been done on the appurtenant land. The provisions of section 54 clearly provide for exemption if the net consideration received as a result of transfer of any capital asset, other than a residential house, is invested in the purchase or construction of a residential house. The new residential house is not debarred from having a land appurtenant to any size and it is also not the case of the AO that

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the land appurtenant to the building is not entitled to exemption u/s 54F. Had it been a case of land not appurtenant to the building so constructed, then the contention of the AO to the effect that investment of capital gains made in the second plot which is not appurtenant to the building so constructed is not eligible for exemption, can be favorably accepted. On the contrary, the expression "land appurtenant" in section 54 of the Act was held to be construed in a broad and non-technical sense and it was held that the meaning given to that expression in other Acts should be irrelevant. The Hon'ble Delhi High Court in the case of Sunita Aggarwal [2006] 284 ITR 20 (Del) in which head note reads as follows: Section 54 of Income-tax Act, 1961 – Capital gains – Profit on sale of property used for residential house – Assessee sold a house for a sum of Rs. 30 lakhs and invested capital gain on said sale proceeds in purchase and renovation of a property – Qua said investment, assessee claimed benefit under section 54 – Assessing Officer rejected said claim on ground that sale transaction of property had been made only on paper – On appeal, Commissioner (Appeals) upheld disallowance of deduction on ground that property purchased by assessee in

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fact comprised two distinct units owned by two different persons and, thus, assessee was entitled to benefit of deduction only to extent of purchase of one unit – On further appeal, Tribunal recorded a clear finding of fact to effect that property purchased by assessee was a single unit and was being used for residential purposes continuously ever since possession of different portions of said property was taken over from vendors – It was further held that execution of four different sale deeds in respect of four different portions of property did not materially affect nature of transaction or nature of property acquired since property in question was being used by assessee for her own purposes and investment made in purchase of same was, therefore, eligible for deduction under section 54 – Whether in light of said findings of facts recorded by Tribunal, no question of law arose for consideration of High Court and order of Tribunal was to be upheld – Held, yes. 9. Thus, in view of ratio of above Hon`ble High Court laid down the shows while claiming exemption u/s 54, the property though purchased from two different persons by virtue of four different

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sale instances in the shape of four different parcels, constitutes one single residential unit of the assessee. 10. We Further, observe that the Hon`ble Karnataka High Court in the case of CIT v. D. Ananda Basappa [2009] 309 ITR 329 (Karn) held that “the contention of the revenue that the phrase 'a residential house' would mean one residential house, does not appear to the correct understanding. The expression 'a residential house' should be understood in a sense that building should be residential in nature and 'a' should not be understood to indicate a singular number. [Para 6]. That when an HUF's residential house is sold, the capital gain should be invested for the purchase of only one residential house, is an incorrect proposition. After all, the property of the HUF is held by the members as joint tenants. If the members, keeping in view the future needs in event of separation, purchase more than one residential building, it cannot be said that the benefit of exemption is to be denied under section 54(1). [Para 7]. 11. The Assessee before CIT(A) relied on the decision of the Hon'ble Karnataka High Court in the case of CIT v. K.G. Rukminiamma [2011] 331 ITR 211/196 Taxman 87/[2010] 8 taxmann.com 121 (Ker.), wherein the Hon'ble Karnataka High

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Court held on the facts of the case which are identical to the case of the assessee (though in the context of sec. 54 of the Act which is pari materia the same as section 54F of the Act). 12. The contention of the revenue is that the phrase "a" residential house would mean one residential house and it does not appear to the correct understanding. The expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should not be understood to indicate a singular number. The combined reading of sections 54(1) and 54F of the Income-tax Act discloses that, a non- residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to section 54 of the Income-tax Act, lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gains tax, when he invests the capital gain in purchase of additional residential building. 13. We Further, note that Various courts have held that multiple adjoining flats constitute to one residential house viz : CIT v Annada Basappa (2009) 329ITR(Kar) SLP of 20867 of 2009

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rejected (2110) 320 ITR (st)19., CIT v Joe B Fernandes SLP 23581 of 2009 dismissed 322 ITR (st.) 8, CIT v Rashmi Khanna SLP 30894 of 2009 322 ITR(st)8 dismissed, CIT v Khoobh Chand M Makhija 223 ITR 189(Kar), CIT v Geeta Duggal 2013-TIOL_143_HC, KC Kaushik v ITO 185 ITR 499(Bom), CIT v Raman Kumar Suri 2012-TIOL-982- HC-MUM-IT. ACIT v. N. M. Uniyal [2009] 34 SOT 152 (Delhi). 14. We may also mention that new amendment with effect from AY 15-16 made the exemption would be available in respect of one residential house. 15. In view of the above discussion and keeping in view the detailed facts as a discussed above we are of the considered opinion that the assessee is eligible for deduction under section 54F of the Act in respect of new assets purchased and constructed and land appurtenant thereof being Survey No. 16 and 17 of plot of land as the same form part of new hose constructed on plot of land being Survey No. 18. Therefore, on the basis of material available on record and after proper appreciation of material available on record, the claim of the AO for deduction under section 54F is allowed. Accordingly, this ground of appeal is allowed.

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Sd/- Sd/- (सी.एम.गग�) /(C.M. GARG) (ओ.पी.मीना) /(O.P.MEENA) �याियक सद�य/JUDICIAL MEMBER लेखा सद�य/ ACCOUNTANT MEMBER सुरत/ Surat: �दनांक /Dated : 19th June, 2018 / SGR Copy sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By Order / / TRUE COPY / / Assistant Registrar, Surat