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Facts
The assessee sold an open land, which was appurtenant to her residential bungalow, but retained the bungalow. She claimed exemption under Section 54 of the Income Tax Act for the long-term capital gain of Rs. 68,45,580/- arising from this sale. The Assessing Officer and the CIT(A) disallowed the exemption, treating the transaction as a sale of vacant land not qualifying for Section 54 benefits.
Held
The Income Tax Appellate Tribunal upheld the disallowance, stating that for Section 54 benefits, a residential house (building along with its appurtenant land) must be transferred. Since the assessee sold only open land and retained the building, the transaction did not qualify as a sale of residential property under Section 54, even if the land was originally appurtenant to the bungalow.
Key Issues
Whether the sale of open land, which was part of a residential property but sold separately from the main building, qualifies for exemption under Section 54 of the Income Tax Act.
Sections Cited
Section 54 of the Income Tax Act, Section 22 of the Income Tax Act
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Income Tax Appellate Tribunal, ALLAHABAD BENCH, ALLAHABAD
Before: SHRI SUBHASH MALGURIA & SHRI SANJAY AWASTHI
2015-2016 against impugned appellate order dated 06/11/2024 (DIN & Order No.ITBA/NFAC/S/250/2024- 25/1070130401(1) of Commissioner of Income Tax (Appeals) [“CIT(A)” for short].
The facts of the case, in brief, are that the appellant assessee is an individual and e-filed her return of income on 23/09/2016 declaring total income of Rs.14,36,970/-. The Assessing Officer completed the assessment and assessed the total income of the assessee at Rs.82,82,550/- after making an addition of Rs.68,45,580/- under the head Long Term Capital Gain. The assessee had sold an open land during the assessment year under consideration and claimed exemption u/s 54 of the Act. The contention of the Assessing Officer is that section 54 of the Act speaks of residential house, the income of which is chargeable under the head, "income from house property'. The said residential house could be consisting of the building or land appurtenant thereto. Thus, the land appurtenant thereto has to be sold along with the building and if the land sold without the building will not be considered as 'residential property'. The appellant assessee submitted before the Assessing Officer that the land appurtenant to the bungalow of the appellant assessee was sold and therefore, it has to be treated as house property and the exemption available u/s 54 of the Act should be provided to the appellant assessee. However, the Assessing Officer did not accept this contention of the assessee and held that the sale deed produced by the appellant assessee shows that the property transferred is the open land and without any building. Hence, the provisions of section 54 of the Act are not applicable to the facts of the present case. Accordingly, the Assessing Officer disallowed the exemption claimed by the assessee u/s 54 of the Act amounting to Rs 68,45,580/-. Aggrieved, the assessee carried the matter in appeal before learned CIT(A). The learned CIT(A) dismissed the appeal of the assessee. The findings of the learned CIT(A) are reproduced as under:
Aggrieved with the order of learned CIT(A), the assessee is in appeal before the Income Tax Appellate Tribunal.
Learned Counsel for the assessee, during the course of hearing in Income Tax Appellate Tribunal, submitted that the CIT(A) has wrongly observed that the land sold was adjacent land and not residential only because it was mentioned as ‘open land’ in the sale deed and the land sold without building is not residential property and is not eligible for being considered for rebate u/s 54 of the Act. He submitted that originally the lease was in the name of P. D. Tandon and in the lease it is clearly mentioned that it is a house/residential property with a built in house and bungalow. On the death of P. D. Tandon, the house along with the open land was inherited by Shri Dinesh Cahandra Tandon and subsequently, on death of Shri Dinesh Chandra Tandon, the same was inherited by the assessee Suchitra Tandon. He submitted that the assessee has sold open land, which was appurtenant to the residential house and the assessee is eligible for exemption u/s 54 of the I. T. Act. He relied on the judgment of Hon'ble Allahabad High Court in the case of P. K. Lahri vs. CIT [2005] 196 CTR (All) 406, [2005] 275 ITR 17 (All) and on the judgment of Hon'ble Karnataka High Court in the case of Shri C. N. Anantharam Bangalore vs. Assistant Commissioner of Income Tax (I.T.A. No.1012 of 2008).
On the other hand, learned Sr. Department Representative for Revenue strongly supported the orders of the authorities below. He submitted that the assessee has sold only a part of land (as a plot of land) and not a land appurtenant to building and the Assessing Officer and the learned CIT(A) have rightly held that the assessee is not entitled to deduction u/s 54 of the Act in respect of the capital gain. Learned Sr. Department Representative relied on the following case laws:
(i) M. Anil V. Income Tax Officer [2008] 10 SOT 655 (Cochin) (ii) Smt. Janki Kishan Hingorani vs. Pr. CIT [2024] 158 taxmann.com 3 (Rajkot-Trib.) (iii) CIT vs. Zaibunnissa Begum [1985] 151 ITR 320 (AP) (iv) Smt. Asha George vs. Income Tax Officer [2013] 351 ITR 123 (Kerala)
We have heard the rival parties and have gone through the material placed on record. The facts of case law, relied by learned Counsel for the assessee, in the case of P. K. Lahri (supra), are distinguishable on facts. In that case the land was belonging to the son and the building was belonging to the father. In that case Hon'ble High Court held that when the land was sold without building, which was belonging to the father, the land in question would be called as adjacent land and not land appurtenant to the building as owners are different. Thus, it is clear that even though land and building are belonging to the same person and only the land is sold without building, this will not amount to the sale of the residential property and it will amount to sale of adjacent land.
6.1 In the case of M. Anil (supra), the case law relied on by learned Sr. D.R., it has been held as under:
"(para-7).......On the perusal of the agreement and the schedule thereof, it is clear that what the assessee has transferred is 24.5 cents of vacant land and not the building or any residential house. We, are, therefore, of the opinion that the Assessing Officer has rightly rejected the claim of the assessee in respect of the exemption under section 54. We, therefore, confirm the order of the CIT (Appeals) on this issue and reject ground No. (ii) taken by the assessee..."
6.2 In the case of Smt. Zaibunnissa Begum (supra), the case law relied on by learned Sr. D.R., the Hon'ble court has observed as under:
"(para-6)... If land alone is sold, the provisions of section 54 will have no application, inasmuch as the income from the land is not chargeable under the head Income from house property'. In order to secure the benefit of section 54, it is necessary that the building together with land is transferred and the income from such building and land is chargeable under the head 'Income from house property' under section 22 of the Act.
(para-7)... The land contiguous to the building may be so vast in its extent that a person can conveniently lay out the surplus extent of land into plots and sell those plots without causing detriment to the proper enjoyment of the building. Could it be said that in these cases the land leased for a fire-wood depot or sold by laying out into plots constituted land appurtenant to the building? We do not think so. There is force in the contention of the learned standing counsel for the Revenue that the expression 'land appurtenant thereto' occurring in section 54 is a matter of enquiry depending upon the facts and circumstances of each case and the authorities must determine the extent of land that is considered to be appurtenant to the building based on some acceptable criteria.
(para-11)...(2) If the building has extensive lands appurtenant thereto and even if the building and the land have been 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 effective and proper enjoyment of the building as such....If any surplus is arrived at on such an enquiry, then the extent of such surplus land may not qualify to be treated as land appurtenant to the building ....the land used by the occupiers for ... horticultural purposes, although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to the building...."
In view of the foregoing, we are in agreement with the findings of learned CIT(A) that merely because the land sold was appurtenant to the bungalow, it cannot be held to be the residential property as the bungalow has not been sold but only the adjacent land has been sold. Hence, the provisions of section 54 of the Act are not applicable to the facts of the present case. Accordingly, the disallowance made by the Assessing Officer and confirmed by learned CIT(A) is upheld.
In the result, the appeal of the assessee stands dismissed.
(Orders pronounced on 10/05/2025 in accordance with Rule 34(4) of the I.T.A.T. Rules)