SH. ADARSH KUMAR SWARUP,MUZAFFARNAGAR vs DCIT, MUZAFFARNAGAR

Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’ : NEW DELHI

Before: SHRI H.S. SIDHU

The Assessee has filed this Appeal against the Order dated

18.12.2015 of the Ld. CIT(A), Muzaffarngar pertaining to assessment

years 2011-12.

The following grounds raised have been raised by the

assessee:-

That the CIT(A) has erred on facts and under the

law in disallowing the deduction u/s. 54 of the Act on

sale of land appurtenant to the residential house owned

by the appellant and allowed by the AO and consequently

the enhancement of income by Rs. 60,27,000/- is

arbitrary, unjust and any rate very excessive.

That the CIT(A) as well as AO has erred on facts

and under the law in adopting the fair market value of

land sold at Rs. 300/- per sq. yards against Rs. 730/- per

sq. yards determined by approved valuer.

That the Ld. CIT(A) and AO both has erred on fact

and under the law in adopting the demand cost of the

land, which was acquired by the appellant by way of

inheritance from his mother Smt. Asha Swarup, being the

market value as on 1.4.1981 instead of its value as on

31.3.1985 and consequently the cost of the land adopted

at the rate of 300/- per sq.yards, instead of 730/- per sq.

yards claimed by the appellant is arbitrary, unjust and

any rate very inadequate.

That the assessee denies his liability to pay interest

charged u/s.234A, 234B and 234C of the Act.

Your appellant craves leave to add, alter, amend or

withdraw any of the grounds of appeal at the time of

hearing.

The brief facts of the case are that the return of income was

filed on 17.8.2011 declaring total income at Rs.15,36,830/-. The

return was processed uls 143(1) of the IT Act and case was selected

for scrutiny. Accordingly, notice u/s.143(2) of the I.T. Act, 1961 was

issued on 6.8.2012 and notice u/s. 142(1) of the I.T. Act, 1961 was

also issued on 21.6.2013 alongwith questionnaire. In compliance to

the statutory notices u/s. 143(2)/142(1) of the I.T. Act, 1961, the

Assessee’s AR attended the proceedings from time to time and filed

the required details and documents. During the course of assessment

proceedings it was noticed by the AO that during the year under

consideration the assessee has sold a plot in two parts, the value as

per circle rate of this property was Rs. 91,39,000/- including value of

trees 16,000/-. No income in this regard has been shown by the

assessee in the return of income. Therefore, vide order sheet entry

dated 6.1.2014 the assessee was required to submit the computation

of capital gain. In response to thereto the assessee vide his reply

dated 10.1.2014 submitted the calculation of Long Term Capital

Gain. Perusal of computation filed by the assessee reveals that the

assessee has taken the cost of acquisition of plots sold as per

valuation report prepared by Dr. Rajiv Jain, Govt. Approved Valuer in

which the rate of land has been adopted @ 730/- per sq. yard in

1985.

As per section 49(1) of the Income Tax Act, 1961 cost of

acquisition, in case of capital asset acquired by certain modes of

acquisition including Will, shall be deemed to be the cost for which

the previous owner of the property acquired it. Further, in

explanation to the section 49(1) it is clearly mentioned that the cost

of previous owner of the property means the cost of last previous

owner of the capital asset who acquired it by a mode of acquisition

other than that referred to clause (i) to (iv) of this sub-section.

Perusal of documents submitted by the assessee during the course of

assessment proceeding it is noticed that the property in question was

purchased by the assessee's grand mother Smt. Jyotsna Kumari

Swarup before 1.4.1981 as no date of purchase is mentioned in her

Will dated 15.1.1985. Hence, for the purpose of cost of acquisition

the circle rate of the property as on 1.4.1981 is to be taken. The

circle rates as on 1.4.1981 have been obtained from the office of the

ADM(Finance), Muzaffamagar. According to which the circle rate of

the property situated in Kambalwala Bagh was Rs. 300/- per sq. yard

as on 1.4.1981. Vide order sheet entry dated 30.1.2014 the

assessee was required to explain and, justify why the cost of

acquisition of property may not be taken at the circle rate of 300/-

per square yards as on 1.4.1981 in view of the provisions of section

49(1) of the Income Tax Act. 1961. In response to which the

assessee vide his reply dated 31.1.2014 has submitted as under:-

"The assessee would like to draw your kind attention to the fact

that the land sold during the year was part of the portion of the

property inherited by the assessee Shri Adarsh Kumar Swarup

from his mother Smt. Asha Swarup after her death on 16

March 1994 through her will. As stipulated in section 49(1)(ii)

reproduced above, the cost of acquisition of the property sold

mean the cost for which the last previous owner had acquired

the property. In this case, the last previous owner was the

assessee's mother Smt. Asha Swarup. She acquired the

property from her mother-in-law Smt . Jyotsna Kumari Swarup

through later's will after her death on 5 march, 1985. As such

the cost of the property sold is to be taken as the fair market

value of the property existing in March, 1985 and not as on

01.04.1981 and therefore it requested that the value derived in

the valuation report be kindly accepted and not @ 300/- per

sq. yd as mentioned by your honour.”

AO observed that the above contention of the assessee is not

correct as the expression "previous owner of the property" pas been

defined in the explanation of section 49(1) as discussed above.

Therefore, the cost of acquisition of the assessee in respect to the

property sold is taken at Rs. 300/- per sq. yd. to the computation of

Long Term Capital Gain given by the assessee vide letter dated

10.1.2014 the assessee has claimed deduction u/s 54F of the Income

Tax Act, 1961 for investment in house property. The perusal of

Balance Sheet as on 31.3.2011, submitted by the assessee alongwith

return of income, there are two house properties with the assessee

apart from new property purchased during the year, which are as

under:-

Delhi Kothi 5,55,504/-

Mussorie Flat 4,77,500/-

As per proviso of section 54F(1) nothing contained in this sub-

section shall apply where the assessee owns more than one

residential house, other than the new asset, on the date of transfer

of the original asset. Therefore, 'the assessee is not entitled for

deduction u/s 54F of the Income Tax Act, 1961 as the assessee

already owned two residential houses. Vide order sheet entry dated

3.2.2014 the assessee was required to justify his claim of section 54F

in spite of having two residential house at Delhi and flat at

Mussoorie. In response of which the assessee vide his reply dated

14.2.2014 submitted that the investment of Rs. 60,70,000/- made in

the purchase of house property would fall under section 54 as section

54F is not applicable to the facts of the case. After considering the

reply of the assessee and the documents submitted the claim of the

assessee u/s 54(1) is accepted and assessment was completed at

24,60,130/- being taxable Long Term Capital Gain vide AO’s order

dated 10.3.2014 passed u/s. 143(3) of the I.T. Act, 1961.

Against the Order of the Ld. AO, assessee appealed before the

Ld. CIT(A), who vide impugned order dated 08.12.2015 has

concluded that Long Term Capital Asset sold by the assessee is ‘land

appurtenant to the building’but is not a residential house and

therefore, the assessee is not entitled for deduction u/s.54 of the Act

for this transaction. Ld. CIT(A) further observed that therefore, the

deduction claimed by the assessee during assessment proceedings

and allowed by the AO at Rs. 60,27,000/- is disallowed and AO was

directed to recomputed income assessed of the assessee.

Accordingly, the income assessed was enhanced by Rs. 60,27,000/-

and dismissed the appeal of the assessee.

Aggrieved with the aforesaid order of the Ld. CIT(A),

Assessee is in appeal before the Tribunal.

At the time of hearing, Ld. Counsel of the assessee has filed a

Paper Book containing pages 1 to 61 having the copies of Sale Deed

dated 25.6.2010 in favour of TCMC Developers Ltd., Muzaffarngar,

evidencing that the land was part of House NO. 64, Agrasen Vihar for

a sum of Rs. 45,60,000/-; copies of sale deed dated 25.6.2010 in

favour of Ankit Garg, Muzaffarnagar evidencing that the land was part

of House NO. 64, Agrasen Vihar for a sum of Rs. 45,60,000/-; Copy of

Will of Smt.Jyotsna Kumari Swarup; Copy of Will of Smt. Asha

Swarup; Copy of registered valuer Sh. Rajiv Jain report as on

1.4.1981 evidencing the market value of the land @Rs. 600/- per sq.

yard; copy of registered valuer Sh. Rajiv Jain report as on 31.3.1985

evidencing the market value of the land @ Rs. 730/- per sq. yard and

copy of house tax assessment and record of the Municipality,

Muzaffarngar in respect of the house. Ld. Counsel of the assessee also

filed the Brief Synopsis which read as under:-

“1. The appellant hails from a well known industrial family

of small town Muzaffarnagar where the appellant's family

had owned several industries like sugar, vanaspati,

distillery, steel and others.

The appellant's grandmother, Smt. Jyotsna Kumari

Swarup wife of late Lala Gopal Raj Swarup, resident of

Ram Bagh, Muzaffarnagar was having 50% share in the

residential house (kothi) located in Ram Bagh along with

the land appurtenant thereto and the same had been

bequeathed by said Smt. Jyotsna Kumari Swarup in

favour of her grandson Adarsh Kumar Swarup (the

appellant) and Smt. Asha Swarup wife of Prabhat Kumar

Swarup in equal share (Presently, the House No. 64,

Agrasen Vihar, Jansath Road, Muzaffarnagar having

Municipal No. 65, Kambalwala, Muzaffarnagar).

The said Smt. Jyotsna Kumari Swarup expired on 31st

March 1985 and in accordance with the will, after her

death Smt. Asha Swarup and Adarsh Kumar Swarup had

acquired the residential house and the land appurtenant

thereto in equal share.

Later on, Smt. Asha Swarup also bequeathed her share

in the residential house and land appurtenant thereto,

which were inherited from Smt. Jyotsna Kumari Swarup in

favour of the appellant vide her will dated 8th December

1993. Smt. Asha Swarup later on expired on 16th March

1994 and according to her will, the appellant Mr. Adarsh

Kumar Swarup also acquired her share in the residential

house and land appurtenant thereto. At the time of death,

Smt. Asha Swarup was having one-fourth share in the

residential house and the land appurtenant thereto.

During the year under consideration, the appellant, out

of the land appurtenant to the residential house, had sold

608 square metres land in two parts for a sum of

Rs.91,39,000/- on 25th June 2010. In the assessment,

the Assessing Officer has also allowed deduction for the

investment made in a flat is] s 54 of the Income-tax Act,

1961 (the Act) for a sum of Rs.60,27,000/-, whereas for

the balance amount the Assessing Officer worked out the

capital gain at Rs.6,35,870/-.

During the course of assessment, the assessee had

claimed that no tax on capital gain on sale of the land is

chargeable to tax because the market value of the land on

the date of acquisition of land by previous owner, i.e.

Smt. Asha Swarup in terms of section 49 of the Act on 31

st March 1985 (being the date of death of Smt. Jyotsna

Kumari Swarup) worked out by the registered valuer at

Rs. 730/- per square yard and after indexation, nothing

remains chargeable to tax.

However, the Assessing Officer was of the view that in

view of the Explanation to Section 49(1) of the Act, the

cost of acquisition has to be seen not in the hands of Mrs.

Asha Swarup but in the hands of Smt. Jyotsna Kumar

Swarup because Asha Swarup had also acquired the said

property by way of will and because Smt. Jyotsna Kumari

Swarup was holding such property before 1st April 1981.

Hence in view of section 55(2)(b)(ii) of the Act, the

market value of the property has to be taken into

consideration as on 1 st April 1981. Even for the purpose

of the valuation as on 1 st April 1981, the assessee had

worked out the said property by registered valuer Shri

Rajiv Jain who worked out the value of the property @

Rs.600 / - per square yard.

The Assessing Officer, instead of the market value

worked out by the registered valuer, adopted the market

value of the property on the basis of circle rate @ Rs.300

/ - per square yard as on 1 st April 1981 without further

benefit of proper indexation as available to the assessee

as per the second proviso to section 48 of the Act and

Explanation (iii) read with section 2(42A) and Explanation

1(6) of the Act.

The appellant filed appeal before the CIT (Appeals) and

objected the action of the Assessing Officer. The appellant

stated that the market value of the property should have

been taken as on 31 st March 1985 when the previous

owner of the property Smt. Asha Swarup had acquired

and not on 1 st April 1981 and secondly stated that even

otherwise the value of the property as on 1 st April 1981

had been adopted by the Assessing Officer on the basis of

circle rate is wrong and it should have been taken as

worked out by the registered valuer @ Rs.600 / - per

square yard because the circle rates are fixed for a

particula.r large area of the locality without taking into

consideration the exact location of the property, whereas

the value depends upon the location of the property also.

Property near to the road fetches more value.

10.

The Commissioner (Appeals) dismissed the contention

of the appellant not only with regard to the date of

adoption of market value as on 31 st March 1985 as

contended by the appellant and has also rejected the

market value of the property as worked out by the

registered valuer and instead adopted the value as on 1 st

April 1981 on the basis of circle rate as done by the

Assessing Officer.

11.

However, the CIT (Appeals) in the appeal proceedings

alleged that the deduction as allowed by the Assessing

Officer in respect of said property by registered valuer

Shri Rajiv Jain who worked out the value of the property

@ Rs.600 / - per square yard.

The Assessing Officer, instead of the market value

worked out by the registered valuer, adopted the market

value of the property on the basis of circle rate @ Rs.300

/ - per square yard as on 1 st April 1981 without further

benefit of proper indexation as available to the assessee

as per the second proviso to section 48 of the Act and

Explanation (iii) read with section 2(42A) and Explanation

1(6) of the Act.

The appellant filed appeal before the CIT (Appeals) and

objected the action of the Assessing Officer. The appellant

stated that the market value of the property should have

been taken as on 31 st March 1985 when the previous

owner of the property Smt. Asha Swarup had acquired

and not on 1 st April 1981 and secondly stated that even

otherwise the value of the property as on 1 st April 1981

had been adopted by the Assessing Officer on the basis of

circle rate is wrong and it should have been taken as

worked out by the registered valuer @ Rs.600/- per

square yard because the circle rates are fixed for a

particular large area of the locality without taking into

consideration the exact location of the property, whereas

the value depends upon the location of the property also.

Property near to the road fetches more value.

10.

The Commissioner (Appeals) dismissed the contention

of the appellant not only with regard to the date of

adoption of market value as on 31 st March 1985 as

contended by the appellant and has also rejected the

market value of the property as worked out by the

registered valuer and instead adopted the value as on 1 st

April 1981 on the basis of circle rate as done by the

Assessing Officer.

11.

However, the CIT (Appeals) in the appeal proceedings

alleged that the deduction as allowed by the Assessing

Officer in respect of investment of flat u/s 54 of the Act

was wrong as he was of the view that u/s 54 of the Act

the deduction is available only when the residential house

is transferred and not the land appurtenant thereto and

for this purpose he relied upon the judgment of Punjab &

Haryana High Court in the case of Ashok Sayal vs. CIT in

209 Taxman 376 and the judgment of the Rajasthan High

Court in the case of Rajesh Surana vs. CIT in 306 ITR 366

and then enhanced the income of the appellant by way of

disallowing the deduction is] s 54 of the Act as allowed by

the Assessing Officer on the investment of Rs.60,27,000/-

Assessee's Contention:

Ground No.1:

The CIT (Appeals) has disallowed the deduction is u/s 54

of the Act as allowed by the AO and claimed by the

appellant on the ground that because the sale has been

only of the land and not the residential house even if the

land was appurtenant thereto and for this purpose had

relied upon the judgment of Ashok Syal vs. CIT (P&H) in

209 Taxman 376 and Rajesh Surana vs. CIT (Raj) in 306

ITR 366. As per the appellant, the facts of both High

Courts are different and no such issue was there.

In the case of Ashok Syal (supra), a residential plot was

allotted to the said assessee by housing authorities on

which a- room with mud was made without any basic

amenities as required for a residential house. Even the

electricity and toilet were not there. The said assessee

claimed that on account of being a room constructed

thereon, he sold the house and not the land and claimed

exemption ix] s 54 of the Act. On such facts, Punjab &

Haryana High Court held that first of all no room was

there and secondly even if it is assumed that room was

there, it was constructed with mud for a certain purpose

without any basic amenities as is necessary in a house to

be called a residential house. The Punjab & Haryana High

Court held that instead of house, as claimed, it was only

land sold, hence no deduction is] s 54 of the Act is

admissible.

In the case of Rajesh Surana (supra), the Hori'ble

Rajasthan High Court was examining the issue ix] s 53

and not 54 of the Act. In the said case also, the said

assessee had sold the plot of land with a garage and in

those very facts the Rajasthan High Court held that in the

absence of basic amenities it was not a house but plot of

land only and then disallowed the exemption u/s 53 of the

Act.

As far as the assessee's case is concerned, it is

brought to your

kind notice that the said land, which was sold by the

appellant, was forming part of the residential house No.

64, Agrasen Vihar (Ram Bagh) , Muzaffarnagar (having a

Municipal No. 65, Bagh Kambalwala) and all the property

was duly assessed to house-tax and was self- occupied by

the occupants viz. the appellant and other family

members. U/s 54 of the Act, the legislature has used the

expression "being buildings or lands appurtenant thereto

and being a residential house".

The Hon'ble Karnataka High Court had examined these

expressions while construing the provision of section 54 of

the Act in the case of Shri C.N. Anantharaman vs. ACIT in

ITA No. 1012/2008 vide its judgment dated 10th October

2014 - copy enclosed. The Hon'ble Karnataka High Court

held that the deduction u/s 54 of the Act is also available

even if the land, which was appurtenant to the residential

house, is sold and it is not necessary that the whole of the

residential house should be sold because the legislature

has used the words "or" which is distinctive in nature.

In the instant case, it is not the case of AO and CIT

(Appeals) that the land was not appurtenant to the

residential house. The case of the CIT (Appeals) is that

the appellant has sold only the land appurtenant to the

house and not residential house which, according to the

Karnataka High Court, is not a requirement under the law

and exemption vi] s 54 of the Act is also available to the

land which is appurtenant to the house. The front page of

the sale deed itself shows that the land was part of

residential house No. 64, Agrasen Vihar, Muzaffarnagar.

Therefore, the exemption as claimed and allowed by the

Assessing Officer should be upheld and the enhancement

as made by the CIT (Appeals) deserves to be deleted.

Ground No.2:

As far as the application of rate as adopted by the

Assessing Officer for the purpose of working out the

capital gain is concerned, the same is wrong inter-alia

because:

(i) the market value should have been taken as was in the

hands of previous owner Smt. Asha Swarup from whom

the appellant had received the property because she is

the previous owner as far as the assessee is concerned;

and

(ii) because Smt. Asha Swarup had acquired the

property as on 31 st March 1985, hence the market value

of the property should have been taken into account as on

31st March 1985 as worked out by the registered valuer

at Rs.730/ - per sq yard.

Without prejudice to above, even if it is presumed that it

is the cost in the hands of Smt. Jyotsna Kumari Swarup

has to be taken into account because Smt. Asha Swarup

had acquired the property by way

of a will from Smt. Jyotsna Kumari Swarup. Even then the

market value of the property as on 1 st April 1981 was

more than as adopted by the Assessing Officer. The

Assessing Officer has adopted the market value of the

property as that was notified by the Stamp Authorities for

the purpose of levy of stamp duty by circle rates. The

Stamp Authorities, while fixing the circle rates, did not

take into account various advantages and disadvantages

and the location of the property, but they fixed the circle

rate on a fixed rate for whole of the locality. The Hon 'ble

Jurisdictional Allahabad High Court in the case of Dinesh

Kumar Mittal vs. ITO in 193 ITR 770 held that there is no

rule of law to the effect that the value determined for the

purpose of stamp duty is the market value of the

property. The market value of the property may be more

or may be less.

Therefore, in such circumstances, when a registered

valuer has worked out the market value of the property as

on 1 st April 1981 at Rs.600 / - per square yard after

taking into account the location of the land, the same

should be adopted by the Assessing Officer.

Additional Ground of Appeal:

While computing the capital gain on sale of property, the

Assessing Officer had adopted the deemed cost as market

value of the property as on 1 st April 1981 because he

was of the view that late Smt. Asha Swarup, from whom

the appellant had received the property by way of will had

inherited the property from late Smt. Jyotsna Kumar

Swarup and accordingly the cost of acquisition of the

property shall be deemed to be the cost for which the

previous owner of the property acquired it. As per the

Explanation to section 49(1) of the Act, the previous

owner of the property means the last previous owner of

the property who acquired it by a mode of acquisition

other than that referred in clause (iii) of section 49(1) of

the IT Act. Hence accordingly the cost in the hands of

Smt. Jyotsna Kumar Swarup shall be deemed to be the

cost of the property. As Smt. Jyotsna Kumar Swarup was

holding the property prior to 1 st April 1981, hence in

view of the provision of section 55(2)(b) of the Act the fair

market value of the asset as on 1 st day of April 1981

would be the deemed cost of acquisition.

The computation of capital gains has been prescribed u/s

48 of the IT Act and it states that capital gains shall be

computed by deducting from the full value of the

consideration received as a result of the transfer of a

capital asset, cost of the acquisition of asset and the cost

of any improvement thereto.

The second proviso to section 48 of the IT Act further

states that if the long term gains arises from the transfer

of a long term capital asset, then the cost of acquisition

means the indexed cost of acquisition. The indexed cost of

acquisition has been defined in Explanation (iii) and it

states that the indexed cost of acquisition means "an

amount which bears to the cost of acquisition the same

proportion as cost inflation index for the year in which the

asset is transferred, bears to the cost inflation index for

the first year in which the asset was held by the assessee

or for the year beginning on the first day of April 1981,

whichever is later".

The long term capital asset and short term capital asset

has been defined in section 2(29A) and 2(42A) of the IT

Act respectively. The short-term capital asset means a

capital asset held by an assessee for

not more than 36 months immediately preceding the date

of its transfer. Explanation 1(b) to section 42A of the IT

Act further states that in determining the period for which

any capital asset is held by the assessee, in the case of a

capital asset which becomes the property of the assessee

in the circumstances mentioned in sub-section (1) of

section 49, there shall be included for which an asset was

held by the previous owner referred to in the said

section.

In the instant case, the previous owner has been

considered by the Assessing Officer Smt. Jyotsna Kumar

Swarup in view of the Explanation to Section 49 and not

Smt. Asha Swarup. Hence the necessary collolary arises

that the period of holding has to be computed from 1 st

April 1981 being the base year for which the cost has

been deemed and accordingly the indexed cost of the

property should be worked out after taking into account

the date of deemed cost of acquisition, i.e. 1 st April 1981

onwards for the purpose of computation of capital gains.

In the instant case, the Assessing Officer, for the purpose

of indexation, has adopted the date as 31st March 1985

and not 1st April 1981. Hence the Assessing Officer be

directed to work out the indexed cost, thereby taking into

account the date of acquisition as

1st April 1981.”

On the contrary, Ld. DR relied upon the orders of the authorities

below and stated that Ld. CIT(A) has passed a well reasoned order

which does not need any interference, hence, he requested that the

appeal filed by the Assessee may be dismissed.

We have heard both the parties and perused the records,

especially the impugned order passed by the Ld. CIT(A), Paper Book

and Brief Synopsis. We find that in this case return of income was