DCIT, CHENNAI vs. CHARUMATHY SESHADRI, CHENNAI

आदेश/ O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

The revenue filed this appeal against the order of the Commissioner of

Income Tax (Appeals)-15, Chennai in ITA No. 186/CIT(A)-15/2014-15/AY 2011-

12 dated 23.12.2016.

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profession. During the ay 2011-12, the assessee sold a vacant land for Rs. 2.35

crores, of which she computed the capital gains at Rs. 2,15,56,250/- and

claimed deduction u/s. 54F for Rs. 2,15,56,250/- on an investment made in a

new asset for Rs. 2.6 crores. The Assessing Officer found her investment as

under :

(i) Investment in 1.25 acres nanja land at Ottiampakkam village in Kacheepuram district Rs. 2,20,00,000/- (ii) Expenditure incurred for registration Rs. 17,20,167/- Total investment in1.25 acres nanja land Rs. 2,37,20,167/- Investment made in capital gains account scheme Rs. 20,20,000/-

assessee in the nanja land, the AO caused an enquiry and found from them that

there was an incomplete structure at one corner of land and it does not have any

kind of resemblance of a completed residential house and a vast area land was

kept unutilised. No residential house was constructed and completed within 3

years. Further, the AO found from the electrical connection obtained that

assessee’s intention was not to construct a wholly residential property but an

intention to construct commercial property and hence held that the assessee is

in eligible to claim deduction u/s 54F. Aggrieved, the assessee filed an appeal

before the CIT (A) .

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u/s 54F, it is sufficient if the construction commenced within the period of three

years from the date of sale of original asset. Explaining various reasons for the

delay in the completion of construction, the assessee claimed that the delay was

beyond her control. After considering the reasons for delay in the completion of

construction and relevant material, the CIT(A) was of the opinion that there were

reasons beyond the control of assessee, which prevented her from completing

the construction work within the period of three years from the date of sale of

original asset. The assessee also filed a certificate from the concerned contractor

and submitted that the construction of residential house was completed on

24.03.2014. The CIT(A) found that the long term capital asset was sold on

04.11.2010 for Rs. 2,35,00,000/-. The assessee invested Rs. 2,59,64,300/-

(including registration charges and stamp duty between 06.05.2011 to

04.06.2011) in the new asset and deposited Rs. 20,20,000/- in the capital gains

account scheme before the due date for filing return u/s. 139 which was

30.09.2011. and filed her return on 22.09.2011. Relying on the decisions of the

Hon’ble jurisdictional High Court in the case of M/s. Seetha Subramanian vs.

ACIT (1996) 59 ITD 94 and CIT vs Sardamal Kothari (2008) 302 ITR 286, the

CIT(A) held that the assessee need not complete the construction and occupy

the same within the period of three years from the date of sale of original asset,

if the construction had commenced within the period of three years. In the

assessee’s case not only the capital gain were invested in the purchase of land

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for construction of residential house and invested in the capital gains scheme

account. The construction of the residential house had also commenced within

the period of three years from the date of sale of original asset. So , the CIT(A)

held that the assessee is eligible to claim the benefit u/s. 54F and accordingly

directed the AO to grant the relief.

following grounds:

“2.1 The Ld CIT(A) failed to appreciate that the assessee had failed either to construct the residential house or if constructed, the same was not completed within three years from the date of sale of the original asset. 2.2 The Ld CIT(A) erred in not following the ratio laid down In Jagwinder Singh Vs CIT(P&H) reported in 50 taxmann.com wherein under similar circumstances assessee held to be not eligible for deduction since it failed to produce evidence to prove completion of the construction during the period stipulated in Sec 54F. 2.3) The Ld ClT(A) failed to appreciate that the assessee has obtained the electricity connection from the TNEB under Tariff No V, which will be given for electrical connection which more than 25% of the built up area is utilized for commercial purpose. This stands evidence to decide that the assessee's intention was not to construct a wholly residential property but with an intention to construct a structure with commercial purpose. 2.4) The Ld CIT(A) ought to have appreciate that the decision of ITAT C Bench ,Chennai in the case of K.V. Vijayaraghavan Vs. DCIT Company Circle (I},Chennai.(2017) 78 Taxmann.com 177 (Chennai Trib) in violation to section u/s 54F(3), for purpose of construction of a shopping complex. This stands evidence to decide that the assessee's intention was not to construct a wholly residential property but with an intention to construct a structure with commercial purpose.”

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The DR invited our attention to the petition filed for condonation of delay. On

the merits canvassed the delay is condoned. The Dr argued the case supporting

the assessment order and on the lines of grounds of appeal. Per contra, the AR

filed a paper book and supported the order of the CIT(A).

in the paper book. On 04.11.2010, the assessee sold vacant land measuring, say ,2.64 grounds together with 1/20th share in the common passage measuring

2300 sq.ft. located in Neelangarai, Chennai for Rs. 2.35 crores. On the same

date, she entered into a development agreement with the purchaser for Rs. 25

lakhs. So, the total value realised on the sale of vacant land was Rs. 2.6 crores.

The capital gains worked out on this transaction was Rs. 2.15 crores. On

28.06.2011, the assessee purchased 1 acre and 25 cents of nanja land at

Ottiampakkam Village, Sholinganalur Taluk, Kancheepuram District within the

limits of St. Thomas Mount Panchayat Union for Rs. 2,40,00,000/- including

stamp duty and registration charges. On 22.07.2011, she deposited Rs.

20,20,000/- in State Bank of Travancore (SBT) towards capital gains scheme

account. Thus, the total investments as on 22.07.2011 was Rs. 2.6 crores. The

assessee also obtained the planning permission on 04.07.2012 well before the

due date for filing return u/s. 139(1) which was 30.09.2011. The other

investments made by the assessee, as culled from the paper book , are as

under:

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6.1 Description of the property from the inspection made on 20.12.2013 as

extracted from the assessment order is as under :

“From the road side - the sprawling 1.25 acres of nanja land land was fenced with borbed wire and in the balance three sides, compound wall was erected. From the entrance , a rough road has been laid . To the right of the road (facing the plot) a small, thatched shed was available in which cement bags were arranged. To the left of the road, a tin shed has been erected for the stay of construction workers. At the far left hand end of the plot (facing the plot), there was one building which was under construction. No proper steps were provided. Fixtures like windows and doors were not there and no electric supply has been provided to the building yet. No flooring and plastering of walls had been carried out. To have a correct view of passing scrutiny order, the entire place was nearly photographed and videographed,, which shows the exact position of the so called residential house property. For the claim of deduction u/s. 54F, the construction of residential house should have been completed by 06.11.2013. The place has been visited on 20.12.2013, beyond 45 days of the due date for completion of construction as per section 54F of the IT Act and found to be very much incomplete, emphasis supplied and utilization of land is very minimal for the building, leaving a vast area of land untilized. Hence it is evident that the claim of deduction u/s. 54F of Rs. 2.60 crores

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(which is the cost of 1.25 acres of nanja land itself) is untenable and needs to be disallowed. Soft copy of photos and video submitted”

6.2 It is seen from the copy of the remand report sent by the ACIT, Non-

corporate Circle (5)-1 to the CIT (A) dated 26.08.2016, which is in the paper

book, that the ITI inspected “the property on 17.08.2016 and found that the

said propertyis a land having a small portion in the middle of property

constructed (about 1500 sq.ft.)”. This indicates that the size of house is just

about 1500 sqft only in the sprawling land of 1 acres 25 cents.

6.3 Though the assessee has made out a case for deduction u/s 54 F, as per

the ratios of the jurisdictional HC , however, a question arises that when the

assessee has invested in 1.25 acres of land but constructed a house in the land

just about 1500 sq.ft. only and claims the benefit of deduction u/s 54F on the

entire investments in the 1.25 acres land and its compound wall etc, on the

investment of how much land and buildings should she be given the benefit of deduction u/s 54F has not been examined by the lower authorities at all. In the

case of Commissioner Of Income-Tax, Vs Zaibunnisa Begum,151 ITR 320 AP, the

brief facts were as under :

“The assessee and her three sisters were the joint owners of house property consisting of a fairly large building and extensive land, each one owning 1/4th share. The building has a built-up area of 17,136 sq. ft. and the total extent of land including the land on which the building stands is 13,029 sq. yards. The building as well as the entire extent of land was acquired by the Government under the Land Acquisition Act for construction of the office of

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the Accountant-General. Compensation was initially awarded by the Land Acquisition Officer and it was enhanced by the Second Additional Chief Judge, City Civil Court, Hyderabad, pursuant to reference made under s. 18of the Land Acquisition Act. The compensation finally awarded was :

Rs. (a) Compensation for land 5,21,160 (b) Compensation for the building 1,71,360 (c) Solatium 1,03,878 ------------- 7,96,398 -------------

In the income-tax return field for the assessment year 1964-65, the assessee declared her share of capital gain arising on the transfer of the land and building by way of compulsory acquisition, claimed that she constructed a building for her residential purposes at a cost of Rs. 80,000 within a period of two years from the date of transfer of the abovesaid building together with land. Accordingly, the sum of Rs. 80,000 was claimed as deduction under s. 54 .The ITO determined the assessee's 1/4th share of capital gain on the transfer of the land and building jointly owned by the assessee and her three sisters at Rs. 1,42,283 and set off against the same a sum of Rs. 75,000 which he estimated as the cost of building constructed by the assessee for her residential purposes under s. 54 . Doing so, he arrived at the capital gain for the purpose of assessment at Rs. 67,283 and included the same in the total income.

Against the order of the ITO, the assessee filed an appeal before the AAC and questioned the correctness of the computation of the capital gain at Rs. 1,42,283. In this case , the AAC went further into the question whether the deduction of Rs. 75,000 representing the cost of construction of the new residential house could be set off against the entirety of capital gain arising on the sale of building as well as the land or should be limited to the extent of capital gain arising on the sale of the building and land "reasonably appurtenant" to the building. The provisions of s. 54(1) were construed by

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the AAC as permitting the set-off of the amount spents on the construction of a new building for residential purposes only against the capital gain arising on the transfer of the building and land, which is "reasonably appurtenant" to the building. The AAC was of the view that, if the land contiguous to a building is vast in extent, the entire extent of land could not be considered to be appurtenant to the building and only a reasonable portion of such land could be so considered under law. He, accordingly, directed the ITO to redetermine the capital gain on the transfer of the building and the land reasonably appurtenant to the same and, if such capital gain should be less than Rs. 75,000, restrict the deduction under s. 54(1) only to the extent of the restricted sum. The AAC obviously held the view that the capital gain derived on the sale of land, which is not reasonably appurtenant to the building should be taxed in entirety and no part of the sum of Rs. 75,000 spent on the construction of the new residential house should be set off against such capital gain. As the ITO did not examine the question from the above points of view, he directed the ITO to re-work out the capital gain on the aforesaid basis. This was the subject matter before the Honb’le High Court of the AP .

6.4 The relevant portion of the order of the Honb’le High Court is extracted

as under :

“18. It is clear from the observations of SatyanarayanaRao J. and RaghavaRao J. above referred to that, if the expression is used in the Act in a primary sense, then the meaning attached to that primary sense must be given irrespective of other considerations. We have already stated that the expression "land appurtenant thereto" was defined in a primary sense for purposes of s. 5(1)(ivc) of the W.T. Act. It would follow that the expression occurring in s. 5 (1)(ivc) should be understood in that primary sense and it is not open to the courts to impose any other considerations. Where, however, the expressions used convey more than one sense-a primary and secondary sense-that sense is to be adopted which best harmonises with

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the context and promotes in the fullest manner the policy and object of the Legislature. In our opinion, the expression "land appurtenant thereto" has also a secondary meaning as equivalent to "usually enjoyed or occupied with". There is no indication that the Legislature used the above expression in s. 54 of the I.T. Act limiting its sense and meaning artificially to any particular extent. Considerations governing the limitations imposed upon the meaning of that expression under sister enactments like the W.T. Act and the Urban Ceiling and Regulation Act, 1976, cannot be imported into s. 54 of the I.T. Act. In our opinion, that expression is used in s. 54 of the I.T. Act in a wider sense. It is, therefore, imperative that the tax authorities will have to determine the extent of land appurtenant to a building transferred, taking into consideration a variety of circumstances that may be relevant for the purpose. It is not possible to lay down infallible tests to be applied for the determination of the extent of land appurtenant to a building, as the tests vary depending upon the facts and attendant circumstances of each case. For instance : (1) If the building together with the land is treated as an indivisible unit and enjoyed as such by the persons occupying the building, it is an indication that the entire extent of land is appurtenant to the building; (2) If the building has extensive lands appurtenant thereto and even if the building and the land have 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. Such an enquiry should be conducted not based on any artificial considerations but from the point of view of the persons occupying the building. The number of persons or different branches of families residing in the building, the requirements of the persons occupying the building consistent with their social standing, etc., are relevant for the purpose. If any surplus is arrived at on such enquiry, then the extent of such surplus land may not qualify to be treated as land appurtenant to the building; (3) If there is any evidence to indicate that any portion of the land contiguous to the building was put to user other than the enjoyment of the building, then that provides a safe indication regarding the

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extent of land put for such user. For instance, the land used by the occupiers for commercial, agricultural and horticultural purposes, although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to the building; (4) If the owner or occupier is deriving any income from the land which is not liable to be assessed as income from house property unders. 22 of the I.T. Act, then the extent of such land does not qualify to be treated as land appurtenant to the building; and (5) any material pointing to the attempted user of the building for purposes other than the effective and proper enjoyment of the house would also afford a safe guide to determine the extent of surplus land not qualifying to be treated as land appurtenant to the building.

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error in coming to the conclusion that the AAC was not justified in directing the ITO to enquire into the matter for the above purpose.

6.5 Though, the Hon’ble High Court has laid the tests to be applied for the

determination of the extent of land appurtenant to a building in the case

involving sale of land and buildings, in sub para 18, supra, we are of the view

that they could very well be applied in the case of purchase of land and

construction of house as is involved in this case also. Further, in the case of

Smt. Asha George versus Income-tax Officer, Ward 2(1), Thrissur, in IT APPEAL

No. 114 OF 2012, Dt 16.01.2013 in the Ho’ble High Court of Kerala, the facts

ofthat case was as under :

“Assessee returned nil income for the assessment year 2005- 2006. Acting on information that the assessee had transacted a property on 05.11.2004, the assessment was reopened. Appellant had 1/4th share in 1.10 acres of land in Ayyanthole Village. The same was sold for Rs. 44 lakhs on 14.11.2004. The assessee received Rs.11 lakhs as her share. In her return, she computed her capital gain at nil after claiming indexation on cost of acquisition and cost of improvement and further claiming exemption under Section 54F of the Income Tax Act (hereinafter referred to as the Act) on

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the basis of a property purchased at Koothattukulam, a farm house with 1.92 acres of land for Rs.11 lakhs on 28.3.2005. During the course of the assessment proceedings, the appellant took up the contention that she is entitled to exemption under Section 54B of the Act. The tribunal has affirmed the findings of the authorities that the appellant is not entitled to the benefit of Section 54B for the reason that the property at Ayyanthole Village which she sold was not used for agricultural purposes for a period of two years prior to the date of the sale as required under Section 54B of the Act. It is the further finding of the tribunal that the appellant is entitled only to take Rs.2 lakhs as the cost of acquisition over and above Rs.1 lakh allowed as value of super-structure under Section 54F of the Act. It is being aggrieved by the same, the assessee was before the Honourable High Court of Kerala.”

6.6 The relevant portion of the order of the Hon’ble High Court is extracted

as under :

“11. Next, it is contented that the officer should have granted, at any rate, the benefit of exemption u/s. 54F of the Act in regard to the value of the property, namely the officer should have deducted the entire Rs. 11 lakhs paid for purchasing 1 acre 92 cents with the farm house.

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appellant that the value of the entire land must be considered in arriving at the value of the residential building. We find no illegality committed by the tribunal.”

6.7 In view of the above facts and circumstances and following the above

decisions , we deem it fit to restore the matter for the determination of the

extent of land appurtenant to a building (in this case the house) to the AO and

direct him to re-determine the eligible deduction u/s 54F , afresh , on the lines

on which the Honourable High Courts have laid the guidelines, supra, after

giving adequate opportunity to the assessee.

statistical purposes.

Order pronounced on Monday, the 09th day of October, 2017 at Chennai.

Sd/- Sd/- (एन.आर.एस .गणेशन) (एसजयरामन) (N.R.S. GANESAN) (S. JAYARAMAN) !या�यकसद"य/Judicial Member लेखासद"य/Accountant Member

चे�नई/Chennai, 0दनांक/Dated: 09th October, 2017 JPV आदेशक&)�त1ल2पअ3े2षत/Copy to: 1. अपीलाथ%/Appellant 2. )*यथ%/Respondent 3. आयकरआयु4त ) अपील(/CIT(A) 4. आयकरआयु4त/CIT 5. 2वभागीय)�त�न�ध/DR 6. गाड7फाईल/GF