AJIT DAYAL LALVANI,MUMBAI vs. DCIT RG 7(2),

Section 54 specifies the house property :- As per Income Tax Act house property consist of house and land 2 A.Y. 2005-06 appurtenant there to, and being a residential house, the income of which is chargeable under the head income from house property.

Argument upon the delay heard. The present appeal has been filed by the assessee 29 days delayed. The affidavit submitted by the assessee lies at page 14 of the paper book. It seems that Chartered Accountants was out of town and could not file the appeal well in time. Now the reasons does not seems justifiable but on seeing the controversy on record, we are of the view that the appeal should be 3 A.Y. 2005-06 heard and decided on merit, therefore, we allowed the application for delay.

The brief facts of the case are that the assessee filed the return of income on 28.10.2005 declaring total income to the tune of Rs.6,16,602/-. The return was accompanied by computation of total income, balance-sheet, profit & loss account, audit report u/s.44A of the Income Tax Act, 1961 ( in short “the Act”) in from no. 3CB and 3CD, etc. Thereafter the notices u/s.143(2) and 142(1) of the Act alongwith questionnaire, were issued and served upon the assessee. The assessee was carrying on professional marketing activities as management consultants and commission agents. The assessee has shown income from salary, business and other sources. The assessee shown long term capital gains on sale of unquoted shares of Rs.14,60,000/- and claimed the same as exempted u/s.54F of the Act. The Assessing Officer was in doubt in connection with the sale prices of 500 shares of F. Bock & Co. because the nature of the credit of Rs.17,00,000/- was shown by the assessee. As per the agreement dated 18.08.2005 the purchase price relates to the purchase of open land and pricing relating to the house property is Rs.6,51,786/-. The purchases is in the name of the assessee, his wife and son and the Assessing Officer delete the 1/3rd cost price of the house property for the for deduction u/s. 54F of the Act. Feeling aggrieved the assessee 4 A.Y. 2005-06 has filed the appeal before the CIT(A) who confirmed the order hence the present appeal has been placed before us.

However, the assessee has raised number of grounds but the bone contention of the assessee is that the assessee bought a house property consist of house appurtenant there amounting to Rs.30,29,296/- and stamp duty amounting to Rs.1,81,760/- calculated @ 6% of the total consideration paid to the tune of Rs.31,48,040/- plus brokerage and other charges totaling to Rs.32,41,046/-. The Assessing Officer as well as the CIT(A) treated the construction cost for the purpose of section 54 and 54F of the Act. It is not in dispute that the assessee purchased the land appurtenant to the constructed house in sum of cost of Rs.23,77,500/- and construction cost was of Rs.6,51,786/- and total amount is to the tune of Rs.30,29,296/-. The CIT(A) has considered the 1/3rd amount of the construction to the tune of Rs.6,51,786/- i.e.1,81,760/- for the deduction u/s.54 of the Act being the assessee was owner in possession of the property in question to the extent of 1/3rd share. 2/3rd share were held by the wife of the assessee as well as his son. It is not in dispute that for the purpose of exemption u/s.54F of the Act the assessee’s share would only be entitled in view of the law settled by High Court of Bombay in case of Prakash Vs. Income Tax Officer & Ors. (2008) 220 CTR 249 : (2009) 312 ITR 40. But it is not in dispute that the CIT(A) has only considered the cost of construction for the purpose of deduction 5 A.Y. 2005-06 u/s.54F of the Act to the extent of his 1/3rd shares to the tune of Rs.6,59,786/- i.e. Rs.1,81,760/-

Now the circular No. 667, dated 18.10.1993 is quite clear and is reproduced as under:- i. Section 54 and 54F provide for a deduction in cases where an Assessee has, within a period of one year before or two years after the date on which the transfer of a capital asset takes place, purchases, or has within a period of three years after the date on which the transfer of a capital asset takes place, purchases or has within a period of three years after that date constructed, a residential house. The quantum of deduction is itself dependent upon the cost of such new asset. It has been represented to the Board that the cost of construction of the residential house should be taken to include the cost of the plot as, in a situation of purchase of any house property, the consideration paid generally includes the consideration for the plot also. ii. The Board has examined the issue whether, in cases where the residential house is constructed within the specified period, the cost of such residential house can be taken to include the cost of the plot also. The Board are 6 A.Y. 2005-06 of the view that the cost of the land is an integral part of the cost of the residential house, whether purchases or built. Accordingly, if the amount of capital gain for the purposes of section .54 and the net consideration for the purpose of section 54F, is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction under section 54/54F, provided that the acquisition of plot and also the construction thereon, are completed within the period specified in these sections

Apparently, in view of the said circumstances for the purpose of deduction u/s.54 or 54F of the Act, the land appurtenant on constructed house is liable to be considered for exemption. Therefore, in view of the said circumstances the purchase value of the house to the tune of Rs.30,29,296/- is liable to be considered to the extent of the share of the assessee, therefore, we set aside the order of the CIT(A) on this issue and direct the Assessing Officer to reassess the deduction u/s.54 or 54F of the Act in view of the circular no.667 dated 18.10.1993 in accordance with law.

In the result, the appeal filed by the assessee is hereby allowed.