ITO, CHENNAI vs. S. LAKSHMANAN, CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

The Revenue has filed the appeal against the orders of the

Commissioner of Income Tax (Appeals)-V, Chennai, dated

14.08.2013, of assessment year 2010-11.

2 I.T.A. No.2103/Mds/13 2. The effective revised grounds raised by the Department are

as follows:-

“2.1. The learned CIT(A) erred in directing the Assessing Officer to allow the exemption claimed u/s 54 or alternative claim u/s 54F of the I.T. Act.

2.2. The learned CIT(A) failed to appreciate that the original property (Okkaiam Thoraipakkam property) sold by the assessee, on 3.7.2009, was only a vacant land, the sale of which will not qualify for deduction u/s 54 of the I.T. Act.

3.1. Without prejudice to the above ground of appeal, the learned CIT(A) erred in giving direction to grant deduction u/s 54F on the land cost and cost of construction of the building constructed in ‘Malli Enclave”, when the purchase of land as well as construction agreement were entered into much after the due date of filing the return of income for A.y. 2010-11.

3.2. The learned CIT(A) failed to appreciate the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Smt. Zaibunissa Begum (151 ITR 320).”

and was in share trading business and filed his return of income for

the assessment year 2010-11 admitting NIL income. The return

was processed under Section 143(1) of the Income-tax Act, 1961 (in

short 'the Act'). Further, the case was selected for scrutiny and

notices under Section 143(2) and 142(1) were issued. During the

financial year 2009-10, the assessee sold a residential house

3 I.T.A. No.2103/Mds/13 property for `1,12,00,001/- and claimed exemption under Section 54

of the Act. As the due date for filing of return was nearing, the assessee deposited long term capital gain in Capital Gains Account

Scheme on 26.07.2010 and claimed the benefit of long term capital gain exemption. Whereas, the Assessing Officer called for the information during the hearing proceedings and denied the

exemption on the ground that the property sold was only vacant land as Section 54 of the Act does not apply to vacant lands. Hence, he brought to tax the long term capital gains of `90,10,274/-

and determined a demand of `24,56,150/-.

grounds in respect of denial of exemption under Section 54 / 54F of the Act. In the course of hearing proceedings before the CIT(Appeals), the assessee submitted a copy of computation of

income relating to assessment year 2009-10, where the rental income from house property was assessed to tax under the head “income from property”. Further, the assessee demonstrated that an amount of `93 lakhs was invested under Capital Gains Scheme

with a nationalized bank. Before the CIT(Appeals), the assessee

has also made an alternative claim without prejudice to the rights, if

4 I.T.A. No.2103/Mds/13 the Assessing Officer considered the sale proceeds relating to

vacant land, then exemption may be granted under Section 54F of

the Act. The Assessing Officer without allowing exemption under

Section 54 / 54F of the Act, brought the long term capital gains to

tax. The assessee has complied with the conditions and provisions

of Capital Gains Scheme by investing the long term capital gain in

purchase of land and construction of residential house, aggregating

to `1,08,19,213/- and the builder has handed over the possession of

the residential property on 30.05.2012 along with Completion

Certificate. The purchase of land and construction of property was

completed within a period of three years from the date of transfer of

the property sold, the CIT(Appeals) has observed in para 7 of his

order as follows:-

“7. The AR of the appellant has filed copy of the return of income filed for the AY 2009-10 for showing income from house property which is given on rent situated at Plot No.39, Raju Nagar, Thoraipakkam, Chennai 96 and also shown an amount of rent receipt at `7,800/- along with the property tax paid. The AR of the appellant has also made an alternative claim that if the Assessing Officer version that the property sold was not residential property and it is only lands the sale proceeds have been reinvested in purchasing another residential house at Coimbatore and the amount invested in the new property is at `1,08,90,213/- which includes the cost of land along with registration and other expenses at `46,32,535/- and superstructure as per construction agreement dated 2709.2011 at `61,86,678/-. This alternative claim has

5 I.T.A. No.2103/Mds/13

been made before the Assessing Officer also that if exemption of u/s 54 is not considered the same may be considered u/s 54F of the I.T. Act in case the property sold is treated as lands other than residential house property, which qualifies for the exemption u/s 54F of the I.T. Act. However, the Assessing Officer has not considered the alternate claim of the appellant during the course of assessment proceedings.”

Considering the facts on record and on verification of the evidence

filed, the CIT(Appeals) has directed the A.O. to allow the claim the

exemption under Section 54 or alternative claim under Section 54F

of the Act.

the findings of the Assessing Officer, only vacant land was sold and

the assessee is not eligible for exemption under Section 54 of the

Act and also concluded that the order of the CIT(Appeals) is erred in

both law and facts. The CIT(Appeals) has relied on additional

evidence. Hence, the order of the CIT(Appeals) be set aside to the

file of the A.O.

submitted that the property purchased by the assessee was a long

term asset. The construction was made and the rental income was

received and also offered to tax for assessment year 2009-10 under

the head “income from house property” followed by proof of rent

6 I.T.A. No.2103/Mds/13 receipt and property taxes paid. There is no doubt the property is a

building which is subject to rental income and assessed under the head “House property”. The provisions of Section 54 of the Act is clear that when the long term capital gain arises from the transfer of

a long term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property”, which the

assessee has complied and as a pre-condition of the buyer of the property, the house was demolished and sale deed was executed for `1.12 Crores. The long term capital gains could not be

appropriated for purchase or construction of new residential property before due date of return of income. Under Section 139(1)

of the Act, the amount was deposited on 26.07.2010 in a nationalized bank under Capital Gains Account Scheme. In continuation of compliance of capital gain exemption scheme, the assessee has purchased and constructed residential property within three years after the date of transfer of the property sold on 3rd July, 2009.

7 I.T.A. No.2103/Mds/13 and Section 54F of the Act are beneficial provisions which are to be

considered liberally as both are for construction of residential house

properties within specified time. The assessee claimed exemption

under Section 54 of the Act by purchasing land and construction of

residential house which is not disputed by the Assessing Officer.

is a vacant land or residential house property. It was submitted

before the CIT(Appeals) that the property, which was sold, was let

out on rent in the earlier years and this was duly supported by the

return of income filed for assessment year 2009-10 along with

details of rent receipt and taxes paid. Hence, the character of the

property has to be treated as residential property as there was a

pre-condition to demolish the house property and execute a sale

deed, which is disputed by the A.O. but not the investment made by

the assessee in new residential house at Coimbatore, costing `1,08,90,213/- and the possession along with completion certificate

issued by the builder on 30.05.2012. Hence, the investment

complied the provisions of law and attained the finality. The issue is

narrow down to whether the property takes the character of land or

house property. The Revenue has raised the grounds before us

that the CIT(Appeals) has erred in directing the Assessing Officer to

8 I.T.A. No.2103/Mds/13 allow exemption to the assessee under Section 54 or alternative

claim under Section 54F of the Act. The property was sold on

03.07.2009. Even though it is vacant land, without prejudice to the

rights of the assessee, assessee is eligible for exemption under

Section 54F of the Act. The Ld. D.R. submitted that the purchase of

land and the construction agreement were made after due date of

filing of the return for the assessment year 2010-11, it still satisfies

the conditions under Section 54 of the Act. Before the due date

under Section 139(1) of the Act, the assessee has deposited long

term capital gains in Capital Gains Account Scheme and complied

with the pre-conditions and also took the possession of the property

on 30.05.2012 and there is no dispute of possession by the A.O. in

the assessment order. Further, the Ld. D.R. relied on the judgment

of Andhra Pradesh High Court in CIT v. Smt. Zaibunisa Begum

(1985) 151 ITR 320, where Lordships have considered the issue in

respect of transfer of building and land appurtenant, and the issue is

on different facts where the construction was in a smaller area

compared to the open land left on which the building is constructed.

The same cannot be applied to the present case, as the assessee

in toto has sold the land along with building.

9 I.T.A. No.2103/Mds/13 9. In the aforesaid facts and circumstances, we are of the opinion that there is no infirmity in the order of the CIT(Appeals), we are inclined to uphold the same by dismissing the grounds raised by the Department.

Order pronounced on 11th September, 2015 at Chennai. sd/- sd/- (चं� पूजार�) (एन.आर.एस. गणेशन) (Chandra Poojari) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 11th September, 2015.

Kri. आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A)-V, Chennai 4. आयकर आयु�त/CIT-X, Chennai-34 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.