Two different floors of one house property cannot be treated as two different residential houses

ITO Vs. Nathamuni Krishnaswamy Balaji (ITAT Chennai)

It is an undisputed fact that both the ground floor and first floor bearing same residential number, i.e., 64,/43, 28th Cross Street, Indira Nagar, Adyar, Chennai, contiguous to each other and are within a common boundary and a common compound. Further, the property tax and water tax are paid for the entire house as a whole and it is a composite unit till now it continues to remain the same. On verification of the Property tax details of 4-9-2014, the learned Commissioner (Appeals) has noticed that the above said property is mentioned as single independent building in the name of the assessee.

In the case of Shiv Narain Choudhari v. CWT (supra), the Hon’ble Allahabad High Court has held that several self-contained dwelling houses which were contiguous and situated in the same compound and within common boundaries and having unity of structure could be regarded as one single residential unit. Further, by relying on the above decision in the case of Shiv Narain Choudhari v. CWT (supra), in the case of CWT v. Mrs. Najima Nizar 197 ITR 258, the Hon’ble Kerala High Court has held that exemption under section 5(1)(iv) of the Act is allowable in respect of the value of the whole building and not merely in respect of the value of one of the shop rooms comprising the building even if each shop room bears a different municipal number.

Full Text of the ITAT Order is as follows:-

see are directed against the order of the learned Commissioner (Appeals) 15, Chennai dated 30-11-2016 relevant to the assessment year 2010-11. The Revenue has challenged against the deletion of dis allowance of Rs. 45.00 lakhs towards residential property as well as excluding the value of the agricultural land at Rs. 5,25,525 while computing the taxable wealth of the assessee.

2. Brief facts of the case are that during the course of income tax assessment proceedings in the case of the assessee for the assessment year 2010-11, the assessing officer has noticed that the assessee had taxable wealth for the assessment year 2010-11. On verification, the assessing officer found that the assessee has not filed wealth tax return for the assessment year 2010-11. Accordingly, the assessing officer issued notice under section 17 of the Wealth Tax Act, 1957 (“Act” in short). In response thereto, the assessee through his letter dated 25-5-2015 stated that he had no taxable wealth for the assessment year 2010-11. Subsequently, notice under section 16(4) of the Act dated 14-7-2015 was issued to the assessee calling for return of wealth for the assessment year 2010-11. In response thereto, the assessee filed a letter dated 19-7-2015 giving details of asset and explanations with regard to the property owned and acquired by the assessee. After considering the submissions of the assessee and particulars available, the assessing officer has taken the value of the property at first floor of the impugned house property at Rs. 45,00,000 and brought the same to tax.

3. The assessee carried the matter in appeal before the learned Commissioner (Appeals) against the addition made by the assessing officer and also relied on the decision of the Hon’ble Allahabad High Court in the case of Shiv Narain Choudhari v. CWT (1977) 108 ITR 104. After considering the submissions of the assessee and by following the decision in the case of Shiv Narain Choudhari v. CWT (supra), the learned Commissioner (Appeals) directed the assessing officer to exclude the impugned floor of the house property as taxable wealth of the assessee by holding that two different floors of one house property cannot be treated as two different residential houses for the purposes of the Wealth Tax Act.

4. On being aggrieved, the Revenue is in appeal before the Tribunal. The learned Departmental Representative has submitted that as per section 54F of the Income Tax Act, the assessee has claimed exemption in respect of his investment in the first floor of the same house property, which was purchased from his brother against the capital gain on sale of his property and the same was accepted by the assessing officer. Again the assessee cannot claim exemption under Wealth Tax Act treating the two residential units as one residential house and pleaded that the order of the learned Commissioner (Appeals) should be reversed.

5. On the other hand, the learned Counsel for the assessee has strongly supported the order passed by the Id, Commissioner (Appeals) and relied on the decision in the case of Shiv Narain Choudhari v. CWT (supra).

6. We have heard both sides, perused the materials available on record and gone through the orders of authorities below. The assessee owned Ground Floor of the house property at No. 64/43, 28th Cross Street, Indira Nagar, Adyar, Chennai. The assessee has also purchased first floor of the said house property and claimed exemption for both the ground floor and the first floor under section 5 of the Act by treating both the floors as one single residential unit. The above contention of the assessee was not accepted by the assessing officer and determined the net wealth tax and brought the same to taxable wealth. On appeal, the learned Commissioner (Appeals) has observed and held as under :–

“14. I have considered the above submissions of the appellant and have also perused the property tax details dated 4-9-2014 and it is noticed that the impugned house property was single structure having two different floors which were used by the appellant and his brother separately. Later the appellant purchased the share of his brother vide sale deed dated 17-2-2010 and became the sole owner of the entire impugned house property. However, even having two floors, the impugned house property had one door number and only one assessment for water tax and Corporation tax. In the property tax detail of 4-9-2014 also the property is mentioned as single independent building in the name of the appellant.

15. Therefore, in view of these facts and circumstances of the case and also relying on the decision of the Allahabad High Court in the case of Shiv Narain Choudhary v. CWT (1977) 108ITR 104, I am of the considered opinion that in the present case of the appellant, the two different floors of one house property cannot be treated “as two different residential houses for the purposes of the Wealth Tax Act. Hence, in view of this, I direct the assessing officer to exclude the impugned floor of the house property as taxable wealth of the appellant for the relevant year under consideration.

6.1 The contention of the learned Departmental Representative that the assessee has already claimed exemption under section 54F of the Income Tax Act in respect of his investment in the first floor of the same house property, which was purchased from his brother against the capital gain on sale of his property, which was accepted by the assessing officer and again the assessee cannot claim exemption under Wealth Tax Act treating the two residential units as one residential house is not acceptable since the Department has not placed reliance of any decision of any Court that once the exemption claimed under Income Tax Act and similar exemption under Wealth Tax Act cannot be claimed. Moreover, it is an undisputed fact that both the ground floor and first floor bearing same residential number, i.e., 64,/43, 28th Cross Street, Indira Nagar, Adyar, Chennai, contiguous to each other and are within a common boundary and a common compound. Further, the property tax and water tax are paid for the entire house as a whole and it is a composite unit till now it continues to remain the same. On verification of the Property tax details of 4-9-2014, the learned Commissioner (Appeals) has noticed that the above said property is mentioned as single independent building in the name of the assessee.

6.2 In the case of Shiv Narain Choudhari v. CWT (supra), the Honourable Allahabad High Court has held that several self-contained dwelling houses which were contiguous and situated in the same compound and within common boundaries and having unity of structure could be regarded as one single residential unit. Further, by relying on the above decision in the case of Shiv Narain Choudhari v. CWT (supra), in the case of CWT v. Mrs. Najima Nizar 197 ITR 258, the Honourable Kerala High Court has held that exemption under section 5(1)(iv) of the Act is allowable in respect of the value of the whole building and not merely in respect of the value of one of the shop rooms comprising the building even if each shop room bears a different municipal number.

6.3 In view of plethora of decisions, we find no infirmity in the order passed by the learned Commissioner (Appeals) on this issue and accordingly, the ground raised by the Revenue is dismissed.

7. Regarding the denial of exemption of Rs. 5,25,525 for the impugned agricultural land, the assessing officer has held that the assessee has not carried out any agricultural operations and the impugned land was an urban land which was classified as dry land and not as an agricultural land in the revenue records. Hence, the value of the impugned agricultural land was taken as assessable wealth of the assessee for the relevant year under consideration.

7.1 The assessee carried the matter in appeal before the learned Commissioner (Appeals). After considering the submissions of the assessee, the learned Commissioner (Appeals) has observed as under :–

“17. I have considered the contentions of the appellant and have also Perused the valuation report submitted by the DVO, the copy of porta issued by ilk Revenue Department and also the order of the Hon’ble jurisdictional High Court. On perusal of these documents, it is revealed that the impugned land is agricultural land only. In the records of the Revenue Department also the land is mentioned as agricultural land. The DVO has also considered the impugned land as agricultural land in his valuation report dated 18-5-2016.

18. Therefore, considering the above facts of the case, I am of the firm opinion that the impugned land was agricultural land which did not fall within the ambit of asset. as per the Wealth Tax Act. Accordingly, the assessing officer is directed to exclude the value of the agricultural land at Rs. 5,25,525 while computing the taxable wealth of the appellant for the year under consideration.

7.2 We have heard both sides, considered the materials available on record. The stand of the assessing officer was that the land in question is an urban land which was classified as dry land and no agricultural operation was carried out by the assessee. On verification of the revenue records including Patta of the land, the learned Commissioner (Appeals) has observed that the land in question was agricultural land. It is also an admitted fact that the impugned land was under litigation and the same was sold to the assessee by the Official Liquidator of Hon’ble Madras High Court. Just because the assessee has not carried out agricultural operation, the status of the land cannot be changed. Over and above, the Departmental Valuation Officer himself mentioned in the valuation report the nature of impugned land as. “agricultural land” only. The “patta” of the land issued by the Revenue Department indicates the land as an agricultural land. Under the above facts and circumstances, the learned Commissioner (Appeals) has rightly directed the assessing officer to exclude the value of agricultural land while computing the taxable wealth of the assessee for the year under consideration. Thus, the ground raised by the Revenue stands dismissed.

8. Coming to the Cross Objection, in support of the order passed by the learned Commissioner (Appeals), the assessee has filed the cross objection. Since we have dismissed the appeal filed by the Revenue on merits, the CO filed by the assessee become infructuous and accordingly dismissed.

9. In the result, both appeal filed by the Revenue as well as CO filed by the assessee are dismissed.