Case Law Details
As regards asseessee’s s case is concerned, it is brought to our notice that the said land, which was sold by the assessee, 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 assessee 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”.
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 has 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 assessee 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 u/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) is not sustainable in the eyes of law, hence, the same is deleted.
Sh. Adarsh Kumar Swarup Vs. DCIT (ITAT Mumbai); ITA No. 1228/Del/2016;28.03.2017;2011-12
Relevant Extract of the Judgment
8. 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 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 6.1.20 14 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 31.1.20 14 which was considered by the 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/-
AO also observed that 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. In appeal Ld. CIT(A), vide his 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.
8.1 I further note that the assessee hails from a well known industrial family of small town Muzaffarnagar where the assessee’s family had owned several industries like sugar, vanaspati, distillery, steel and others. The assessee’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 assessee, 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 u/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 assessee filed appeal before the CIT (Appeals) and objected the action of the Assessing Officer. The assessee 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 1st 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. 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 assessee 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. 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 1st 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 assessee filed appeal before the CIT (Appeals) and objected the action of the Assessing Officer. The assessee 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. The Commissioner (Appeals) dismissed the contention of the assessee 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. However, the Ld. 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 we rely 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 assessee by way of disallowing the deduction is u/s 54 of the Act as allowed by the Assessing Officer on the investment of Rs.60,27,000/-. The CIT (Appeals) has disallowed the deduction u/s 54 of the Act as allowed by the AO and claimed by the assessee 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 assessee, the facts of both High Courts are different and no such issue was there.
8.2 I also find that 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 u/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 u/s 54 of the Act is admissible.
8.3 I further note that in the case of Rajesh Surana (supra), the Hori’ble Rajasthan High Court was examining the issue u/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.
8.5 As regards asseessee’s s case is concerned, it is brought to our notice that the said land, which was sold by the assessee, 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 assessee 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”.
8.6 I further find that 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 has 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.
8.7 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 assessee 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 u/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) is not sustainable in the eyes of law, hence, the same is deleted.
