We are at loss to understand as to how the factual aspects like lack of basic amenity and a non-descript temporary makeshift shelter/ superstructure of insignificant worth can convert a land into a residential house. The vast open land with naturally grown grass, a grossly asymmetric consumption of land for construction of superstructure (cost less than 1% of total costs), the occupation of the superstructure by a watchman/caretaker clearly indicates that such superstructure cannot be mechanically reckoned as a residential house. The existence of vast parcel of open land is a reality. We thus find it utterly difficult to put blinkers on tell-tale facts. The superstructure claimed to be a residential house is clearly superficial and does not go hand in hand with ground realities. It is totally unconceivable that a token and symbolic superstructure of temporary nature involving insignificant construction costs or land occupying negligible space (created with an object to typically accommodate a watchman to safeguard the land) would convert huge parcel of land into a residential house. As we see in nutshell, cost of land exceeds 99% of the total cost of new investment in so called residential house. Likewise, land used for construction of superstructure is less than 1% of total area. The superstructure is jointly owned and devoid of basic amenities and actually used by the caretaker of lands. The unflappable facts narrated above when seen cumulatively seals the narrative against the assessee. The sale consideration is thus essentially appropriated towards purchase of land per se and not towards construction of residential house as enjoined by S. 54F of the Act. We thus find no plausible reason to interfere with the conclusion drawn by the Revenue authorities.
In the result, the grievance of the assessee towards disallowance of deduction under s. 54F of assessee’s appeal is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeal has been filed at the instance of the Assessee against the order of the CIT(A)-12, Ahmedabad (‘CIT(A)’ in short), dated 26.02.2018 arising in the assessment order dated 28.11.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2014-15.
2. The grounds of appeal raised by the assessee read as under:
“1. Ld. CIT(A) erred in law and on facts confirming action of AO rejecting exemption u/s 54F of the Act though all the conditions laid down under the section are satisfied by the appellant to avail exemption.
2. CIT(A) erred in law and on facts confirming action of AO to hold constructed structure not a residential house within the meaning of Sec. 54F in absence of the basic amenities such as a toilet, water & electricity connection & kitchen.
3. CIT(A) erred in law and on facts to hold constructed house inhabitable ignoring Municipal Tax bills classifying structure as residential property occupied by appellant’s employee & the fact confirmed by the Inspector.
4. CIT(A) further erred in law and on facts in not appreciating that cost of land purchased forms part of cost of residential house and law does not lay down any stipulation as to size of the house or size of plot of land.
5. CIT(A) erred in law and on facts holding that entire land appurtenant to the house not eligible for exemption u/s54F of the Act overlooking CBDT circular & judicial decisions submitted by the appellant.
6. CIT(A) erred in law and on facts treating genuine claim as sham & a ploy to defraud government. Ld. CIT(A) ought to have refrained making such uncalled for comments.
7. Without prejudice to the above, since the purchase of land is undisputed during the year withdrawal of exemption if any can be made only after expiry of 3 years from date of transfer & the exemption claimed ought to be allowed in the year under consideration.
8. CIT(A) erred in law and on facts confirming addition made by AO of Rs.5,65,520/- rejecting cost of improvement of capital asset sold claimed u/s 48 of the Act rejecting evidence of ledger a/c of contractor alongwith bills and physically seen by the inspector on spot visit.
9. Levy of interest u/s234A/234B & 234C of the Act is not justified.
10. Initiation of penalty proceedings u/s 271(1)(c) of the Act is not justified.”
3. Briefly stated, the assessee filed his return of income for AY 2014-15 declaring total income at Rs.59,99,030/-. The return was subjected to scrutiny assessment. In the course of scrutiny assessment, it was inter alia noticed by the AO that assessee has sold a co-owned land situated at Sanand, Ahmedabad and received sale consideration to the tune of Rs.1,28,48,933/- being his share in the co-ownership land. The capital gain on sale of the aforesaid land was computed by the assessee at Rs.1,21,41,360/- after taking index cost of acquisition of land at Rs.7.07,573/-. The assessee was found to have claimed exemption of Rs.1,17,83,494/- under S. 54F of the Act against the aforesaid capital gains. For the purposes of exemption claimed under s.54F of the Act, the assessee made out a case before the AO that he has purchased certain parcel of land at Vatva, Ahmedabad bearing Survey No. 448 (2610 sq.mtrs. of final plot) for Rs.1,60,00,000/- on 07.01.2014 and land at Survey No. 447/2 (1700 sq.mtrs. of final plot) for Rs.75,30,000/- on 07.01.2014. The above land was statedly purchased jointly with one Shri Pravinkumar Mohanlal Gandhi who was also the co-owner of the original land. It was claimed that plot was purchased alongwith boundary wall around it. The assessee carried out some construction of superstructure on the plot and claimed exemption under the Act. It was claimed by the assessee before the AO that it has invested the sale consideration arising on sale of land towards purchase of co-owned land on which construction of residential house has been carried out under self supervision and therefore, the sale consideration has been appropriated towards construction of residential house which includes both costs of construction as well as cost of land in sync with CBDT Circular No.667 dated 18.10.1993. Not satisfied, the AO conducted spot verification of the newly purchased land through its Inspector at the site and photographs of the site as well as the report of the Inspector were obtained. The report (reproduced in assessment order) contained various adverse remarks and therefore, was confronted to the assessee.
4. The salient features emerge from the spot verification report are that the site has boundary wall on four sides with an iron gate installed at one of the corners of the plots. Further, two rooms (covering a very small area of the plot) along with a small store room having common walls with tin-shed roofing were constructed at one of the corners near the entry gate of the above said premises. It was pointed out in the report that rooms were devoid of any windows or ventilation except for a bulb and some loose wires hanging on the side walls of the room. The path from entrance gate to the rooms was kuccha with no pavement or walk-way constructed from the entry gate to the rooms. An electricity meter was further found installed at the premises which was claimed to be there for approximately two years. However, no permanent source of water viz; water tank or water pipeline could be found by the Inspector at the premises except for a bore well which was not found to be in working condition. As per the report, the premises neither had any facility for a washroom/bathroom nor had any kitchen or otherwise any permanent arrangement for cooking food. The remaining portion of the plot was left vacant and filled with thick grass grown where animals were seen grazing in the grass grown. On inquiry, it was found that the watchman / security guard named ‘Punabhai’ resides at the said premises and it was informed by the watchman that four walls at the periphery were already constructed when the land was purchased. The photographs of the plot/land with construction area were also taken and forms part of the assessment order together with formal report.
5. Armed with the aforesaid report together with photographs of the site, the AO made further inquiries with the assessee and confronted the aforesaid facts. In response, the assessee asserted that as per the report also, there was a construction of house (two rooms) alongwith store room. The electricity meter was also found to be installed and light facility was also available. It was thus contended that the residential house lighting with two rooms and store room was habitable and found occupied albeit by watchman/employee. In response to the query regarding approval taken from the local authority for the purposes of carrying out so called construction for residential purpose and copy of approved map, if any, it was contended that there is no requirement in law that the residential house constructed need to be approved by Municipal Corporation or the local authority for the purposes of availing exemption. The assessee also asserted that there is a bore well and the person occupying the house is also residing and is getting all senatory needs, cooking food with Chula. It was submitted that requirement of washroom and bath room is met by him on open space. As regards, nonfunctioning of bore well, it was submitted that bore well motor was stolen during the diwali time when the watchman was staying away at his native place. The assessee, in essence, submitted that the residential house was duly constructed after purchase of plot. Coupled with this, it was submitted that the law does not require the residential house to be of particular size or shape or specifications and the size of open vast land is also not relevant. It was contended that once, a residential house is found to have been constructed and occupied, there is sufficient compliance.
6. The AO however found the submissions of the assessee to be bereft of any merit. The AO observed that the cost of construction of the rooms (tin-shed roofing) was meager Rs.90,003/-. Having regard to the tin-shed roofing, absence of window, ventilators, absence of any permanent source of water except a nonfunctioning bore well, no facility for any washroom/ bathroom or toilet of any kind or nature, no kitchen or any permanent arrangement for cooking, construction are barely 300-350 sq.ft. (30-35 sq.meter) vis-a-vis 4310 sq.mtrs of land and absence of any approval or appropriate authorization for such residential construction. The AO thus discarded the contention of the assessee that sale consideration has been appropriated / invested essentially for purchase of residential house and not mere purchase of land/plot simplicitor. The AO accordingly observed that the conditions prescribed for availing exemption under s.54F of the Act are clearly not met and consequently denied the exemption of Rs.1,17,83,494/- claimed by the assessee under s.54F of the Act against capital gains arising on sale of original asset (land parcels at S anand).
7. Aggrieved, the assessee preferred appeal before the CIT(A).
8. The CIT(A) however did not find any merit in the plea of the assessee either that the sale consideration has been appropriated towards residential house contemplated under S. 54F of the Act and not towards acquisition of land per se. The relevant operative para of the order of the CIT(A) is reproduced hereunder:
“5. I have perused the assessment order and carefully considered the appellant’s submission made during the appellate proceedings. I note that there is no dispute as to the facts related to receipt of consideration and the description of the constructed structure which is at the heart of eligibility of exemption u/s 54F of the Act.
5.1 As per section 54F the exemption provided is available to an assessee being an individual or HUF who has the capital gain arising from transfer of any Long Term Capital Assets, not being a residential house if the assessee has, within a period of one year before or two years after the date on which transfer took place, purchased or has within a period of three years after that date constructed, one residential house in India. The exemption u/s 54F from capital gain u/s 45 is to the extent of the net consideration from the original asset or the cost of the new asset whichever is less. As per the proviso the exemption u/s 54F is not available to the assessee if he owns more than one residential house other than the new -asset on the date of transfer of the original asset or purchases any residential house, other than the new asset, within a period of one year after the date of the transfer of the original asset or constructs any residential house other than the new asset within a period of three years after the date of transfer of original asset and the income from such residential house, other than the one residential house owned on the date of the transfer of the original asset is chargeable under the head income from house property’. Further under sub-section (4) of section 54F the amount of net consideration, which is not appropriated by the assessee towards the purchase of the new assets or the construction of the new asset before the date of furnishing the return of income u/s 139, shall be deposited by him before furnishing such return in an account in a specified bank or institution in a specified scheme, which has to be utilized, wholly or partly, for purchase or construction of new asset within the period specified in sub-section(l).
5.2 Thus in the context of the facts of the appellant the construction of new asset i.e. residential house should have been completed on or before 17/06/2016 which has elapsed and taken note by the AO. The transfer of old asset on 17/06/2013 and purchase of two plots on 07/01/2014 are not in dispute. The appellant has claimed that the two plots are adjoining to each other and they form part of the exemption claimed u/s 54F.
5.3 During the course of the appellate proceedings the appellant has filed two photographs containing the front view of the constructed structure and the gate (of the plot) and has submitted a drawing showing the plot and the plan and elevation of the constructed structure. Description is “Farm Plan for S.No. 447/2 & 448 Vatva” and total plinth area of three rooms taken together as 34ft by 10ft 9 in i.e. 365,5 sq. ft. or 35 Sq. Mtrs. (approx). The facts of the constructed structure gathered by the AO are not disputed by the appellant but the appellant asserts that the constructed structure is a “residential house” and relies in particular upon judgments in the case of Anil Gupta Vs DCIT 6 SOT 403 (ITAT Delhi) and Addl CIT Vs Narendra Mohan Uniyal 34 SOT 152 (ITAT Delhi) to contend that the constructed structure and the both plots of land together constitute residential house and cost of all these will have to be taken into account for the purpose of computation of exemption u/s 54F. Copies of two municipal tax bills dated 24.01.2018 for the year 2017-18 for Survey No. 44,8 has also been submitted in of the structure being residential, age of structure as 5 years, (covered) area of structure as 35 sq. meters in one bill and area of vacant plot as 2580 sq. meters in other bill. The use has been shown as self residential in the bill.
5.4 Further some of the case laws which prima facie appear in favour of the appellant are that “whether assessee had invested money in construction of a residential house, merely because construction is not complete in all respect and it was not a fit condition to be occupied within a period stipulated, that would not disentitle assessee from claiming benefit u/s 54F [(CIT Vs Sambandam Udaykumar (2012) 19 taxmann.com 17 (Kar)], “exemption u/s 54F should not be disallowed on mere ground that new residential property was purchased jointly in names of assessee and his wife” [(CIT Vs Ravindra Kumar Arora (2011) 203 Taxman 289 (Delhi)]; “joint ownership of property would not stand in way of claiming exemption u/s 54F” [(Dr. Smt. P. K. Vasanthi Ran grajan Vs CIT (2012) 23 taxmann.com 299 (Mad)].
5.5 However, with due respect to all these case laws, the issues in the context of the present case of the appellant do not get over. According to me the following issues are required to be examined for section 54F:
1. Whether the original property, land acquired by Dedicated Freight Corridor Corporation of India Ltd., a PSU under Ministry of Railway was held as asset and not as stock in trade so as the consideration therefrom was capital gain;
2. Whether the appe11ant is hit and precluded by the proviso to sub-section(1) of section 54F;
3. Whether the new land acquired out of the consideration of the original property falls in residential zone in the latest Master Plan, if any;
4. Whether the new constructed structure qualifies as a residential house;
5. If the constructed structure qualifies as a residential house, what should be area of the land appurtenant thereto for the purpose of section 54F; and
6. If the entire plot of land can be the land appurtenant to the residential house whether the second plot of land in the case of the appellant if it is adjoining the first plot on which construction was made can also be treated as land appurtenant to the residential house.
5.6 It is noted from the assessment order that there is no discussion by the AO of the proviso of sub-section (1) of section 54F which excludes a person having more than one residential house on the date of transfer of the original asset from the benefit of exemption under the section. Similarly, there is no mention whether the new land(s) acquired out of the consideration of the original property is such that a residential house could be constructed there. Assuming that there is no issue related, to first three issues enumerated above, the issue that is required to be examined is whether the new asset is a residential house and if so what area of land can be treated as part of or appurtenant to that residential house. The AO has denied the claimed exemption as he did not find the constructed structure to be a residential house.
5.7 In this regard it is seen that there is no definition and specific mention of ‘residential house’ and land appurtenant thereto in the Income Tax Act. In this context it appears natural to fall back upon the laws and the rules of the Area Development Authority and of the Urban Local Body (Municipal Corporation or Municipality) for determining these aspects. It is an Area Development Authority which normally does the town planning where boundaries of colonies are marked and approved as per the master plan where various types of zones – green, residential, commercial, industrial, recreational, religious, educational etc. are marked for those specific uses and it is an Urban Local Body (ULB) which approves the plan of construction and completion of construction of a building as per the relevant Building Bye Laws and also collects Property Tax there from as per the relevant Property Tax Bye Laws. The property tax is on all properties within the municipal limits and comprises of a Building Tax and a Vacant Land Tax. Building tax is levied on the value of covered space of building as prescribed in the Act and the Bye Laws related thereto and vacant land tax is charged on the value of vacant land as prescribed in that Act and Bye Laws. Normally (in most of the municipal corporation acts and property tax bye laws) tax on vacant land is applicable if the construction on the ground floor is less than 25% of the plot area. It is also to be noted that in Building Bye Laws (rules governing construction of buildings within the municipal limits) while a FSI/FAR for any construction is prescribed, the construction on the ground floor cannot cover the entire plot (exception and waiver is available to very small plots only) and approximately 1/3rd area of the plot has to be left vacant and construction has to be confined to 2/3r d area of the plot area and the number of floors can be constructed within the limits of FSI/FAR and height permissible. Also in the context of farm houses there are separate specific provisions and a typical provision is that it has FSI/FAR of 5% only and coverage (plinth) on the ground floor has to be confined to 100 sq.ft. the ground floor has to be confined to 100 sq. meters and construction up to two floors only and it is stipulated that no vacant land appurtenant to house is construed as agricultural land and such land is liable to property the restriction is irrespective of the size of the farm. Farm houses are allowed in green zones only. This is in the context that property tax is not liveable on vacant land and buildings (other than dwelling houses) exclusively used for agriculture purposes. A “building” is defined to mean a house, out house, stable, latrine, urinal, shed, hut, wall (other than a boundary wall) or any other structure, whether of masonry, bricks, wood, mud, metal or other material but does not include any potable shelter. For the purpose of property tax buildings are classified use wise and a “residential building” means any building used for dwelling purposes by a family/ families/individual but excludes any premises for commercial use including lodging, guest house, hotel or similar purposes. The building cannot be habitable and worthy of dwelling unless there are minimum basic amenities such as a toilet, a provision for water and electricity and a kitchen. These minimum features have to be there irrespective of the fact that TP is there or not and whether the building plans are sanctioned or not. The broad rules enumerated are typical of an ULB and will apply to even unauthorized area where construction is not allowed meaning thereby that the building plans are not approved by the ULB. However any construction where TP is not there, is unauthorised as the building plans are not approved and as no construction can be mac e without the approval of the Commissioner of the ULB, such construction is illegal also liable to be torn/brought down by the enforcing authorities. However, the purpose of levy and collection of property tax, no distinction of approved/unapproved/ unauthorized /illegal construction and of regularized/ unauthorised colonies is recognised. In the municipal acts there are strict stipulations for subdivision(s) of a plot and merger/amalgamation of plots for which locations are required to be made and the plan approved by the Commissioner ULB and invariably such proposal of subdivision of amalgamation have to be roved by the municipality /municipal corporation (i.e. the legislative wing). Till such time two plots cannot become one property.
(Note: The figures and the schemes of things are very broadly narrated and rowed from the Delhi Municipal Corporation Act, 1957 and the relevant Laws made there under for the purpose of appreciating the principles and re may be minor variations/differences from the Acts and the Rules governing the AUDA and AMC in Ahmedabad).
5.7 From the finding of the AO about newly constructed structure which is not disputed by the appellant it is clear that the structure does not have the basic amenities and thus not fit for habitation of people and it is evident that the appellant aid not intend to use the same for his residence or to let it out and it is the “residentiality” of the building which is the essence for the allowability of exemption b/s 54F. There being a chowkidar here does not make the structure habitable and thus residential. Courts have held that a garage and a servant room do not make a residential building. According to me the purpose of legislation in providing toe exemption u/s 54F is to encourage building of residential houses in the country, It may be true that for the purpose of benefit of section 54F the owner/appellant ant is not required to reside, even in some case the construction may not be complete but the building must be habitable. I am also of the considered view that the structure constructed by the appellant is not fit for habitation and the appellant does not intend to use the same for his residence or to let it out. The practical test of a building being habitable is that whether the owner and his family can reside there. It is not so in the case. Thus the AO is held to be justified in holding that he constructed structure is not a residential house and accordingly the appellant is not eligible for exemption u/s 54F. To buttress the stand of the AO, I may mention CIT Vs Sambandam Udaykumar (2012) 19 taxmann.com 17 (Kar) wherein it is held that whether assessee had invested money in construction of a residential house, merely because construction is not complete in all respects and it was not a fit condition to be occupied within a period stipulated, that would not disentitle assessee from claiming benefit u/s 54F because this judgment is applicable where an assessee has under taken the construction but the construction could not be completed within the prescribed time of three years because of conditions beyond his control and for which he may not be responsible. In the case of the appellant the drawing plan submitted before me is only of three rooms with narrow strips of grass/flower bed. The drawing plan is such that the construction even later made cannot qualify to be a “farm house” let alone a “residential building/house” and I doubt whether the legislation intends the exemption u/s in 54F in case of a farm house, if the appellant so claims later before the higher appellate bodies. Further in Smt. Usharani Kalidindi Vs ITO 2013 37 taxmann.com 360 (ITAT Hyderabad) in the context of exemption-u/s 54F it has been held that \a construction of inhabitable house cannot be equated with a residential house, investment in construction could be complete as a house only when such house become habitable. In this cited case the assessee claimed deduction u/s 54F on the ground that she had purchased a house out of capital gains but the AO having found that there was no construction of a house as claimed by the assessee and instead there was a small construction consisting of two rooms made of hollow bricks without any basic amenities disallowed claim of deduction in reference to the question whether since property purchased by the assessee would not fall within description of residential house, claim of assessee u/s 54F cannot be allowed, the Tribunal held yes in favour of the revenue. I am of the considered opinion that the case of the appellant is squarely covered by this judgment of Hon’ble tribunal of Hyderabad. Further in D P Mehta Vs CIT 116 Taxman 611 (Delhi) the Hon’ble High Court overturned the decision of the Tribunal holding that the property was not worth occupying and inhabitable and therefore the denial for the exemption to the assessee by the AO was in order.
5.8 The case of the appellant is not even saved by the case of Amita Gupta Vs DCJT (supra) relied upon by him. No doubt “the requirement of law is that the property should be a residential house.
……….The popular meaning of the word is a place or building used for habitation of people. It is used in contradistinction to a place which is used for the purpose of business, office, shop, etc., It is not necessary that a person should reside in the house to call it a residential house” but the same case categorically lays down that that “it should be capable of being used for the purpose of residence then only the requirement of section is satisfied…”. Here in the case of the appellant the structure constructed does not meet the criteria of being used for the purpose of residence as laid down in the case of Amita Gupta Vs DCIT.
5.9 Accordingly under the circumstances of facts and law the denial of exemption u/s54F to the appellant appears justified.
6. Though having held that the constructed structure is not a residential but ding it may not be required now but it may be appropriate, in case the appellant goes before the higher appellate bodies, to deal with the claim of the appellant that entire area of the plot (combination of two plots – survey no. 448 of 2610 sq. mtr. and survey ho. 447/2 of 1700 sq. mtr.) which is vacant after temporary makeshift construction of about 35 sq. mtr. of plinth area should be considered for the purpose of exemption u/s 54F. For this claim reliance has been by the appellant on Addl.CIT Vs Narendra Mohan Unyal (supra) wherein it has been held that there is no rider that no deduction could be allowed in respect of investment of capital gains made on acquisition of land appurtenant to the building or on the investment on land on which the building is constructed when the land is purchased and building is constructed thereon it is not necessary that such construction should be on the entire plot. The CBDT Circular (supra) also says so. In the cited case the assessee appears to have purchased two plots aggregating to 2000 sq. meter – both these plots were having 1000 sq. meters of land each and the construction was made on the first plot and the second plot was sought to be treated as land appurtenant to the building contending that both the plots formed part of same one residential unit being contiguous and adjoining to each other. The Hon‘ble ITAT Delhi concluded that the property purchased by the assesseewas a single unit and was being used for residential purposes and therefore held that investment made in respect of both the plots was eligible for claim of exemption u/s 54F (in favour of the assessee).
6.1 First I find the case of the appellant distinct and distinguishable as in the case of the appellant the land is 4310 sq. mtr. and plinth is of 35 sq. mtr and a total kind of 4275 sq. mtr. (4310 – 35) cannot be held to be land appurtenant to the building of 35 sq. mtr. There are judgments under the municipal acts in context of property tax (building tax and vacant land tax) specially in context of farm houses whereby the land appurtenant to the building is only to the extent of that Can be normally enjoyed for living in the house and in various such case laws a reasonable limit (though to be decided in the own facts of each case) of land appurtenant to a house has been held to be about 15% to 25 % of the land, meaning thereby that 75% of the land should be covered by the plinth of the construction and 25% of land can remain vacant. (Vacant land tax is typically leviable only if the vacant land is more than 25% of the plot area). It is narrated before that for the purpose of charging property tax, no distinction of approved/unapproved/illegal construction and of approved/unapproved subdivision/merger of plots is recognised as property tax is on actual measurements (value as prescribed in the bye law) of the property and does not make the property and the construction legal and also does not stand as evidence of ownership of the property. It can be seen that even the property tax bills (dated 24.01.2018 for the year 2017-18) furnished by the appellant is for Survey No. 448 only and one bill for area of structure as 35 sq. meters and other bill for area of vacant plot as 2580 sq. meters. The said bill very rightly does not include Survey No. 447/2 for which the AMC may have to raise a separate bill for vacant land tax.
6.2 Second it appears that the provisions of the Area Development Authority and the ULB were not placed before the HonTDle Tribunal/Court in the case of Addl.CIT vs Narendra Mohan Unyal. Had they been brought to the attention of the Hon’ble [Tribunal/Court by the Counsel of the Revenue it might have examined them and harmonised those provisions with the provisions of the section 54F of the Income Tax at and the CBDT Circular relied upon by the Appellant. And in my considered view the harmonious reading would be that the second plot should not have been allowed as land appurtenant to the building constructed on first plot in absence of any order of the ULB allowing merger of two plots. While one plot cannot be treated as land appurtenant to a building in another adjoining plot, there is equally a strong case that entire area of a very big plot can also not be treated as land appurtenant to the building on that plot. That is why the property tax of a property is combination of building tax and vacant land tax on that property.
6.3 Thus the contention of the appellant that the entire land (of two plots) has to be treated as land appurtenant to a temporary makeshift structure is not within the intent of section 54F and the judgments relied upon by the appellant and is violation of the laws and bye laws governing the local Development Authority and local Urban Body. The Judgements and the CBDT Circulars are in context of a normal common scenario that there is a plot purchased and a residential house constructed there on out of the sale proceed of a capital asset and the Judgements and the CBDT Circulars are not for a preposterous and unacceptable scenario where an exemption of Rs.1,17,83,494/- is being sought with mere make shift construction at the cost of Rs.90,003/- only. In fact the temporary makeshift inhabitable structure is a mere ploy of the appellant to clearly avoid tax due on the capital gain and benefit of 54F cannot be allowed to the appellant. It is further clear from, the fact that initially the appellant had sought exemption u/s 54D and only later changed to exemption u/s 54F. Thus even if the temporary makeshift -structure was to be conceded has residential house, the cost of only reasonable land appurtenant to that structure can qualify as the investment in new asset for exemption u/s 54F.
7. To sum up, the structure constructed on the purchased plot of land claimed by the appellant is not found to be a residential house within the meaning of as the owner and his family cannot live there. A building (or house) without a toilet cannot be held to be habitable for human, more so when the Government has undertaken Swachh Bharat Abhiyan and to make the country total open-defecation free. The claim of deduction u/s 54F by the appellant is held to be sham to defraud the Government of the Revenue by way of not paying the tax due. The assessment order denying the claim of exemption u/s 54F to the appellant is confirmed and the appeal is dismissed.
CIT(A) accordingly dismissed the plea of the assessee and sustained the denial of exemption claimed under s.54F of the Act.
9. Further aggrieved, the assessee knocked the door of the Tribunal.
10. The learned Senior Counsel for the assessee Mr. Soparkar broadly reiterated the submissions made before the lower authorities on facts. The learned Senior Counsel observed that from the site inspection report itself, it is clear that two rooms were found together with store room. A Chula was also found for cooking food. The electricity connection has also been admitted in the inspection report. In the circumstances, one cannot say that the residential house of habitable nature was not constructed on the plot of land. The learned Senior Counsel next contended that the extent of land on which super-structure of residential nature was required to be constructed is not defined or prescribed. It was contended that what is required to be adjusted or set off against the capital gain is the cost of residential house as a whole i.e. purchased or constructed and not just the cost of construction of new residential house. It was asserted that the cost of new residential house would necessarily include the cost of land, the cost of material used in the construction and all other costs relatable to the acquisition and/or construction of the residential house as held in several judicial precedents as well as the CBDT Circular. The learned Senior Counsel thereafter referred to the layout plan (page no. 172 & 173 of the paper book) for the aforesaid land as issued by the Ahmedabad Municipal Corporation and submitted that such layout plan also admits the fact that the residential property was used for self use. The learned Senior Counsel thereafter referred to the several judicial precedents namely Seema Singh Beniwal vs. DCIT ITA No. 135/JP/2012 order dated 09/10/2015; ACIT vs. Om Prakash Goyal ITA No.647/JP/2011 order dated 02.02.2012; CIT vs. Ashok Kumar Rahlan (Delhi) Income Tax Appeal No. 505/2013 judgment dated 22nd November, 2013; B. Sivasubramanian vs. ITO ITA No.01/Mds/2013 order dated 12/03/2014 and ACIT vs. Pareshkumar Ramanlal Jani ITA No. 3022/Ahd/2014 & Ors. Order dated 10.10.2017 to support its case on facts and law.
11. The learned DR, on the other hand, relied upon the orders of the AO and CIT(A). In furtherance, the learned DR for the Revenue contended that it was found as a matter of fact that no residential house of habitable nature was constructed by the assessee. A meager cost of construction of Rs.90,000/- odd against the cost of two plots of land aggregating to Rs.235.30 Lakhs says it all that the intent and purpose of investment of sale consideration was only to acquire another parcel of land. A temporary construction made on the co-owned plot of land for the sole use of the watchman to safeguard the land from possible encroachments does not tantamount to residential house by the co-owner assessee and one cannot perfunctorily accept such gross facts staring the truth. The learned DR submitted that the assessee could not furnish any concrete evidence of construction and the construction occupying minuscule area of total plot/land was also without any habitable facility. It was pointed out that the area occupying the so-called construction is meager and is bare 35 sq.mtrs. qua the total plot / land area of 4310 sq.mtrs. It was contended that the so-called construction costs is ostensibly disproportionate to the land costs invested and the land area occupied. The open land is filled with grass without any maintenance as the inherent idea was to acquire the land and not the residential house per se. It was thus contended that the temporary make-shift and inhabitable structure cannot be regarded as a residential house in the context of the case as rightly held by the Revenue authorities. The learned DR submitted that the reliance placed on various judicial pronouncements on behalf of the assessee are totally misconceived as the question involved is entirely factual in nature with totally dissimilar facts. The assessee has sought exemption of whopping of Rs.1.17 Crores against which the cost of construction is less than Rs.1 Lakh and with insignificant use of land for construction. The learned DR thus submitted that no interference with the order of the Revenue authorities is called for having regard to the aim and object of Section 54F of the Act.
12. We have carefully considered the rival submissions. The substantive issue in the present case is maintainability of deduction / exemption under s.54F of the Act in the peculiar set of facts where the substantial portion of the sale consideration is appropriated towards purchase of land and the construction cost of superstructure constructed on the land is very marginal. An integrally connected issue also arises as to whether the co-owned superstructure on a combined adjoining plots of land can be regarded as ‘residential house’ for the purposes of Section 54F of the Act or not.
12.1 To reiterate, the relevant facts as emerged out from the order of the Revenue authorities are that the assessee sold certain parcels of land in co-ownership and received sale consideration of Rs.1,28,48,933/- towards his share of sale consideration. The capital gains thereon was computed by the assessee at Rs.1,21,41,360/-. It is the case of the assessee that it has appropriated the sale consideration towards the purchase of certain parcel of adjoining land/ plot jointly with other co-owner. The sale consideration invested by the assessee towards aggregate purchase of parcels of land stands at Rs.1,17,65,000/- or near thereto. The assessee is further claimed to have constructed a superstructure on the land occupying nearly 35 sq.mtrs. on the total land size of 4310 Sq.mtrs. at a cost of about Rs.90,000/- or near thereto. It is essentially the case of the assessee that superstructure is a residential house constructed on aforesaid plot and therefore, it would inevitably mean that the sale consideration has been appropriated towards construction of residential house as contemplated under s.54F of the Act. It is thus claimed that the assessee is rightly entitled to exemption/deduction under s.54F of the Act against the capital gains arising on the sale of original asset.
12.2. The case of the assessee is essentially two fold; firstly, the cost of the land is to be reckoned as part of the cost of the new residential house as vindicated by CBDT Circular No.667 of 1993 and secondly, the law does not require that the residential house constructed on the land to be of particular size, shape or specification and consequently the size of the open vast land vis-à-vis constructed area is not a relevant consideration at all. To support its case, the assessee has relied upon several judicial precedents.
12.3 The Revenue, on the other hand, contends that it is farfetched to say that an assessee will qualify for exemption in terms of the provisions of Section 54F of the Act by constructing a temporary and makeshift superstructure devoid of basic amenities and occupying a small fraction of the large parcel of the land in total disregard of the aim and object of Section 54F of the Act.
12.4 As can be ostensibly seen, the issue is inherently factual in nature and thus it is difficult to apply a general proposition gathered on a varied set of facts in other judicial pronouncements. Needless to say, judicial utterances are made in the setting of the facts of a particular case. In circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases as held by the Hon’ble Supreme Court in the case of Padmasundara Rao (Deced.) vs. State of Tamilnadu & Ors.  255 ITR 147 (SC).
12.5 Adverting to the facts, we notice that the share of sale consideration of the assessee from sale of original asset stands at Rs.1,28,48,933/-. Out of this, assessee claims to have appropriated Rs.1,17,65,000/- towards purchase of land and statedly invested Rs.90,003/- towards construction of superstructure. Against such deployment of sale consideration in land and superstructure, the assessee seeks exemption of Rs.1,17,83,494/- under s.54F of the Act on the premises that the sale consideration arising from transfer of original asset has been appropriated towards purchase of residence house (including cost of land). At this juncture, we affirmatively appreciate the contentions raised on behalf of the assessee that the cost of new residential house is not just the cost of construction of new residential house but encompasses both the cost of land as well as the cost of construction. This is so in view of the judicial fiat available in this regard and thus deserves to be accepted without any demur. However, the moot question that arises for consideration is whether when nearly entire amount (>99%) has been deployed for acquisition of land alone, can a reasonable person instructed in law say that the sale consideration has been appropriated towards residential house which represents construction cost of less than 1%. In such peculiar fact situation, the answer to our mind would be obviously and unflinchingly ‘No’. The expression cost of new asset being ‘residential house’ has to be undoubtedly read in the context of the given facts and having regard to the aim and salutary object for which the exemption provision was provided. Howsoever liberally we may construe the exemption provision, we cannot travel beyond the domain of the relief provision. The facts narrated above glaringly demonstrate that it is an obvious case of deployment of fund towards purchase of another parcel of land. The Revenue in our view has successfully demonstrated that superstructure so constructed is for temporary purposes and is devoid of very basic amenities. The superstructure has been created without any tangible stake with a sole purpose of providing some shelter to the watchman to safeguard the land from possible encroachments. The construction costs involved (less than 1%) and the pointers indicated towards lack of amenity would clearly reflect that the temporary superstructure was not constructed for the habitations/residential use of the assessee indeed, more so, having regard to his financial status. It is very difficult to put blinkers on such gross facts and accept the proposition which may shock the judicial conscience.
12.6 We have carefully perused the judicial pronouncements sited on behalf of the assessee but however did not consider it necessary to deal with the dynamics of all the decisions separately. The broad proposition which emerges from the perusal of the various decisions are that the assessee is ordinarily entitled to deduction under s.54F of the Act where the consideration is invested in construction of residential house including purchase of plot and also the unauthorized construction per se is not necessarily a handicap for claim of deduction under s.54F of the Act. However, none of these judgments deal with such overwhelming situation as in the instant case where the dominant object of the deployment of consideration is to acquire land parcel and not to enjoy the residential house per se. We are at loss to understand as to how the factual aspects like lack of basic amenity and a non-descript temporary makeshift shelter/ superstructure of insignificant worth can convert a land into a residential house. The vast open land with naturally grown grass, a grossly asymmetric consumption of land for construction of superstructure (cost less than 1% of total costs), the occupation of the superstructure by a watchman/caretaker clearly indicates that such superstructure cannot be mechanically reckoned as a residential house. The existence of vast parcel of open land is a reality. We thus find it utterly difficult to put blinkers on tell-tale facts. The superstructure claimed to be a residential house is clearly superficial and does not go hand in hand with ground realities. It is totally unconceivable that a token and symbolic superstructure of temporary nature involving insignificant construction costs or land occupying negligible space (created with an object to typically accommodate a watchman to safeguard the land) would convert huge parcel of land into a residential house. As we see in nutshell, cost of land exceeds 99% of the total cost of new investment in so called residential house. Likewise, land used for construction of superstructure is less than 1% of total area. The superstructure is jointly owned and devoid of basic amenities and actually used by the caretaker of lands. The unflappable facts narrated above when seen cumulatively seals the narrative against the assessee. The sale consideration is thus essentially appropriated towards purchase of land per se and not towards construction of residential house as enjoined by S. 54F of the Act. We thus find no plausible reason to interfere with the conclusion drawn by the Revenue authorities.
13. In the result, the grievance of the assessee towards disallowance of deduction under s.54F as per ground nos. 1 to 7 of assessee’s appeal is dismissed.
14. Ground No.8 of the assessee’s appeal is dismissed as not pressed.
15. In the result, appeal of the Assessee is dismissed.