Income Tax Appellate Tribunal - Agra
Anil Kumar Jain, Agra vs Assessee on 6 January, 2005
IN THE INCOME TAX APPELLATE TRIBUNAL
AGRA BENCH, AGRA
BEFORE SHRI R.K. GUPTA, JUDICIAL MEMBER AND
SHRI P.K. BANSAL, ACCOUNTANT MEMBER
ITA No.108/Agr/2005
Asst. Year: 2001-02
Shri Anil Kumar Jain, Vs. A.C.I.T., Central Circle 4(1),
C/o. M/s. Chandra Copy House, Agra.
Hospital Road, Agra.
(PAN : AAVPJ 6220 G).
ITA No.120/Agr/2005
Asst. Year: 2001-02
A.C.I.T., Central Circle 4(1), Vs. Shri Anil Kumar Jain,
Agra. C/o. M/s. Chandra Copy House,
Hospital Road, Agra.
(PAN : AAVPJ 6220 G)
(Appellants) (Respondents)
Assessee by : Shri K.K. Jain, Advocate
Revenue by : Shri R.C. Sharma, Jr. D.R.
ORDER
PER P.K. BANSAL, A.M.:
These cross appeals have been filed against the order of the ld. CIT(A) dated 06.01.2005.
2. The only ground taken in Revenue's appeal relates to the deletion of the addition of Rs.1,00,000/- made under section 68 of the Income-tax Act, 1961 ('the Act' hereinafter). At the outset, the ld. A.R. pointed out that the tax effect involved in this appeal is less than Rs.2 lakhs. Therefore, the Department should not have filed any appeal and the appeal filed by the Revenue is not maintainable.
2
3. Coming to the appeal filed by the assessee, the assessee has taken three effective grounds of appeal. The facts relating to ground no.1 are that the assessing officer made the addition under section 68 of the Act amounting to Rs.3,10,000/- in respect of the loan received by the assessee. When the mater went before the ld. CIT (A) the addition of Rs.1,00,000/-as loan taken from Shri Kanhaiya Pandit was sustained by the ld. CIT(A) on the basis that in the case of Shri Naresh Chand Jain in Appeal No.CIT(A)-II/AGR/77/ACIT4(1)/Agra/2004-05 dated 05.01.2005, the ld. CIT (A) has upheld the action of the Assessing Officer not accepting the deposits shown from this family. When questioned, the ld. A.R. was fair enough to concede that the Tribunal has confirmed the order in the case of Shri Naresh Chand Jain.
4. We have heard the rival submissions and carefully considered the same. We noted that even during the remand proceedings the assessee could not satisfy the Assessing Officer and even otherwise in the case of Shri Naresh Chand Jain, to whom the said creditor had advanced the money, the creditworthiness and genuineness of the loan was not accepted by the Department and this fact has been confirmed by the Tribunal even though the matter is pending as per ld. A.R. before the Hon'ble High Court against the order of the Tribunal. Since there is no difference in the facts involved as compared to the case of Shri Naresh Chand Jain even the order of the Tribunal has not been stayed by the Hon'ble High Court. We, therefore, do not find any merit in the ground taken by the assessee and accordingly we confirm the order of the ld. CIT(A) sustaining addition of Rs.1,00,000/- loan received from Shri Kanhaiya Pandit under section 68 of the Act. Thus, ground no.1 stands dismissed.
5. Grounds no.2 and 3 relate to the action of the ld. CIT(A) in allowing the deduction under section 54 of the Act only after bifurcating the property between the residential portion along 3 with land reasonably appurtenant thereto and non-residential portion. The facts relating to this ground are that the assessee was the owner of 1/5th share of the land and had sold the said property to a builder M/s. Bgla & Sons (P) Ltd. on 15.12.2000 for a total consideration of Rs.50,00,000/- and the assessee's share came to Rs.10,00,000/-. Thus, Rs.8,00,000/- was to be paid by way of a flat and Rs.2,00,000/- were to be paid in cash/Cheque. The flat was to be given within six months from the date of the sale, but actually the possession of the flat was given to the assessee on 30.11.2003. The assessee claimed exemption under section 54-F of the Act, but the Assessing Officer was of the view that it is a case of purchase and not the construction of the flat. As per section 54-F of the Act, purchase should have been made within two years of the sale. Since the assessee purchased the flat within three years, the assessing officer denied the exemption under section 54-F of the Act. The assessee went in appeal before the ld. CIT(A). The assessee, when countered, made the alternate claim before the ld. CIT(A) for the deduction under section 54 of the Act even though he confirmed that one of the co-owners, Shri Hari Chand Jain, brother of the assessee was residing in the property sold. The ld. CIT(A) has given detailed reasoning in paras 9.5 to 9.5.3 of his order.
6. The CIT(A) noticed that in the statement of capital gains attached with the return, the assessee has clearly mentioned "1/5th land at 1/57, Delhi Gate, Agra sold" for Rs.10,00,000/-. This shows that the assessee has treated the property as land and not residential unit. Even it was also noted that the assessee has purchased another property which was in contravention of section 54F and since the assessee find that he is not entitled for deduction under section 54F he changed his stand for claiming deduction under section 54F. The assessee has acquired two more flats within one year from the date of transfer of property under reference. Besides the flat in Bagla Kunj, he purchased one more flat in Puneet Vrindaban, Sanjay Place, Agra jointly with 4 his wife Smt. Shashi Jain. In the balance sheet as on 31.03.2002, the assessee has clearly stated that the amount of Rs.2,00,000/- paid for flat at Puneet Vrindavan, Sanjay Place. This is supported by the fact that in the AO's records there was a letter dated 05.02.2001 in which the heading mentioned was "Possession Letter". The assessee also accepted this fact by making mention in the statement of LTCG submitted along with the return while claiming exemption under section 54F that Rs.8,00,000/- paid for flat at Bagla Kunj and Rs.2,00,000/- i.e. 50% paid for flat at Puaneet Vrindavan. The CIT(A) in view of the proviso to section 54F(1) denied the exemption and confirmed the order f the A.O.
7. Before us, the ld. A.R. vehemently contended that the assessee is entitled for deduction under section 54 of the Act. As the assessee is entitled for the deduction under section 54 of the Act as the house is being used prior to the sale for residential purposes the fact that there was land appurtenant thereto will not disentitle the assessee for claiming exemption under section 54 of the Act. Even otherwise also the ld. CIT(A) was not correct in law in bifurcating the residential portion and the non-residential portion. It is not denied that the house and the land was being used for residential purposes, section 54 of the Act does not require that the house must be used by the assessee for his residence.
8. Ld. D.R., on the other hand, relied on the order of the CIT(A).
9. We have carefully considered the rival submissions and perused the material on record. We have gone through the orders of the Tax Authorities below. The assessee initially claimed deduction under section 54F on the sale of the property although mentioned in the return land at 1/57 Delhi Gate, Agra as co-owner for Rs.10,00,000/- in respect of his share. But subsequently 5 when he realized that he is hit by proviso to section 54F, he claimed deduction under section 54 of the Act. His claim is that he has sold the residential unit along with land appurtenant thereto along with other co-owners and the capital gains so arrived has been invested by him in the purchase of a flat. The total area of the property was 2116.44 square meter out of which the covered area was 49.88 sq. mtr. i.e. 2.3% of the total area. The CIT(A) was of the view that in section 54 the words "lands appurtenant there to" indicate that the major area should be of the building and only a part thereof would be treated as land appurtenant thereto. Since, in the case of the assessee, there is large open area with only 2.3% constructed portion, he directed the A.O. to allow the deductions to the assessee for residential portion (along with land reasonably appurtenant thereto) under section 54 and no deduction shall be allowed on non-residential portion. Before us the ld. A.R. even though vehemently contended that one of the co-owner was putting up in the property and therefore the house is being used for residential purpose and accordingly the assessee is entitled for deduction under section 54.
10. We have gone through the provisions of section 54(1) which reads as under:-
"54 [(1)] [Subject to the provisions of sub-section(2), where, in the case of an assessee being an individual or a Hindu undivided family], the 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" (hereinafter in this section referred to as the original asset), and the assess has within a period of [one year before or two years after the date on which the transfer took place purchased] or has within a period of three years after that date constructed, a residential house, then], instead of the capital gain being charged to income tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, -
(i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset], the difference between the 6 amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year, and for a the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain."
11. From the plain reading of this section it is apparent that the assessee being an individual or a Hindu undivided family, the 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". If the assessee has within a period of one year before or two years after the date on which the transfer took place purchased or has within a period of three years after that date constructed, a residential house, then instead of the capital gain being charged to income tax as income of the previous year in which the transfer took place, the assessee will be entitled for deduction in accordance with the provisions given under sub-section (i) and (ii) of section 54(1). There is no dispute in the case of the assessee that the assessee has made the investment in new flat within the permissible time. The only question relates what does the word "land appurtenant thereto" mean. The section talks of LTC assets being building or "land appurtenant thereto" and being a residential house. Land appurtenant thereto means the land which is appurtenant to the building which is sold. Had the assessee been entitled for the deduction in respect of the land appurtenant which is not connected with the building, the word appurtenant thereto would not have been used. Hon'ble A.P. High Court in 7 the case of CIT vs. Zaibunnisa Begum, 151 ITR 320 has occasion to examine the meaning of the word land appurtenant thereto. In this case the Hon'ble High Court has held as under :-
"The expression "land appurtenant thereto' occurring in s.54 has not been defined. It must, therefore, be understood in its popular and non-technical sense. It is not possible to accept the contention that d. (b) of the Explanation to s. 5(1)(ivc) of the W.T.Act,1957 defining" land appurtenant' for the purpose of that clause should be considered equally applicable for the purpose of understanding that expression occurring in s.54of the I.T. Act. The explanation in the W.T. Act is only for the purpose of s.5(1)(ivc) because it is specifically stated so. The meaning assigned to that expression in the Urban ceiling and Regulation Act is also not relevant. The tax authorities will have to determine the extent of land appurtenant to a building transferred, taking into consideration a variety of circumstances that may be relevant for the purpose. It is not possible to lay down infallible tests to be applied as the tests would vary depending upon the facts and circumstances of each case. For instance: (1) If the building together with the land is treated as an indivisible unit and enjoyed as such by the persons occupying the building, it is an indication that the entire extent of land is appurtenant to the building; (2) If the building has extensive lands appurtenant thereto and even if the building and the land have been treated as one single unit and enjoyed as such by the occupiers, an enquiry could be made to find out whether any part of the land contiguous to the building can be put to independent user without causing any part of the land contiguous to the building can be put to independent user without causing any detriment to the enjoyment of the building as such. Such an enquiry should be conducted not based on any artificial considerations but from the point of view of the persons occupying the building. The number of persons or different branches of families residing in the building, the requirements of the persons occupying the building, consistent with their social standing, etc., are relevant for the purpose. If any surplus is arrived at on such enquiry, then the extent of such surplus land may not qualify to be treated as land appurtenant to the building; (3) if there is any evidence to indicate that any portion of the land contiguous to the building was applied to user other than the enjoyment of the building, then that provides a safe indication regarding the extent of land applied for such user. For instance, the land used by the occupiers for commercial or agricultural purposes although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to the building; (4) if the owner or occupier is deriving any income from the land which is not liable to be assessed as income from house property under S.22 of the I.T. Act, then the extent of such land does not qualify to be treated as land appurtenant to the building; and (5) any material pointing to the attempted user of the building for purposes other than the effective and proper enjoyment of the house would also afford a safe guide to determine the extent of surplus land not qualifying to treated as land appurtenant to the building. The above tests are illustrative and by no means exhaustive. It is for 8 the tax authorities to apply their mind properly to the facts of each case and to devise tests suitable and appropriate to each case."
12. Similarly, Hon'ble Madras High Court has also had occasion to examine the word "land appurtenant thereto" as used under section 54 of the Act. In this case the Hon'ble Madras High Court in the cases of CIT vs. Smt. M. Kalpagam, 227 ITR 733 (Mad.) has held as under :-
"The question whether certain land is appurtenant to a house is one of fact. The following five tests can be applied to understand the meaning of the words "land appurtenant" more precisely(1) If the building together with the land is treated as an indivisible unit and enjoyed as such by the with the land is treated as an indivisible unit and enjoyed as such by the persons occupying the building, it is an indication that the entire extent of land is appurtenant to the building;(2) If the building has extensive lands appurtenant thereto and even if the building and the land have been treated as one single unit and enjoyed as such by the occupiers, an enquiry could be made to find out whether any part of the land contiguous to the could the made to find out whether any part of the land contiguous to the building can be put to independent user without causing any detriment to the enjoyment of the building as such. Such an enquiry should be conducted not based on any artificial considerations but from the point of view of the persons occupying the building. The number of persons or different branches of families residing in the building, the requirements of persons occupying the building, consistent with their social standing, etc., are relevant for the purpose. If any surplus is arrived at on such enquiry, then the extent of such surplus land may not qualify to be treated as land appurtenant to the building;(3) If there is any evidence to indicate that any portion of the land contiguous to the building, then that provided a safe indication regarding the extent of land applied for such user. For instance, the land used by the occupiers for commercial or agricultural purpose although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to the building;(4) If the owner or occupier is deriving any income from the lands which is not liable to be assessed as income from house property under section 22 of the Income tax Act, 1961, then the extent of such land does not qualify to be treated as land appurtenant to the building; and (5) any material pointing to the attempted user of the land for purposes other than the effective and proper enjoyment of the house would also afford a safe guide to determine the extent of surplus land not qualifying to be treated as land appurtenant to the building. The above tests are illustrative and by no means exhaustive. It is for the tax authorities to apply their mind properly to the facts of each case and to devise tests suitable and appropriate to each case, of each case and to devise tests suitable and appropriate each case.
The assessee sold a property comprising a souse and land measuring 10 grounds and 29 sq.ft. for a sum of Rs. 2,70,000 in the assessment year 1975-76 9 with the proceeds the assessee constructed a new house and claimed relief under section 54 of the Income-tax Act in the computation of capital gains exigible to tax. The Income-tax Officer was of the opinion that applying the norms of the Urban Land Ceiling Act, only an area of 2 grounds and 580 sq ft. could be taken as land appurtenant to the building and the balance of the vacant land should be treated as a separate asset. Accordingly the Income-tax Officer apportioned the sale consideration of Rs. 2,70,000 as Rs. 1,10,000 for the value of the building and appurtenant land so restricted by him and the balance of Rs. 1,60,000 relating to the piece of the vacant land. The Tribunal found that the building was of an odd size with projections in different directions and the surrounding area of land had been marked in an economical manner because even a perfect rectangle to cover that building would have been larger than the quadrant actually made circumscribe that building. The Tribunal found that there was a car porch, a covered sit-out a lawn with flower beds, outhouse, cowshed and others in that appurtenant land. The driveway from the road to the building alone occupied 6,750 sq.ft. The building was situated in an area of 4,500 sq.ft. The balance 7 ½ grounds was situated in between the sit-outs, cowshed, gardens, etc., and could be considered as part of the courtyard. The building was an old one situated far away from the city. Therefore, the Tribunal came to the conclusion that no part of the land could be separated and treated as a separate asset and the entire property sold should be treated as one unit of land and building. On a reference:
Held, that on considering the facts arising in this case and after looking into the plan of the building, the Tribunal came to the conclusion that the entire extent of ten grounds and 29 sq.ft. was used by the owner of the property by way of residence, pathway, sit-outs, servants quarters, cowsheds, etc. The property was sold about twenty years ago. The fact that the property was situated far away from the city and the standard of living at that time had to be taken into account. The Tribunal was justified in treating the entire extent of land of ten grounds and 29 sq. ft. as appurtenant to the main building."
13. From the reading of the Judgements, it is apparent that both the High Courts have prescribed 5 tests for determining whether the land is appurtenant to the building or not. We noted that in this case the CIT(A) has restored the issue to the file of the A.O. following the decision of A.P. High Court in the case of CIT vs. Zaibunnisa Begum, 151 ITR 320 and accordingly directed the A.O. to ascertain the land appurtenant to the building and directed the A.O. to allow deduction under section 54 only in respect of the land appurtenant to the building. No contrary decision was brought to our knowledge by the ld. A.R. In view of this fact, we do not find any infirmity or illegality in the order of the CIT(A) and, in our opinion, the CIT(A) has 10 rightly directed the A.O. to allow the deduction to the assessee under section 54 in respect of the residential property along with the land appurtenant thereto in view of the tests laid down in the above decisions of A.P. High Court and Madras High Court. Thus, grounds no.2 & 3 taken by the assessee stand dismissed.
14. Ground no.4 relates to the interest levied under section 234A, 234B & 234C of the Act which is consequential in nature. The A.O. is accordingly directed to recompute the interest after giving effect to this order.
15. In the result, appeal filed by the Revenue as well as the assessee both are dismissed.
(Order pronounced in the open Court on 23.07.2010).
Sd/- Sd/-
(R.K. GUPTA) (P.K. BANSAL)
Judicial Member Accountant Member
Place: Agra
Date: 23rd July, 2010.
PBN/*
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1. Appellant
2. Respondent By Order
3. CIT concerned
4. CIT (Appeals) concerned
5. DR, ITAT, Agra Bench, Agra
6. Guard File Assistant Registrar
Income-tax Appellate Tribunal, Agra
True Copy