2005 (2) TMI 73 - HC - Income Tax

Claim for exemption under section 54 - capital gains arising out of the sale of plot - reasoning given by the Tribunal to hold that the tin shed was not a house used by the assessee for his residence is quite justified - It stands admitted that the structure on plot No. D-10 is only a tin shed surrounded only by barbed wire. There is neither any bathroom or kitchen nor is any electricity provided in the said shed - we do not find any infirmity in the finding of the Tribunal that the tin shed on plot No. D-10 even if considered a house was not occupied by the assessee or a parent of his for their residence in the two years immediately preceding the date of transfer. - Thus the assessee is not entitled to exemption under section 54 of the Act on this ground alone

Issues Involved:
1. Existence of a residential house on plot No. D-10.
2. Occupancy of the house by the assessee or a parent for two years preceding the sale.
3. Utilization of the new house purchased from the sale proceeds for the assessee's residence.
4. Whether plot No. D-11 forms part of plot No. D-10 for exemption under section 54 of the Income-tax Act, 1961.

Analysis of the Judgment:

1. Existence of a Residential House on Plot No. D-10:
The Tribunal held that the tin shed on plot No. D-10 could not be considered a residential house. The Income-tax Officer observed that the tin shed lacked amenities such as water supply, electricity, kitchen, and bathroom, deeming it unsuitable for residence. The sale deed did not mention any superstructure, and the application for a tax clearance certificate described the property as having a tin shed, water connection, and barbed wire boundary, but not as a residential house. The Tribunal concluded that the structure was merely a tin shed used for storage, not a residential house.

2. Occupancy of the House by the Assessee or a Parent:
The Tribunal found that the tin shed was never occupied by the assessee or his parents for residential purposes in the two years preceding the sale. The assessee admitted to residing at Punjab Agricultural University Campus, which was nearby, and only visiting the plot for research work. The Tribunal noted that the assessee's residence at the university campus was confirmed by the sale deeds, which listed his address as the university campus.

3. Utilization of the New House Purchased from the Sale Proceeds:
The Tribunal determined that the new house purchased at Chandigarh was not used primarily for the assessee's residence, as 75% of it was let out, and only 25% was retained for self-residence. This partial use for residence did not meet the requirement under section 54 of the Act, which necessitates that the new house be used for the assessee's own residence.

4. Whether Plot No. D-11 Forms Part of Plot No. D-10:
The Tribunal upheld that plot No. D-11 could not be treated as part of plot No. D-10. The Improvement Trust had earmarked the plots as separate units, and there was no structure on plot No. D-11. Therefore, the capital gains from the sale of plot No. D-11 did not qualify for exemption under section 54 of the Act.

Conclusion:
The Tribunal's findings were based on substantial evidence and sound reasoning. The tin shed on plot No. D-10 was not a residential house and was not used by the assessee or his parents for residence. The new house at Chandigarh was not utilized mainly for the assessee's residence, and plot No. D-11 was a separate entity with no structure. Consequently, the assessee was not entitled to exemption under section 54 of the Income-tax Act, 1961. The court affirmed the Tribunal's decision, answering question No. (ii) in favor of the Revenue and against the assessee, rendering the other questions academic.

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