2009 (4) TMI 539 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement of the assessee for deduction under sections 54 and 54EC of the Income-tax Act, 1961.
2. Determination of whether the property sold was a residential house or land.
3. Computation of capital gains and the applicability of exemptions under sections 54 and 54F.

Issue-wise Detailed Analysis:

1. Entitlement for Deduction under Sections 54 and 54EC:
The primary issue is whether the assessee is entitled to deductions under sections 54 and 54EC of the Income-tax Act, 1961. The assessee, a doctor, filed a return of income declaring the sale of a property, claiming it as ancestral and residential. The assessee claimed deductions under section 54 for investment in a new residential house and under section 54EC for investment in SIDBI Bonds. The Assessing Officer (AO) initially allowed exemption under section 54F but denied the claim under section 54EC, leading to a recomputation of capital gains. The CIT(A) found that the property sold included a building and land appurtenant thereto, entitling the assessee to exemption under section 54 and also allowed exemption under section 54EC for the investment in SIDBI Bonds.

2. Determination of Property Nature:
The AO argued that the property was sold as open land in parts to various purchasers, thus not qualifying as a residential house for exemption under section 54. However, the CIT(A) and the Tribunal found that the property sold was indeed a residential building with land appurtenant thereto, used by the assessee for residential purposes. The Tribunal emphasized that the property was used for self-residence, and income from such property, even if declared as nil, qualifies for exemption under section 54 as per Circular No. 538, dated 13-7-1989.

3. Computation of Capital Gains and Applicability of Exemptions:
The AO computed capital gains by considering the sale consideration under section 50C and allowed exemption under section 54F, resulting in taxable capital gains. The CIT(A) and the Tribunal, however, held that the land sold was appurtenant to the building, and thus, the assessee was entitled to exemption under section 54. The Tribunal examined the agreement with the builder, which required the builder to construct a residential house for the assessee and allowed the builder to sell the remaining land. The Tribunal concluded that the land was an indivisible part of the residential property, used for enjoyment by the assessee and his family, and not yielding any other income. Therefore, the entire land qualified as land appurtenant to the building, allowing the assessee to claim exemption under section 54.

Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming the assessee's entitlement to deductions under sections 54 and 54EC. The appeal filed by the revenue was dismissed, affirming that the property sold was a residential house with land appurtenant thereto, qualifying for the claimed exemptions.