2008 (1) TMI 356 - HC - Income Tax

Transfer of asset (residential house) capital gains - a plot of land having a boundary wall and a garage-cum-room, can not be treated as residential house section 53 does not exempt merely a building nor does it exempt merely the land appurtenant thereto claim for exemption u/s 53 is not accepted, as asset did not fulfill the character of a residential house

Summary

Issues:
Challenge to orders of authorities below regarding exemption for residential house under Section 53 of the Income Tax Act.

Analysis:
The appellant challenged orders of the Assessing Authority, Commissioner of Income Tax, and Income-tax Appellate Tribunal regarding exemption for a residential house under Section 53 of the Income Tax Act. The dispute arose from the sale of a plot of land with a garage cum room, inherited by the appellant and another individual. The assessing authority assessed the income from the sale to tax and denied the exemption claimed by the appellant under Section 53. The appellant's share from the sale was Rs. 95,000. All authorities below affirmed the denial of exemption.

The primary issue revolved around whether the property qualified as a residential house under Section 53. The appellant argued that the presence of a boundary wall and a garage cum room, where a caretaker resided, fulfilled the criteria of a residential house. Conversely, the Revenue contended that the property did not meet the definition of a residential house, as established by the authorities below after thorough examination of the facts.

The court examined the provisions of Section 53 and emphasized the distinction between a residential building and a residential house. It noted that the intention behind the construction is crucial in determining whether a property qualifies as a residential house. In this case, the property was never described as a residential building or house before the tax controversy. The court highlighted the absence of essential residential features like a kitchen or toilet in the garage cum room.

Furthermore, the court referenced dictionary definitions of "residence" and "house" to support its conclusion that the property did not meet the characteristics of a residential house. It rejected the appellant's argument that allowing such exemptions could be exploited by property dealers or builders for tax benefits. The court held that Section 53 aims to provide relief to individuals genuinely shifting residences, not to grant tax exemptions for speculative property dealings.

Ultimately, the court ruled against the appellant, upholding the decisions of the authorities below and dismissing the appeal. The judgment emphasized that the property did not qualify as a residential house under Section 53, and therefore, the appellant was not entitled to the claimed exemption.