2017 (4) TMI 48 - AT - Income Tax

Computation of capital gains - Deduction u/s 54F - sale of land appurtenant to the residential house owned by the appellant - Held that - In the instant case, it is not the case of AO and CIT (Appeals) that the land was not appurtenant to the residential house. The case of the CIT (Appeals) is that the assessee has sold only the land appurtenant to the house and not residential house which, according to the Karnataka High Court in Shri C.N. Anantharaman vs. ACIT 2014 (10) TMI 932 - KARNATAKA HIGH COURT is not a requirement under the law and exemption u/s 54 of the Act is also available to the land which is appurtenant to the house. The front page of the sale deed itself shows that the land was part of residential house No. 64, Agrasen Vihar, Muzaffarnagar. Therefore, the exemption as claimed and allowed by the Assessing Officer should be upheld and the enhancement as made by the CIT (Appeals) is not sustainable in the eyes of law, hence, the same is deleted. - Decided in favour of assessee Application of rate for the purpose of working out the capital gain - FMV - Held that - The market value should have been taken as was in the hands of previous owner Smt. Asha Swarup from whom the appellant had received the property because she is the previous owner as far as the assessee is concerned and because Smt. Asha Swarup had acquired the property as on 31 st March 1985, hence the market value of the property should have been taken into account as on 31st March 1985 as worked out by the registered valuer at ₹ 730/ - per sq yard. Without prejudice to above, even if it is presumed that it is the cost in the hands of Smt. Jyotsna Kumari Swarup has to be taken into account because Smt. Asha Swarup had acquired the property by way of a will from Smt. Jyotsna Kumari Swarup. Even then the market value of the property as on 1 st April 1981 was more than as adopted by the Assessing Officer. The Assessing Officer has adopted the market value of the property as that was notified by the Stamp Authorities for the purpose of levy of stamp duty by circle rates. The Stamp Authorities, while fixing the circle rates, did not take into account various advantages and disadvantages and the location of the property, but they fixed the circle rate on a fixed rate for whole of the locality. Hon ble Jurisdictional Allahabad High Court in the case of Dinesh Kumar Mittal vs. ITO 1991 (3) TMI 78 - ALLAHABAD High Court as been held that there is no rule of law to the effect that the value determined for the purpose of stamp duty is the market value of the property. The market value of the property may be more or may be less. Therefore, in such circumstances, when a registered valuer has worked out the market value of the property as on 1 st April 1981 at ₹ 600 / - per square yard after taking into account the location of the land, the same should be adopted by the Assessing Officer. - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of deduction under section 54 of the Income Tax Act on the sale of land appurtenant to the residential house.
2. Adoption of fair market value of the land sold.
3. Determination of the cost of acquisition of the land.
4. Liability to pay interest under sections 234A, 234B, and 234C of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Disallowance of Deduction under Section 54:
The CIT(A) disallowed the deduction under section 54 on the sale of land appurtenant to the residential house, which was previously allowed by the AO, leading to an enhancement of income by ?60,27,000/-. The CIT(A) concluded that the land sold was not a residential house but land appurtenant to a building, thus not qualifying for the deduction under section 54. The Tribunal, however, noted that the land sold was part of a residential house and was duly assessed to house-tax. The Tribunal referenced the Karnataka High Court's decision in the case of Shri C.N. Anantharaman vs. ACIT, which held that deduction under section 54 is available even if only the land appurtenant to a residential house is sold. Consequently, the Tribunal upheld the deduction and reversed the CIT(A)'s enhancement of income.

2. Adoption of Fair Market Value:
The AO adopted the fair market value of the land sold at ?300 per sq. yard as on 1st April 1981, based on circle rates obtained from the office of the ADM(Finance), Muzaffarnagar. The assessee contended that the market value should be ?730 per sq. yard as on 31st March 1985, as determined by an approved valuer. The Tribunal found that the market value should be taken as on 31st March 1985, the date when the previous owner, Smt. Asha Swarup, acquired the property. The Tribunal also noted that circle rates do not necessarily reflect the market value, as supported by the Allahabad High Court's decision in Dinesh Kumar Mittal vs. ITO. Therefore, the Tribunal directed the AO to adopt the market value as determined by the registered valuer at ?730 per sq. yard.

3. Determination of Cost of Acquisition:
The AO considered the cost of acquisition based on the circle rate of ?300 per sq. yard as on 1st April 1981, following the provisions of section 49(1) and section 55(2)(b)(ii) of the Income Tax Act. The Tribunal, however, held that the cost of acquisition should be based on the market value as on 31st March 1985, the date when the previous owner, Smt. Asha Swarup, acquired the property. The Tribunal also directed the AO to consider the indexed cost of acquisition from 1st April 1981, as per the provisions of section 48 of the Income Tax Act.

4. Liability to Pay Interest under Sections 234A, 234B, and 234C:
The assessee denied liability to pay interest under sections 234A, 234B, and 234C of the Income Tax Act. The Tribunal did not specifically address this issue in the judgment, focusing instead on the primary issues related to the deduction under section 54 and the determination of the fair market value and cost of acquisition.

Conclusion:
The Tribunal allowed the appeal of the assessee, reversing the CIT(A)'s disallowance of the deduction under section 54 and directing the AO to adopt the market value as determined by the registered valuer. The Tribunal also directed the AO to consider the indexed cost of acquisition from 1st April 1981. The appeal was allowed in favor of the assessee, and the enhancement of income by ?60,27,000/- was deleted.