2008 (4) TMI 363 - AT - Income Tax

Computation of Capital gain - Exemption u/s 54 - Property purchased as well as the property sold would not fall within the description residential house - nature of property residential or commercial - HELD THAT - It is not the case of the assessee that the roofed structure built on the Banjara Hills land was either self-occupied or let out and there is nothing on record to suggest that it was intended to be used as residence. Considering the market value of the property, the so-called house constructed on the property cannot be said to be for use of the assessee or for letting out as a residential house. Similarly, the assessee purchased two plots for a total consideration which contain small temporary structures covered with asbestos roofing in a corner of the plots. These plots also cannot be said to have been purchased to use the temporary structures as residential houses. Since the expression 'residential house' is not defined under the IT Act, a purposive meaning has to be adopted to such expression instead of going by the technical meaning assigned under various enactments or the dictionary meaning given in the dictionary. It has to be assumed that the intention of the legislature was to extend the benefit of exemption under s. 54 of the Act only when the property sold as well as the property purchased by the assessee were intended to be used as residential houses, whereas the totality of circumstances clearly indicate that they were never intended to be used as residential houses either for self-occupation or for letting of. We are, therefore, of the view that the assessee is not entitled to exemption under s. 54 of the Act on the sale value of the impugned property. Therefore, we are of the view that the property purchased as well as the property sold would not fall within the description residential house - In the result, the appeal filed by the Revenue is allowed.

Issues Involved:
1. Exemption under Section 54 of the IT Act, 1961.
2. Classification of property as "residential house".
3. Interpretation of "land appurtenant to building".
4. Determination of whether temporary structures qualify as "residential houses".
5. Legislative intent behind Section 54 of the IT Act.

Issue-wise Detailed Analysis:

1. Exemption under Section 54 of the IT Act, 1961:
The core issue revolves around whether the assessee is entitled to exemption under Section 54 of the IT Act, 1961. The AO denied the exemption, while the CIT(A) allowed it. The AO's decision was based on the classification of the properties as "plots of vacant land" rather than "residential houses", which is a prerequisite for claiming exemption under Section 54.

2. Classification of property as "residential house":
The AO inspected the properties and found them to be "plots of vacant land" with temporary structures not meant for habitation. The AO emphasized that the temporary structures were erected to obtain municipal numbers and other utilities, and not for residential purposes. The CIT(A), however, accepted the assessee's contention that the properties were residential, citing that an asbestos house qualifies as residential accommodation and there is no legal restriction on the size of the house or the land appurtenant to it.

3. Interpretation of "land appurtenant to building":
The AO referred to the Andhra Pradesh High Court's decision in CIT vs. Zaibunnisa Begam, which stated that the property sold should be a building or land appurtenant to it. The AO concluded that the temporary structures on the plots did not qualify as residential houses. The CIT(A) disagreed, suggesting that the land appurtenant to the Jubilee Hills house could not be bifurcated without approval from the housing society, and thus, should be considered as part of the residential property.

4. Determination of whether temporary structures qualify as "residential houses":
The AO argued that the temporary structures were not intended for use as residential houses, either for self-occupation or letting out. The CIT(A) countered this by stating that there is no prohibition in law against granting exemption for temporary structures, and described the properties as residential houses based on their municipal classification and the sale deed descriptions.

5. Legislative intent behind Section 54 of the IT Act:
The AO highlighted that the legislative intent of Section 54 was to promote housing activity by providing tax benefits for the transfer of residential properties. The AO argued that the temporary structures did not align with this intent as they were not meant for residential use. The CIT(A) did not address this argument directly but focused on the classification of the properties as residential houses under municipal records.

Conclusion:
The Tribunal concluded that the properties sold and purchased by the assessee did not qualify as "residential houses" as defined under Section 54 of the IT Act. The Tribunal emphasized the legislative intent behind the provision, which is to encourage the acquisition of residential houses for self-occupation or letting out, and found that the temporary structures did not meet this criterion. Consequently, the appeal filed by the Revenue was allowed, and the exemption under Section 54 was denied.

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