2012 (10) TMI 203 - HC - Income Tax

Exemption under the head Income from House Property - Section 54 - purchase of residential house - Held that - a house was one which could be used by the assessee for his residence and putting up of tin sheds for being used by somebody to reside without there being basic living amenities like bathroom, kitchen, electricity etc., would not pass the definition/test of dwelling unit or a house . - the property was not a house and the assessee was not entitled to the benefit under Section 54 of the Act. - in favour of Revenue.

Summary

Issues:
1. Denial of benefit under Section 54 of the Income Tax Act due to lack of amenities in the residential house.
2. Interpretation of the term "residential" under Section 54 of the Income Tax Act.

Analysis:
Issue 1: Denial of benefit under Section 54
The appellant filed an appeal under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal (ITAT) denying the benefit of Section 54. The appellant claimed exemption for long term capital gain from the sale of a residential house in Delhi, stating investment in a residential plot in Ludhiana. However, the Assessing Officer concluded that the purchased plot was insufficient to qualify as a residential house under Section 54. The Commissioner of Income Tax (Appeals) and the ITAT upheld this decision, leading to the current appeal.

Issue 2: Interpretation of the term "residential"
The crux of the matter was whether the constructed property qualified as a "residential house" under Section 54. The appellant argued that a room rented to a laborer constituted a habitable residence, making it eligible for the Section 54 benefit. However, the authorities found that the property lacked essential amenities like a boundary wall, kitchen, toilet, electricity, and sewerage connection. Additionally, the property was not constructed in compliance with PUDA regulations, and no source of investment was established. The ITAT concluded that the property did not meet the criteria for a residential house as per Section 54.

The court referred to the case law and emphasized that a structure must meet basic living standards to qualify as a "residential house" under Section 54. The court cited the precedent that tin sheds lacking essential amenities do not constitute a dwelling unit or a house. Consequently, the court upheld the ITAT's decision, ruling against the appellant's claim for exemption under Section 54.

In conclusion, the court dismissed the appeal, holding that the property in question did not meet the statutory requirements to be considered a residential house under Section 54 of the Income Tax Act. The judgment favored the revenue, denying the appellant the benefit sought under the Act.