2019 (11) TMI 78 - AT - Income Tax

Exemption u/s 54F - purchase of residential land - Nursing Home was constructed in addition to the residential house - benefit of indexation in computing capital gains - HELD THAT - Admittedly, assessee constructed commercial property being nursing home, on the land purchased from sale proceeds, and residential house, which has been claimed as exemption u/s 54F. Section 54F is very clear in respect of exemption being available to assessee, in respect of either purchase of residential property or construction of residential property within the period of limitation prescribed therein. Do not find any force in argument advanced by Ld.AR regarding granting of exemption u/s 54F in respect of entire land on which construction in respect of residential house as well as commercial building being nursing home have been done. It is observed that Ld.AO while computing capital gain, allowed ₹ 33,41,839/- as cost of land appurtenant to residential house for which there is no basis.CIT(A) mentions land on which residential house constructed amounts to ₹ 586.96 sq.mts, out of total land 2543.25sq.mts. Both AO and CIT(A) failed to compute vacant land that may be annexed to residential house. We therefore, direct Ld.AO to consider all these aspects for purpose of computing exemption u/s 54F and capital gains payable by assessee. Needless to say that assessee is eligible for benefit of indexation in computing capital gains. - Grounds raised by assessee stands allowed for statistical purposes.

Summary

Issues:
1. Computation of long term capital gains.
2. Apportionment of land sold between the appellant and his son.
3. Eligibility for benefit u/s. 54F of the Act.
4. Characterization of land as appurtenant for claiming benefits under section 54F.
5. Excessive, arbitrary, and unreasonable computation of capital gains by the assessing authority.
6. Confirmation of interest u/s 234A, 234B, and 234C of the Act.

Computation of long term capital gains:
The appellant, a Doctor and partner in a nursing home, appealed against the assessing authority's computation of total income, specifically disputing the treatment of capital gains arising from the sale of a commercial property jointly owned with his son. The assessing officer (AO) considered the entire land as per a valuation report, rejecting the appellant's argument that only the building value was relied upon. Additionally, the AO restricted the benefit under section 54F to the proportionate amount used for constructing a residential house, adding the remaining amount to the appellant's income as long term capital gain. The Commissioner (A) upheld this decision, leading to the appeal before the Tribunal.

Apportionment of land sold between the appellant and his son:
The AO observed that the property was leased to a firm in which the appellant and his son were partners, and the firm invested in constructing a building used as a nursing home. After the sale, the appellant reinvested the funds in acquiring land jointly with his son and constructing residential and commercial properties. The AO restricted the section 54F benefit to the proportionate amount used for the residential house, leading to a dispute on the apportionment of land between the appellant and his son.

Eligibility for benefit u/s. 54F of the Act:
The appellant claimed exemption under section 54F, arguing that the entire land and the portion of the building used for residential purposes should qualify for the benefit. However, the AO and the Senior DR contended that the exemption should only apply to the residential property and not to commercial purposes like a hospital. The Tribunal held that the exemption under section 54F is specific to residential properties, and the benefit cannot be extended to commercial constructions, ultimately directing the AO to reconsider the computation of exemption and capital gains.

Characterization of land as appurtenant for claiming benefits under section 54F:
The Tribunal noted that the appellant constructed a commercial property (nursing home) and a residential house on the land purchased from the sale proceeds. While the AO allowed a specific amount as the cost of land appurtenant to the residential house, both the AO and the Commissioner (A) failed to consider the vacant land annexed to the residential house. The Tribunal directed the AO to reassess these aspects for computing the exemption under section 54F and the capital gains payable by the appellant.

Excessive, arbitrary, and unreasonable computation of capital gains by the assessing authority:
The Tribunal found that the AO's computation of capital gains lacked a basis for considering the land appurtenant to the residential house. Both the AO and the Commissioner (A) failed to account for the vacant land attached to the residential property, leading to a direction for the AO to reevaluate the computation and ensure the appellant's eligibility for indexation in computing capital gains.

Confirmation of interest u/s 234A, 234B, and 234C of the Act:
The Commissioner (A) confirmed the interest under sections 234A, 234B, and 234C of the Act, which was challenged by the appellant. The Tribunal, while allowing the appeals for statistical purposes, did not provide specific details on the interest confirmation issue.

This detailed analysis of the judgment addresses the various issues raised in the appeals and the Tribunal's findings on each matter, providing a comprehensive overview of the legal proceedings and decisions made by the authorities involved.