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TMI Blog2009 (4) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... w be vacated and the order of the Assessing Officer restored. (3) That the appellant craves leave to modify any of the grounds of appeal given above and/or add any fresh ground as and when it is considered necessary to do so." 2. In short, the issue involved in this appeal is whether the assessee is entitled for deduction under section 54 or 54F in addition to deduction under section 54EC. 3. The facts of the case are that assessee is a Doctor. He has filed return of income at Rs. 4,78,280. Assessment was made on a total income of Rs. 5,01,260. In the return, assessee had shown to have sold half of the property No. 7/59, Khalasi Lines, Tilak Nagar, Kanpur, which was claimed as his ancestral property and where assessee was living since childhood. The assessee had claimed deduction under section 54 in addition to deduction under section 54EC on the ground that part of the sale consideration was invested in acquiring/constructing a residential house for himself and part of the proceeds were invested in purchase of SIDBI Bonds. The ld. CIT, however, cancelled the order under section 263 of the Act for being made afresh on the ground that assessee has sold land and not a residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption under section 54 can be claimed. If the house property is used for self-residence also, still then income from the property would be chargeable under the head 'Income from house property'. The ld. CIT(A) referred to Circular No. 538, dated 13-7-1989 for the proposition that a person shall be entitled to claim deduction under section 54 of the Act even in respect of self-occupied residential house. The ld. CIT(A) described in detail the concept of land appurtenant to the building and held that land is part of the residential complex which was occupied by the assessee and, therefore, it could not be held that assessee had sold only the land and not the land appurtenant to the building. He, accordingly, allowed the claim of the assessee. He also allowed to the assessee exemption under section 54EC as according to him, such exemption would be available on SIDBI Bonds. 6. Before us, the ld. DR submitted that assessee has done separate registry of the land with individual buyers and, therefore, we had to see the computation of capital gains with respect to the land sold by the assessee and not with respect to the land appurtenant to the house claimed to be sold by the assessee. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing land approximately 908 sq. yards either to himself or to his nominees and the assessee would be obliged to get the registry done in the name of the builder or to his nominees. Accordingly, the assessee had done the registration in the name of buyers nominated by the builder. The Assessing Officer has taken the date for the purposes of transfer as the date of agreement with the builder, but has chosen to consider the issue of exemption with reference to registration done with the ultimate buyers. The ld. AR drew our attention to Agreement to Sell with Shri P.C. Goenka, son of late Shri K.L. Goenka, resident of 2A/244-A, Azad Nagar, Kanpur, the builder, to stress the point that what was sold was a residential building and land appurtenant thereto and assessee was obliged to transfer the land to the builder or to his nominees. This agreement with the builder is dated 9-9-2002 but the Assessing Officer has chosen to charge the capital gains in assessment year 2004-05 as per the dates of the sale to ultimate buyers which were 30-9-2003, 6-2-2004 and 26-3-2004. 8. According to ld. AR, capital gains should in fact arise in assessment year 2003-04 relevant to the agreement to sell mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned in Articles 4 to 8 of the Agreement to Sell dated 9-9-2002 as under : "(4) That the Purchaser/Vendee the Party of the Second Part shall be entitled to get the Sale Deed in his own name and/or in the name of his nominee/nominees and shall further be entitled to get the Deed of the whole or in piece meal in his own name or in the name of his nominee/nominees. (5) That the Vendor shall execute the Sale Deed/Deeds only on construction and completion of his new Bungalow in portion marked by colour GREEN on the Plan annexed hereto or either 8 months whichever is later. (6) That the vendor have received the sum of Rs. 10,00,000 (Rupees Ten lakhs only) as an advance detailed at the foot of this Deed and balance of Rs. 27,67,250 (Rupees Twenty Seven Lakhs Sixty Seven Thousand two hundred fifty only) shall be received by the Vendor from the vendee at the time of Registration of the Sale Deed/Deeds as the case may be. (7) That the time for execution and Registration of the Sale Deed/Deeds shall be three months from the date of obtaining separate number from Nagar Nigam, Kanpur/from construction/completion of new Bunglow on the portion GREEN shown on the Plan annexed hereto/8 months f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii)if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. (2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the land is owned by another person then it will be the case of land adjoining the building and by no stretch of imagination can it be called land appurtenant to the said building. (2)CIT v. M.K. Chandrakanth [2002] 258 ITR 14 (Mad.) A close reading of section 54 of the Income-tax Act, 1961, indicates that the following conditions should be fulfilled by an assessee to claim exemption under section 54 of the Act. There must be some capital gains arising from the transfer of a capital asset. The capital asset transferred must be buildings or lands appurtenant thereto, the income of which is chargeable under the head "Income from house property". The transferred property should have been used by the assessee or his parent for a period of two years immediately preceding the date on which the transfer took place. The capital asset should have been used by the assessee or a parent of his mainly for the purpose of his own or the parent's own residence for a period of two years prior to the date of transfer. The assessee within a period of one year before or after the date must have purchased or within a period of two years before or after the date constructed a house property for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d may not qualify to be treated as land appurtenant to the building; (3) If there is any evidence to indicate that any portion of the land contiguous to the building was applied to user other than the enjoyment of the building, then that provides a safe indication regarding the extent of land applied for such user. For instance, the land used by the occupiers for commercial or agricultural purpose although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to the building; (4) If the owner or occupier is deriving any income from the lands which is not liable to be assessed as income from house property under section 22 of the Income-tax Act, 1961, then the extent of such land does not qualify to be treated as land appurtenant to the building; and (5) Any material pointing to the attempted user of the land for purposes other than the effective and proper enjoyment of the house would also afford a safe guide to determine the extent of surplus land not qualifying to be treated as land appurtenant to the building. The above tests are illustrative and by no means exhaustive. It is for the tax authorities to apply their mind properly to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right subsidiary to one which is more important; appertaining as if by right to; proper, suited or appropriate to; relating to, pertinent.' That is the primary meaning of the word 'appurtenant'. In Buchi Mal v. Bhati AIR 1915 All. 459, 'an appurtenance' is defined as an appendage, an adjunct, or something belonging to another thing as principal and passing as an incident to it. In Trim v. Sturminster Rural District Council [1938] 2 KB 508; 2 All ER 168 (CA), the learned Judge considered the meaning of the word 'appurtenance' at pages 515 and 516 (of [1938] 2 KB) and observed that the word 'appurtenance' had never been extended to include land, as meaning a corporeal hereditament, which does not fall within the curtilage of the yard of the house itself that is, not within the parcel of the demise of the house. That may be so. In the definition contained in the Act, the grounds and outhouses, if any, appurtenant to such building are included in the definition. As pointed out in Thomas v. Owen [1888] 20 QBD 225 (CA) at pp. 231, 232, the word 'appurtenance' has also a secondary meaning as equivalent to 'usually occupied' and this was cited with approval in Woodfall on Landlord and Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the point of view of the persons occupying the building. The number of persons or different branches of families residing in the building, the requirements of the persons occupying the building, consistent with their social standing, etc., are relevant for the purpose. If any surplus is arrived at on such enquiry, then the extent of such surplus land may not qualify to be treated as land appurtenant to the building; (3) If there is any evidence to indicate that any portion of the land contiguous to the building was applied to user other than the enjoyment of the building, then that provides a safe indication regarding the extent of land applied for such user. For instance, the land used by the occupiers for commercial or agricultural purposes although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to the building; (4) If the owner or occupier is deriving any income from the land which is not liable to be assessed as income from house property under section 22 of the Income-tax Act, then the extent of such land does not qualify to be treated as land appurtenant to the building; and (5) Any material pointing to the attempted use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 23(2) of the Income-tax Act, as amended by the Finance Act, 1986, the annual value of one house in the occupation of the owner for purposes of his own residence is taken as nil. A question has been raised whether capital gain arising from the transfer of such a house property would be entitled to exemption under section 54 of the Act. (3) The question appears to have been raised because of the words underlined in para 1 above. As the annual value of a self-occupied house would be taken to be nil by virtue of section 23(2) of the Act, an Assessing Officer may take the plea that the income of such a house is not chargeable under the head "Income from house property". (4) The Board is of the view that such a construction of the aforesaid provision in section 54 of the Act is not correct. Income from a self-occupied residential house is chargeable under the head "Income from house property", even though in certain circumstances such income may be computed at nil or at a negative figure of virtue of section 23(2) read with section 24 of the Act. (5) Thus, a person shall be entitled to claim exemption under section 54 of the Act even in respect of a self-occupied residential house. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the builder cannot be overlooked. As a matter of fact, the Assessing Officer has also taken into account the sale consideration as reflected in the agreement with the builder and not with the respective final buyers being the nominees of the builder. Therefore, the Assessing Officer now cannot adopt two standards - one for the purposes of holding that land was sold in piecemeal to the final buyers and, therefore, it is land and not land appurtenant to building and the other for adopting sale consideration given by the builder and ignoring the sale consideration given by the final buyers to the builder. If the Assessing Officer is adopting sale conside-ration given by the builder to the assessee for the purposes of calculating capital gains then he has to simultaneously take into account as to what he is selling to the builder. It is undisputed that assessee is selling entire building and land to the builder. What the builder does with the building or land cannot affect the act of transfer or the condition of transferred property or character thereof as was the subject-matter of transfer with the builder. 17. In our considered view, the assessee has sold the building and land ..... X X X X Extracts X X X X X X X X Extracts X X X X
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