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TMI Blog2012 (7) TMI 718X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Not mentioning anything about the applicability of the provisions of section 54F of the Act, when he upheld the decision of the AO only on the ground of the Long Term Capital Asset not being a residential house." 3. Briefly stated, the facts of the case are that the assessee filed return of income on 13-09-2007 declaring total income of Rs.2,34,13,970/-. The same was processed u/s 143(1) of the Act accepting the returned income. The return was selected for scrutiny issuing notice u/s 143(2) of the Act and subsequently notice u/s 142(1) of the Act was issued calling the assessee for the relevant details. In response thereto the assessee filed the required details. During the year under consideration the assessee has shown long term capital gain of Rs.2,08,19,029/- and other interest income of Rs.26,79,329/- in the return of income. Capital gain income of Rs.2,08,19,029/- was earned on transfer of assessee's share @3.125% in the property situated at 5, Mansingh Road, New Delhi. The said share of 3.125% was received through Will of assessee's mother having 1/6th share in the said property on her demise in 1998. The said property was transferred by the owners for Rs.1,48,93,93,50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r exemption of Rs.1,00,00,000/- u/s 54 of the Act. The assessee in response submitted that the property at New Delhi was residential house which was build by P.D. Patani and the same was the source of capital gain of the assessee. It was further submitted that the properties around Mansingh Road have been declared as Lutyen's Zone and no commercial use is permitted. 3.3 Regarding reimbursement of expenses to Indian Hotels Co. Ltd. the assessee submitted that though the joint development agreement/understanding was arrived at the for development of the property, but same had to be called off subsequently and since during the intervening period Indian Hotels Co. Ltd. has incurred expenses of Rs.97,00,000/- the same was reimbursed to them as per the understanding/agreement. 3.4 The AO after considering the submissions of the assessee, copy of the sale deed, valuation report and copy of letter of The Indian Hotels Co. Ltd. dated 17-11-2005 signed by the 3 parties as aforesaid was of the view that for availing exemption u/s 54 of the Act the assessee had to fulfill the following relevant conditions: (i) The transfer shall be by Individual or a HUF (ii) The long term capital asset sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty has been converted into a commercial property by way of the agreement with The Indian Hotels Co. Ltd. Accordingly, the AO treated the property as not residential house on the date of transfer and that the assessee did not fulfill the condition regarding transfer of residential building and land appurtenant thereto prescribed u/s 54 of the Act for availing exemption and disallowed assessee's claim u/s 54 of the Act for Rs.1,00,00,000/-. 4. Being aggrieved, the assessee carried the matter in appeal before the learned CIT(A) and it was mainly contended before him that during assessment proceedings the AO asked the assessee to explain that the property in question was a residential property. The assessee replied the query. It was further submitted that the AO rejected the claim of the assessee u/s 54 of the Act on three grounds in the assessment order without confronting the same to the assessee. The assessee also wanted to file additional evidence by way of reply in respect of first and second ground on which the AO rejected the claim of the assessee u/s 54 of the Act and sent a copy of the paper book dated 24-2-2010 for his comment. The AO in his comment regarding claim of Rs.1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee that the AO has not appreciated that the facts of the case, legal position and ratio of various judicial pronouncements and that income under the head "income from house property" is chargeable u/s 22 of the Act according to which the annual value of the property consisting building or land appurtenant thereto of which the assessee is owner, other than such portions as may occupy for the purpose of any business or profession carried on by him and the profits of which are chargeable to income tax. It was further submitted that "land appurtenant thereto" has not been defined in the Income Tax Act and that therefore, the assessee relied upon various dictionary meanings. The assessee also further relied upon the decision of the Hon'ble Madras High Court in the case of CIT Vs Smt. M. Kalpagam, 227 ITR 733 and the decision in the case of CIT Vs Zaibunnisa Begum, 151 ITR 320 in which it was held that 'land appurtenant" is to be construed in a broad and non-technical sense and the tax authorities should determine the extent of land appurtenant by enquiring into the enjoyment of the building and land by the occupiers. 4.6 Regarding - building should be a residential house, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok containing 1 to 149 pages filed by the assessee. From the facts of the case it is evident that the grouse of the learned AO for denying exemption u/s 54 of the Act was due to the following three reasons: (1)The asset which is the subject matter of transfer belonged to the assets of Late Shri Prabhashankar Patni which is separate assessable entity and not the assessee. (2)The asset which is the subject matter of transfer is predominantly is a case of transfer of land and the same cannot be treated as transfer of building with land appurtenant thereto as envisaged u/s 54 of the Act. (3) The subject matter of assets being transferred was converted to commercial asset and no more remained as house property as defined u/s 22 of the Act. 7.1 In respect of the first issue that the asset which is the subject matter of transfer belonged to the assets of Late Shri Prabhashankar Patni which is separate assessable entity and not the assessee; on our perusal of the records the apprehension of the learned AO does not seem to be justified. From the sale deed executed on 23-08-2006 between the members of the HUF and M/s.Minerals Management Services Pvt. Ltd., it is evident that Shri Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's case. Since the asset has been orally partitioned amongst the members of the related Hindu Undivided Families though not by metes and bounds, the members of the HUFS were holding the property as co-owners in their individual capacity and not in the status of HUF. Therefore, the learned AO has erred to hold that the conditions regarding transfer of residential building and land appurtenant thereto prescribed in section 54 of the Act in order to avail exemption is not fulfilled. From the facts of the case, it is evident that the assessee is the joint owner of the property in her individual capacity by virtue of the oral partition and is entitled to claim deduction u/s 54 of the Act on sale of the residential building along with land appurtenant thereto, subject to the fulfillment of other conditions laid down under the Act. 7.2 The other argument of the revenue was that the subject matter of transfer of assets was not related to transfer of a residential house with land appurtenant thereto but predominantly land; also does not appear to have any merit. From the facts, it is evident that the land was allotted by the Government on 20-08-1921 to the assessee's Great Gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred, taking into consideration a variety of circumstances that may be relevant for the purpose. It is not possible to lay down in fallible tests to be applied as the tests would vary depending upon the facts and circumstances of each case. For instance: (1) If the building together with the land is treated as an indivisible unit and enjoyed as such by the persons occupying the building, it is an indication that the entire extent of land is appurtenant to the building ; (2) If the building has extensive lands appurtenant thereto and even if the building and the land have been treated as one single unit and enjoyed as such by the occupiers, an inquiry could be made to find out whether any part of the land contiguous to the building can be put to independent user without causing any detriment to the enjoyment of the building as such. Such an enquiry should be conducted not based on any artificial considerations but from the point of view of the persons occupying the building. The numbers 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed access to the property so that they could assess the commercial potentiality of the property and could approach the Government for special approval to set up a hotel. The proposal of the group of five star hotels to the vendors was that, if such approval would have been obtained, the assessee and the co-owners of the property would further negotiate to become part the joint venture in association with Indian Hotel Co. Ltd. In such eventuality, the existing residential house would have to be demolished and a hotel building would have to be erected as per the joint development agreement. However, due to the stringent rules and regulations of the Lutyen's Bungalows Zone which came in way, permission could not be obtained for such vast construction. At this juncture, the members of the Patni Family decided to sever the ties with Indian Hotel Co. Ltd., and were on the lookout for another buyer who would be interested to purchase the property as Heritage Home for residential purpose. The property was not capable of being sub-plotted and due to stringent rules and regulations of Lutyen's Bungalows Zone it was a difficult task to find suitable buyer who might be interested to invest in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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