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TMI Blog2013 (1) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... As the expression "residential house" used in section 54F has not been defined in the Income-tax Act. The popular meaning of the word "house" is a place or a building used for habitation of persons. Since a house is called residential house with reference to the purpose of its users, it may not be necessary that somebody should live in it continuously. It is enough if it was a house for residence. A farmhouse is also a residential house. Thus if the evidence brought on record by the assessee to show that there was a dwelling unit in the present property and the investment has been made by the assessee for construction or remodelling of the existing building as stipulated herein below the claim of the assessee has to be allowed - claim of the assessee cannot be rejected on any superficial ground that the assessee had not made investment within the time stipulated and the building constructed by the assessee is not a residential house - remit the issue back to the file of the AO who will examine the issue afresh in the light of the evidence brought on record by the assessee - Also the amount incurred by the assessee towards settling certain claims at Rs. 27,03,100 cannot be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as a deduction. 9. The CIT(Appeals) and the Assessing Officer failed in noting that the unutilized portion of sale proceeds are assessable as appellant's income only after expiry of the period of 3 years and not in the current assessment year. 3. Brief facts of the case are that the assessee filed a return of income declaring income of Rs. 1,69,500. The Assessing Officer noticed that the assessee claimed capital gain of Rs. 3,66,06,236 as exempt u/s. 54F of the Income-tax Act, 1961. The facts relating to the issue of capital gain are that the assessee sold the plot bearing No. 14, in Sector II, HUDA Techno Enclave, Madhapur, Sy. No. 64 in Serilingampally Mandal, R.R. District on 18.7.2007. It was submitted by the assessee that the property was purchased by the assessee on 30.6.2003 for a consideration of Rs. 22,26,928 and incurred registration charges of Rs. 2,67,240. Thus the total cost worked out at Rs. 24,98,168. Later in the financial year 2004-05, she spent an amount of Rs. 7 lakhs for improvement of the property. The said plot was sold on 18.7.2007 for a total consideration of Rs. 4,03,78,000 and computed the capital gain as follows: a) Sale consideration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities, the assessee made certain alterations to the building to make it habitable. It was further submitted necessary proof for withdrawing funds of Rs. 1,12,59,100 incurred for development of the property and renovation of the house well within the stipulated time i.e. before 31-07-2008. 7. The CIT(A) has not accepted the assessee's contentions and dismissed the appeal on the grounds that the advances were paid for the purpose of construction only after 31.07.2008 i.e., after the due date of filing the return. Any portion of the sale consideration was not deposited in the capital gain scheme account as mandated by sec. 54 within the stipulated time. The land purchased was a mill land which shows that the initial purpose itself was not to acquire a new residential house. Construction was not actually undertaken which could be considered as a new residential house. Existing construction was remodelled or renovated by alterations cannot be considered amounting to investment in a residential house. The CIT(A) further held that no person intending to use or even construct a residential house would incur meagre expenses towards alteration of the habitable area and huge sums would b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was on 18-07-2007. (iv) Date of agreement of purchase of new property was on 10-04-2007. (v) Date of Payment of Rs. 1,79,95,450/- to Official Liquidator for purchase of new property was on 30.07.2007. (vi) Date of payment of balance of consideration of Rs. 45,00,000/- for purchase of property was on 23-08- 2007. (vii) Date of registration of property purchased was on 16- 10-2007. (viii) Capital gain is Rs. 3,66,06,236/-. Investment in purchase of land is Rs. 2,46,37,800/-. (ix) Dates of payments of Rs. 27,03,100 towards settlement and Rs. 1,12,59,100/- towards development and construction through cheques are: 28.06.2007 Rs. 50,00,000 03.07.2007 Rs. 50,00,000 04.09.2007 Rs. 40,00,000 11. The AR submitted that as could be seen from the above, an amount of Rs. 3,86,37,800 was spent against the capital gain of Rs. 3,66,06,236, well before the stipulated due date for filing of return of income i.e. 31.07.2008. The CIT(A) confirming the ITO's observation that the money is spent after 31-07-2008 is not factually correct. The finding of the CIT(A) that any portion of the sale proceeds of the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeds in this property with an intention to remodel the property into a residential house. And the investment is done within the stipulated time. Hence, the assessee is entitled for the exemption u/s. 54F. 13. The AR submitted that in the property purchased, in addition to the sheds noticed by the AO, there are some more buildings including an RCC Building with 1,297 square feet. To make the premises habitable, the assessee spent money on land development and made alterations and renovations to the building. It was absolute necessary to the assessee to spend more on land development than on the building for the reason that the property was lying unused for the last 20 years and then it was to be made habitable. The land was soft and marshy and there were thick bushes around the building and on the approach way from the entrance to the building. The marshy land was filled with gravel to make the land hard and suitable to use by vehicles and the bushes were cleared and pathway was laid from entrance to the building. For doing these works, it was necessary to use JCM Machines and labour and incur considerable expenditure. Renovation includes all these works of improvements. Furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Andhra Pradesh. The land is situated in 19 Survey numbers viz. 11/1, 11/2A, 11/2B, 11/3, 11/4, 11/5, 13/1, 13/2, 13/3A, 13/3B, 13/4A, 13/4B, 13/4C, 13/5A, J3/5B, 14, 15, 17 18 as per the Schedule of Property to the sale document. The details of buildings which are existed in the premises of the property are as under: Building Area Construction 1st item 15,122 sft ACC Building 2nd item 1,521 sft ACC Building 3rd item 1,496 sft ACC Building 4th item 768 sft ACC Building 5th item 1,297 sft RCC Building 15. The AR submitted that these details show that the enquiries by the Assessing Officer with regard to the property are inadequate and lop-sided. The enquiry report on the property finding that "there are only two sheds and the remaining land is vacant" is very far from the truth. In fact, there are five buildings in total in the premises of the property. Four of them are with ACC construction and one is with RCC. The area of four buildings with ACC together is admeasuring around 19,000 sft and the one with RCC is 1,297 sft which was used for of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. Accordingly, we allow the appeal of the assessee". In the instant case the assessee purchased the property together with the buildings and land made alterations, remodelling and renovations to make it habitable. In the light of the above decisions, investment in development, remodelling and renovation for the convenient occupation and to suit the requirement of the assessee is taken to have invested in new construction of house and treated to have complied with the provisions of Sec. 54F. Therefore, the assessee is entitled for exemption u/s. 54F and it is prayed for allowing the same. 17. The AR placed reliance on CIT Vs. Zaibunnisa Begum (1985) 151 ITR 320: While considering section 54 of the Income-tax, the Andhra Pradesh High Court held: " ..... the meaning of the words "land appurtenant" formulated the following five tests to understand the meaning of the words "land appurtenant" more precisely (headnote): "(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 extensi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 of the said Act, that expression was defined as including "any yard, garden, outhouses, and appurtenances belonging thereto or usually enjoyed therewith". The question arose whether a cottage and ten acres of adjoining grass land came within the expression of "house" for the above purpose. It was held that it was not the cottage together with the whole of the ten acres of land, but only the cottage with its outhouses, yards, curtilage and gardens, that constituted the "house" within the definition, inasmuch as the term "appurtenances" was there used in its well established legal sense as including only such matters as outhouses, yards and gardens, and not land as meaning a corporeal hereditament. It was further held that the question as to exactly how much of the ten acres ought to be included in the appurtenances of the cottage and, therefore, in the "house" was one for the decision of the county court judge, his decision to be confined, however, to matters which, on the face of it, would be something considerably less than the whole of the ten acres." 18. The AR submitted that the assessee purchased the property in one lot which is verifiable from the sale deed. No evidence w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt towards settlement expenditure. In respect of property purchased, it is stated that the assessee has paid Rs. 27,03,100 to two persons i.e., Shri J. Subramanyam Naidu and Shri B.C. Reddappa Reddy who were party to auction by the Official Liquidator. It appears the assessee, Shri V. Madhusudana Reddy, Sri J. Subramanyam Naidu, Sri B.C. Reddappa Reddy and others were party to auction by Official Liquidator., However, it is not clarified why payments were made only to Sri J. Subramanyam Naidu and Shri B.C. Reddappa Reddy. Further, it is submitted that the payment was made towards settlement of claim by these two persons who were claiming adverse possession and claim in the title of land. This claim was made by the assessee before Assessing Officer which has been repeated before the CIT(A). 21. The DR further submitted that in the paper book filed by the assessee, it is submitted that the entire amount has been paid for which details of cheque no, dates and amount have been mentioned. From the details filed it is not clear to whom these payments were made because the payments of Rs. 1,40,00,000 were made in 3 instalments. It is assessee's claim that out of the above amount, Rs. 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be accompanied with the return of income. The net consideration has been defined as per the Explanation to Sec. 54F(1) as under: "net consideration" in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. 23. In view of the above, the assessee should have utilized the entire amount of Rs. 4,03,78,000 towards purchase or construction of the new asset before 31-7-2008 i.e., the due date for filing the return u/s. 139(1). However as seen from record, the assessee has claimed to have spent Rs. 2,25,00,000 towards purchase of land and claimed to have paid Rs. 27,03,100 towards settlement expenses on which a submission has been made in earlier paragraph stating that there is no scope to treat the above expenses as settlement expenses. Further it is claimed that Rs. 1,12,59,100 has been incurred towards construction expenses before due date. Even if this is treated as utilized, assessee should have deposited balance amount of net consideration in Capital Gain Account Scheme befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng were auctioned by the Official Liquidator. The assessee in effect has purchased a property consisting of land and factory building where earlier a textile mill was in operation. In the circumstances, it cannot be claimed that the land was purchased for residential purpose and advance for construction of residential unit has been given. The DR submitted that in view of the above submissions, the appeal filed by the assessee has to be dismissed. 26. We have heard both the parties and perused the material on record. Admittedly, in this case the assessee purchased a property measuring 17 acres 47 cents along with the building for a consideration of Rs. 2.25 crores and also incurred expenditure of Rs. 21,37,800 towards registration charges. The assessee also claimed expenditure of Rs. 27,03,100 towards settling the claims of two persons viz., Sri J. Subramanyam Naidu and B.C. Reddappa Reddy. The fact of purchasing the above property cannot be disputed. This property was purchased through the High Court order from Official Liquidator. The objection of the Department is that it is not a residential property and it was originally belonged to Sri Kalyana Srinivasa Textiles Factory and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 10.10.2012 before us that the documents filed by the assessee are not available in the assessment folder. To that extent there is a contradiction between the Assessing Officer and the CIT(A)'s order. These facts are to be examined and further in our opinion, the expression "residential house" used in section 54F has not been defined in the Income-tax Act. The popular meaning of the word "house" is a place or a building used for habitation of persons. "Residential house" is a dwelling house as distinguished from a house of business, warehouse, office, shop, etc. In other words, residential house is a building used as a place of abode in which people reside or dwell in contra distinction in one which is used for commercial or business purposes. Since a house is called residential house with reference to the purpose of its users, it may not be necessary that somebody should live in it continuously. It is enough if it was a house for residence. A farmhouse is also a residential house. A farmhouse, according to the dictionary meaning, is a farmer's house attached to a farm. Therefore, if the assessee constructed or remodelled a building situated in the farmhouse to suit her needs th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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