TMI Blog2017 (4) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... e market value should have been taken as was in the hands of previous owner Smt. Asha Swarup from whom the appellant had received the property because she is the previous owner as far as the assessee is concerned and because Smt. Asha Swarup had acquired the property as on 31 st March 1985, hence the market value of the property should have been taken into account as on 31st March 1985 as worked out by the registered valuer at ₹ 730/ - per sq yard. Without prejudice to above, even if it is presumed that it is the cost in the hands of Smt. Jyotsna Kumari Swarup has to be taken into account because Smt. Asha Swarup had acquired the property by way of a will from Smt. Jyotsna Kumari Swarup. Even then the market value of the property as on 1 st April 1981 was more than as adopted by the Assessing Officer. The Assessing Officer has adopted the market value of the property as that was notified by the Stamp Authorities for the purpose of levy of stamp duty by circle rates. The Stamp Authorities, while fixing the circle rates, did not take into account various advantages and disadvantages and the location of the property, but they fixed the circle rate on a fixed rate for whole of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income at ₹ 15,36,830/-. The return was processed uls 143(1) of the IT Act and case was selected for scrutiny. Accordingly, notice u/s.143(2) of the I.T. Act, 1961 was issued on 6.8.2012 and notice u/s. 142(1) of the I.T. Act, 1961 was also issued on 21.6.2013 alongwith questionnaire. In compliance to the statutory notices u/s. 143(2)/142(1) of the I.T. Act, 1961, the Assessee s AR attended the proceedings from time to time and filed the required details and documents. During the course of assessment proceedings it was noticed by the AO that during the year under consideration the assessee has sold a plot in two parts, the value as per circle rate of this property was ₹ 91,39,000/- including value of trees 16,000/-. No income in this regard has been shown by the assessee in the return of income. Therefore, vide order sheet entry dated 6.1.2014 the assessee was required to submit the computation of capital gain. In response to thereto the assessee vide his reply dated 10.1.2014 submitted the calculation of Long Term Capital Gain. Perusal of computation filed by the assessee reveals that the assessee has taken the cost of acquisition of plots sold as per valuation report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the property existing in March, 1985 and not as on 01.04.1981 and therefore it requested that the value derived in the valuation report be kindly accepted and not @ 300/- per sq. yd as mentioned by your honour. AO observed that the above contention of the assessee is not correct as the expression previous owner of the property pas been defined in the explanation of section 49(1) as discussed above. Therefore, the cost of acquisition of the assessee in respect to the property sold is taken at ₹ 300/- per sq. yd. to the computation of Long Term Capital Gain given by the assessee vide letter dated 10.1.2014 the assessee has claimed deduction u/s 54F of the Income Tax Act, 1961 for investment in house property. The perusal of Balance Sheet as on 31.3.2011, submitted by the assessee alongwith return of income, there are two house properties with the assessee apart from new property purchased during the year, which are as under:- Delhi Kothi 5,55,504/- Mussorie Flat 4,77,500/- As per proviso of section 54F(1) nothing contained in this subsection shall apply where the assessee own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e land @Rs. 600/- per sq. yard; copy of registered valuer Sh. Rajiv Jain report as on 31.3.1985 evidencing the market value of the land @ ₹ 730/- per sq. yard and copy of house tax assessment and record of the Municipality, Muzaffarngar in respect of the house. Ld. Counsel of the assessee also filed the Brief Synopsis which read as under:- 1. The appellant hails from a well known industrial family of small town Muzaffarnagar where the appellant's family had owned several industries like sugar, vanaspati, distillery, steel and others. 2. The appellant's grandmother, Smt. Jyotsna Kumari Swarup wife of late Lala Gopal Raj Swarup, resident of Ram Bagh, Muzaffarnagar was having 50% share in the residential house (kothi) located in Ram Bagh along with the land appurtenant thereto and the same had been bequeathed by said Smt. Jyotsna Kumari Swarup in favour of her grandson Adarsh Kumar Swarup (the appellant) and Smt. Asha Swarup wife of Prabhat Kumar Swarup in equal share (Presently, the House No. 64, Agrasen Vihar, Jansath Road, Muzaffarnagar having Municipal No. 65, Kambalwala, Muzaffarnagar). 3. The said Smt. Jyotsna Kumari Swarup expired on 31st March 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in who worked out the value of the property @ ₹ 600 / - per square yard. 8. The Assessing Officer, instead of the market value worked out by the registered valuer, adopted the market value of the property on the basis of circle rate @ ₹ 300 / - per square yard as on 1 st April 1981 without further benefit of proper indexation as available to the assessee as per the second proviso to section 48 of the Act and Explanation (iii) read with section 2(42A) and Explanation 1(6) of the Act. 9. The appellant filed appeal before the CIT (Appeals) and objected the action of the Assessing Officer. The appellant stated that the market value of the property should have been taken as on 31 st March 1985 when the previous owner of the property Smt. Asha Swarup had acquired and not on 1 st April 1981 and secondly stated that even otherwise the value of the property as on 1 st April 1981 had been adopted by the Assessing Officer on the basis of circle rate is wrong and it should have been taken as worked out by the registered valuer @ ₹ 600 / - per square yard because the circle rates are fixed for a particula.r large area of the locality without taking into considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue as on 1 st April 1981 on the basis of circle rate as done by the Assessing Officer. 11. However, the CIT (Appeals) in the appeal proceedings alleged that the deduction as allowed by the Assessing Officer in respect of investment of flat u/s 54 of the Act was wrong as he was of the view that u/s 54 of the Act the deduction is available only when the residential house is transferred and not the land appurtenant thereto and for this purpose he relied upon the judgment of Punjab Haryana High Court in the case of Ashok Sayal vs. CIT in 209 Taxman 376 and the judgment of the Rajasthan High Court in the case of Rajesh Surana vs. CIT in 306 ITR 366 and then enhanced the income of the appellant by way of disallowing the deduction is] s 54 of the Act as allowed by the Assessing Officer on the investment of ₹ 60,27,000/- Assessee's Contention: Ground No.1: The CIT (Appeals) has disallowed the deduction is u/s 54 of the Act as allowed by the AO and claimed by the appellant on the ground that because the sale has been only of the land and not the residential house even if the land was appurtenant thereto and for this purpose had relied upon the judgment of Ash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, is sold and it is not necessary that the whole of the residential house should be sold because the legislature has used the words or which is distinctive in nature. In the instant case, it is not the case of AO and CIT (Appeals) that the land was not appurtenant to the residential house. The case of the CIT (Appeals) is that the appellant has sold only the land appurtenant to the house and not residential house which, according to the Karnataka High Court, is not a requirement under the law and exemption vi] s 54 of the Act is also available to the land which is appurtenant to the house. The front page of the sale deed itself shows that the land was part of residential house No. 64, Agrasen Vihar, Muzaffarnagar. Therefore, the exemption as claimed and allowed by the Assessing Officer should be upheld and the enhancement as made by the CIT (Appeals) deserves to be deleted. Ground No.2: As far as the application of rate as adopted by the Assessing Officer for the purpose of working out the capital gain is concerned, the same is wrong inter-alia because: (i) the market value should have been taken as was in the hands of previous owner Smt. Asha Swarup from whom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition other than that referred in clause (iii) of section 49(1) of the IT Act. Hence accordingly the cost in the hands of Smt. Jyotsna Kumar Swarup shall be deemed to be the cost of the property. As Smt. Jyotsna Kumar Swarup was holding the property prior to 1 st April 1981, hence in view of the provision of section 55(2)(b) of the Act the fair market value of the asset as on 1 st day of April 1981 would be the deemed cost of acquisition. The computation of capital gains has been prescribed u/s 48 of the IT Act and it states that capital gains shall be computed by deducting from the full value of the consideration received as a result of the transfer of a capital asset, cost of the acquisition of asset and the cost of any improvement thereto. The second proviso to section 48 of the IT Act further states that if the long term gains arises from the transfer of a long term capital asset, then the cost of acquisition means the indexed cost of acquisition. The indexed cost of acquisition has been defined in Explanation (iii) and it states that the indexed cost of acquisition means an amount which bears to the cost of acquisition the same proportion as cost inflation in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 was issued on 6.8.2012 and notice u/s. 142(1) of the I.T. Act, 1961 was also issued on 21.6.2013 alongwith questionnaire. In compliance to the statutory notices u/s. 143(2)/142(1) of the I.T. Act, 1961, the Assessee s AR attended the proceedings from time to time and filed the required details and documents. During the course of assessment proceedings it was noticed by the AO that during the year under consideration the assessee has sold a plot in two parts, the value as per circle rate of this property was ₹ 91,39,000/- including value of trees 16,000/-. No income in this regard has been shown by the assessee in the return of income. Therefore, vide order sheet entry dated 6.1.2014 the assessee was required to submit the computation of capital gain. In response to thereto the assessee vide his reply dated 10.1.2014 submitted the calculation of Long Term Capital Gain. Perusal of computation filed by the assessee reveals that the assessee has taken the cost of acquisition of plots sold as per valuation report prepared by Dr. Rajiv Jain, Govt. Approved Valuer in which the rate of land has been adopted @ 730/- per sq. yard in 1985. As per section 49(1) of the Income Tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 54F(1) nothing contained in this sub-section shall apply where the assessee owns more than one residential house, other than the new asset, on the date of transfer of the original asset. Therefore, 'the assessee is not entitled for deduction u/s 54F of the Income Tax Act, 1961 as the assessee already owned two residential houses. Vide order sheet entry dated 3.2.2014 the assessee was required to justify his claim of section 54F in spite of having two residential house at Delhi and flat at Mussoorie. In response of which the assessee vide his reply dated 14.2.2014 submitted that the investment of ₹ 60,70,000/- made in the purchase of house property would fall under section 54 as section 54F is not applicable to the facts of the case. After considering the reply of the assessee and the documents submitted the claim of the assessee u/s 54(1) is accepted and assessment was completed at 24,60,130/- being taxable Long Term Capital Gain vide AO s order dated 10.3.2014 passed u/s. 143(3) of the I.T. Act, 1961. In appeal Ld. CIT(A), vide his impugned order dated 08.12.2015 has concluded that Long Term Capital Asset sold by the assessee is land appurtenant to the building bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t) for a sum of ₹ 60,27,000/-, whereas for the balance amount the Assessing Officer worked out the capital gain at ₹ 6,35,870/-. During the course of assessment, the assessee had claimed that no tax on capital gain on sale of the land is chargeable to tax because the market value of the land on the date of acquisition of land by previous owner, i.e. Smt. Asha Swarup in terms of section 49 of the Act on 31 st March 1985 (being the date of death of Smt. Jyotsna Kumari Swarup) worked out by the registered valuer at ₹ 730/- per square yard and after indexation, nothing remains chargeable to tax. However, the Assessing Officer was of the view that in view of the Explanation to Section 49(1) of the Act, the cost of acquisition has to be seen not in the hands of Mrs. Asha Swarup but in the hands of Smt. Jyotsna Kumar Swarup because Asha Swarup had also acquired the said property by way of will and because Smt. Jyotsna Kumari Swarup was holding such property before 1st April 1981. Hence in view of section 55(2)(b)(ii) of the Act, the market value of the property has to be taken into consideration as on 1 st April 1981. Even for the purpose of the valuation as on 1 st Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Explanation (iii) read with section 2(42A) and Explanation 1(6) of the Act. The assessee filed appeal before the CIT (Appeals) and objected the action of the Assessing Officer. The assessee stated that the market value of the property should have been taken as on 31 st March 1985 when the previous owner of the property Smt. Asha Swarup had acquired and not on 1 st April 1981 and secondly stated that even otherwise the value of the property as on 1 st April 1981 had been adopted by the Assessing Officer on the basis of circle rate is wrong and it should have been taken as worked out by the registered valuer @ ₹ 600/- per square yard because the circle rates are fixed for a particular large area of the locality without taking into consideration the exact location of the property, whereas the value depends upon the location of the property also. Property near to the road fetches more value. The Commissioner (Appeals) dismissed the contention of the assessee not only with regard to the date of adoption of market value as on 31 st March 1985 as contended by the appellant and has also rejected the market value of the property as worked out by the registered valuer and instead ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plot of land with a garage and in those very facts the Rajasthan High Court held that in the absence of basic amenities it was not a house but plot of land only and then disallowed the exemption u/s 53 of the Act. 8.5 As regards asseessee s s case is concerned, it is brought to our notice that the said land, which was sold by the assessee, was forming part of the residential house No. 64, Agrasen Vihar (Ram Bagh) , Muzaffarnagar (having a Municipal No. 65, Bagh Kambalwala) and all the property was duly assessed to house-tax and was selfoccupied by the occupants viz. the assessee and other family members. U/s 54 of the Act, the legislature has used the expression being buildings or lands appurtenant thereto and being a residential house . 8.6 I further find that the Hon'ble Karnataka High Court had examined these expressions while construing the provision of section 54 of the Act in the case of Shri C.N. Anantharaman vs. ACIT in ITA No. 1012/2008 vide its judgment dated 10th October 2014 has held that the deduction u/s 54 of the Act is also available even if the land, which was appurtenant to the residential house, is sold and it is not necessary that the whole of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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