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TMI Blog2019 (1) TMI 1353X X X X Extracts X X X X X X X X Extracts X X X X ..... the basic amenities such as a toilet, water & electricity connection & kitchen. 3. Ld. CIT(A) erred in law and on facts to hold constructed house inhabitable ignoring Municipal Tax bills classifying structure as residential property occupied by appellant's employee & the fact confirmed by the Inspector. 4. Ld. CIT(A) further erred in law and on facts in not appreciating that cost of land purchased forms part of cost of residential house and law does not lay down any stipulation as to size of the house or size of plot of land. 5. Ld. CIT(A) erred in law and on facts holding that entire land appurtenant to the house not eligible for exemption u/s54F of the Act overlooking CBDT circular & judicial decisions submitted by the appellant. 6. Ld. CIT(A) erred in law and on facts treating genuine claim as sham & a ploy to defraud government. Ld. CIT(A) ought to have refrained making such uncalled for comments. 7. Without prejudice to the above, since the purchase of land is undisputed during the year withdrawal of exemption if any can be made only after expiry of 3 years from date of transfer & the exemption claimed ought to be allowed in the year under consideration. 8. Ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e site as well as the report of the Inspector were obtained. The report (reproduced in assessment order) contained various adverse remarks and therefore, was confronted to the assessee. 4. The salient features emerge from the spot verification report are that the site has boundary wall on four sides with an iron gate installed at one of the corners of the plots. Further, two rooms (covering a very small area of the plot) alongwith a small store room having common walls with tin-shed roofing were constructed at one of the corners near the entry gate of the above said premises. It was pointed out in the report that rooms were devoid of any windows or ventilation except for a bulb and some loose wires hanging on the side walls of the room. The path from entrance gate to the rooms was kuccha with no pavement or walk-way constructed from the entry gate to the rooms. An electricity meter was further found installed at the premises which was claimed to be there for approximately two years. However, no permanent source of water viz; water tank or water pipeline could be found by the Inspector at the premises except for a bore well which was not found to be in working condition. As per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is sufficient compliance. 6. The AO however found the submissions of the assessee to be bereft of any merit. The AO observed that the cost of construction of the rooms (tin-shed roofing) was meager Rs. 90,003/-. Having regard to the tin-shed roofing, absence of window, ventilators, absence of any permanent source of water except a nonfunctioning bore well, no facility for any washroom/bathroom or toilet of any kind or nature, no kitchen or any permanent arrangement for cooking, construction are barely 300-350 sq.ft. (30-35 sq.meter) vis-a-vis 4310 sq.mtrs of land and absence of any approval or appropriate authorization for such residential construction. The AO thus discarded the contention of the assessee that sale consideration has been appropriated / invested essentially for purchase of residential house and not mere purchase of land/plot simplicitor. The AO accordingly observed that the conditions prescribed for availing exemption under s.54F of the Act are clearly not met and consequently denied the exemption of Rs. 1,17,83,494/- claimed by the assessee under s.54F of the Act against capital gains arising on sale of original asset (land parcels at Sanand). 7. Aggrieved, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase or construction of new asset within the period specified in sub-section(l). 5.2 Thus in the context of the facts of the appellant the construction of new asset i.e. residential house should have been completed on or before 17/06/2016 which has elapsed and taken note by the AO. The transfer of old asset on 17/06/2013 and purchase of two plots on 07/01/2014 are not in dispute. The appellant has claimed that the two plots are adjoining to each other and they form part of the exemption claimed u/s 54F. 5.3 During the course of the appellate proceedings the appellant has filed two photographs containing the front view of the constructed structure and the gate (of the plot) and has submitted a drawing showing the plot and the plan and elevation of the constructed structure. Description is "Farm Plan for S.No. 447/2 & 448 Vatva" and total plinth area of three rooms taken together as 34ft by 10ft 9 in i.e. 365,5 sq. ft. or 35 Sq. Mtrs. (approx). The facts of the constructed structure gathered by the AO are not disputed by the appellant but the appellant asserts that the constructed structure is a "residential house" and relies in particular upon judgments in the case of Anil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 6. If the entire plot of land can be the land appurtenant to the residential house whether the second plot of land in the case of the appellant if it is adjoining the first plot on which construction was made can also be treated as land appurtenant to the residential house. 5.6 It is noted from the assessment order that there is no discussion by the AO of the proviso of sub-section (1) of section 54F which excludes a person having more than one residential house on the date of transfer of the original asset from the benefit of exemption under the section. Similarly, there is no mention whether the new land(s) acquired out of the consideration of the original property is such that a residential house could be constructed there. Assuming that there is no issue related, to first three issues enumerated above, the issue that is required to be examined is whether the new asset is a residential house and if so what area of land can be treated as part of or appurtenant to that residential house. The AO has denied the claimed exemption as he did not find the constructed structure to be a residential house. 5.7 In this regard it is seen that there is no definition and specific men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are allowed in green zones only. This is in the context that property tax is not liveable on vacant land and buildings (other than dwelling houses) exclusively used for agriculture purposes. A "building" is defined to mean a house, out house, stable, latrine, urinal, shed, hut, wall (other than a boundary wall) or any other structure, whether of masonry, bricks, wood, mud, metal or other material but does not include any potable shelter. For the purpose of property tax buildings are classified use wise and a "residential building" means any building used for dwelling purposes by a family/ families/individual but excludes any premises for commercial use including lodging, guest house, hotel or similar purposes. The building cannot be habitable and worthy of dwelling unless there are minimum basic amenities such as a toilet, a provision for water and electricity and a kitchen. These minimum features have to be there irrespective of the fact that TP is there or not and whether the building plans are sanctioned or not. The broad rules enumerated are typical of an ULB and will apply to even unauthorized area where construction is not allowed meaning thereby that the building plans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test of a building being habitable is that whether the owner and his family can reside there. It is not so in the case. Thus the AO is held to be justified in holding that he constructed structure is not a residential house and accordingly the appellant is not eligible for exemption u/s 54F. To buttress the stand of the AO, I may mention CIT Vs Sambandam Udaykumar (2012) 19 taxmann.com 17 (Kar) wherein it is held that whether assessee had invested money in construction of a residential house, merely because construction is not complete in all respects and it was not a fit condition to be occupied within a period stipulated, that would not disentitle assessee from claiming benefit u/s 54F because this judgment is applicable where an assessee has under taken the construction but the construction could not be completed within the prescribed time of three years because of conditions beyond his control and for which he may not be responsible. In the case of the appellant the drawing plan submitted before me is only of three rooms with narrow strips of grass/flower bed. The drawing plan is such that the construction even later made cannot qualify to be a "farm house" let alone a "reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of exemption u/s54F to the appellant appears justified. 6. Though having held that the constructed structure is not a residential but ding it may not be required now but it may be appropriate, in case the appellant goes before the higher appellate bodies, to deal with the claim of the appellant that entire area of the plot (combination of two plots - survey no. 448 of 2610 sq. mtr. and survey ho. 447/2 of 1700 sq. mtr.) which is vacant after temporary makeshift construction of about 35 sq. mtr. of plinth area should be considered for the purpose of exemption u/s 54F. For this claim reliance has been by the appellant on Addl.CIT Vs Narendra Mohan Unyal (supra) wherein it has been held that there is no rider that no deduction could be allowed in respect of investment of capital gains made on acquisition of land appurtenant to the building or on the investment on land on which the building is constructed when the land is purchased and building is constructed thereon it is not necessary that such construction should be on the entire plot. The CBDT Circular (supra) also says so. In the cited case the assessee appears to have purchased two plots aggregating to 2000 sq. meter - both t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority and the ULB were not placed before the HonTDle Tribunal/Court in the case of Addl.CIT vs Narendra Mohan Unyal. Had they been brought to the attention of the Hon'ble [Tribunal/Court by the Counsel of the Revenue it might have examined them and harmonised those provisions with the provisions of the section 54F of the Income Tax at and the CBDT Circular relied upon by the Appellant. And in my considered view the harmonious reading would be that the second plot should not have been allowed as land appurtenant to the building constructed on first plot in absence of any order of the ULB allowing merger of two plots. While one plot cannot be treated as land appurtenant to a building in another adjoining plot, there is equally a strong case that entire area of a very big plot can also not be treated as land appurtenant to the building on that plot. That is why the property tax of a property is combination of building tax and vacant land tax on that property. 6.3 Thus the contention of the appellant that the entire land (of two plots) has to be treated as land appurtenant to a temporary makeshift structure is not within the intent of section 54F and the judgments relied upon b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial house of habitable nature was not constructed on the plot of land. The learned Senior Counsel next contended that the extent of land on which super structure of residential nature was required to be constructed is not defined or prescribed. It was contended that what is required to be adjusted or set off against the capital gain is the cost of residential house as a whole i.e. purchased or constructed and not just the cost of construction of new residential house. It was asserted that the cost of new residential house would necessarily include the cost of land, the cost of material used in the construction and all other costs relatable to the acquisition and/or construction of the residential house as held in several judicial precedents as well as the CBDT Circular. The learned Senior Counsel thereafter referred to the layout plan (page no. 172 & 173 of the paper book) for the aforesaid land as issued by the Ahmedabad Municipal Corporation and submitted that such layout plan also admits the fact that the residential property was used for self use. The learned Senior Counsel thereafter referred to the several judicial precedents namely Seema Singh Beniwal vs. DCIT ITA No. 135/J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction. The learned DR thus submitted that no interference with the order of the Revenue authorities is called for having regard to the aim and object of Section 54F of the Act. 12. We have carefully considered the rival submissions. The substantive issue in the present case is maintainability of deduction / exemption under s.54F of the Act in the peculiar set of facts where the substantial portion of the sale consideration is appropriated towards purchase of land and the construction cost of superstructure constructed on the land is very marginal. An integrally connected issue also arises as to whether the co-owned superstructure on a combined adjoining plots of land can be regarded as 'residential house' for the purposes of Section 54F of the Act or not. 12.1 To reiterate, the relevant facts as emerged out from the order of the Revenue authorities are that the assessee sold certain parcels of land in co-ownership and received sale consideration of Rs. 1,28,48,933/- towards his share of sale consideration. The capital gains thereon was computed by the assessee at Rs. 1,21,41,360/-. It is the case of the assessee that it has appropriated the sale consideration towards the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he share of sale consideration of the assessee from sale of original asset stands at Rs. 1,28,48,933/-. Out of this, assessee claims to have appropriated Rs. 1,17,65,000/- towards purchase of land and statedly invested Rs. 90,003/- towards construction of superstructure. Against such deployment of sale consideration in land and superstructure, the assessee seeks exemption of Rs. 1,17,83,494/- under s.54F of the Act on the premises that the sale consideration arising from transfer of original asset has been appropriated towards purchase of residence house (including cost of land). At this juncture, we affirmatively appreciate the contentions raised on behalf of the assessee that the cost of new residential house is not just the cost of construction of new residential house but encompasses both the cost of land as well as the cost of construction. This is so in view of the judicial fiat available in this regard and thus deserves to be accepted without any demur. However, the moot question that arises for consideration is whether when nearly entire amount (>99%) has been deployed for acquisition of land alone, can a reasonable person instructed in law say that the sale consideration h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a land into a residential house. The vast open land with naturally grown grass, a grossly asymmetric consumption of land for construction of superstructure (cost less than 1% of total costs), the occupation of the superstructure by a watchman/caretaker clearly indicates that such superstructure cannot be mechanically reckoned as a residential house. The existence of vast parcel of open land is a reality. We thus find it utterly difficult to put blinkers on tell-tale facts. The superstructure claimed to be a residential house is clearly superficial and does not go hand in hand with ground realities. It is totally unconceivable that a token and symbolic superstructure of temporary nature involving insignificant construction costs or land occupying negligible space (created with an object to typically accommodate a watchman to safeguard the land) would convert huge parcel of land into a residential house. As we see in nutshell, cost of land exceeds 99% of the total cost of new investment in so called residential house. Likewise, land used for construction of superstructure is less than 1% of total area. The superstructure is jointly owned and devoid of basic amenities and actually use ..... X X X X Extracts X X X X X X X X Extracts X X X X
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