Section 54 – Deduction u/s. 54 is available even if land, which is appurtenant to residential house, is sold and it is not necessary that whole of residential house should be sold.

[2017] 80 taxmann.com 223 (Delhi – Trib.)

Adarsh Kumar Swarup vs. DCIT

ITA No.: 1228 (Delhi) of 2016

A.Y.: 2011-12  Date
of Order: 28^th March, 2017

FACTS

During the previous year relevant to the assessment year
under consideration, the assessee sold a plot of land in two parts, the value
as per circle rate of this property was Rs. 91,39,000 including value of trees
of Rs. 16,000. This property was inherited by the assessee from his mother in
1994 who in turn had inherited it from her mother in 1985. In the return of
income filed by the assessee, no income was shown in respect of this transfer.
Upon being asked to show cause, the assessee in the course of assessment
proceedings furnished a reply stating that for the purpose of computing long
term capital gain arising on transfer of this property, the cost of acquisition
of this property was taken @ Rs. 730 per sq. yard in 1985 as per valuation
report of an approved valuer. The Assessing Officer (AO) asked assessee to show
cause why in view of provisions of section 
49(1) of the Act, the market value as on 1.4.1981 be not adopted instead
of that on 1985. The assessee then made a claim of deduction of Rs. 60,70,000
u/s. 54 of the Act on the ground that the amount was invested in purchase of a
residential house and therefore claim for deduction u/s. 54 is allowable. The
Assessing Officer computed capital gain by considering cost of acquisition of
the property sold to be its fair market value on 1.4.1981, granted the
deduction u/s. 54 of the Act and assessed long term capital gain of Rs.
24,60,130. 

Aggrieved, the assessee preferred an appeal to CIT(A) who
enhanced the assessment by denying the claim for deduction u/s. 54 of the Act
by holding that the asset sold by the assessee is `land appurtenant to the
building’ and not a residential house.

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that the 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 self-occupied by the occupants
viz. the assessee and other family members. Section 54 of the Act uses the
expression “being buildings or lands appurtenant thereto and being a
residential house”.

It noted 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 C.N. Anantharam vs. ACIT [2015] 55 taxmann.com 282/230 Taxman 34
(Kar.) 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 residential house should be sold
because the legislature has used the words “or” which is distinctive
in nature.

It further observed that 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 assessee 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 u/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.

The Tribunal upheld the exemption as claimed and allowed by
the Assessing Officer and the enhancement made by the CIT (Appeals) was held to
be not sustainable in the eyes of law and was deleted.

This ground of appeal filed by the assessee was
allowed.