CHANDRA POOJARI, ACCOUNTANT MEMBER-This appeal by the Revenue is directed against the order of the Commissioner of Income-tax(Appeals) dated 22.12.2015.
2. The only grievance of the Department in this appeal is with regard to granting of deduction u/s.54F of the Act in respect of 5 properties, which were purchased by the assessee by DRT auction wherein clubbed the same as one property.
3. The brief facts of the case are that during the assessment year, the assessee had sold shares of Consul Consolidated Pvt. Limited in March 2012 and derived a long term capital gain(LTCG) of Rs. 12,53,05,529/-. The assessee claimed exemptions against the LTCG as under :
| i) |
u/s.54EC Exemption FY 2011-12 |
Rs. 50,00,000/- |
ii) |
REC Bonds 2012-13 |
Rs. 50,00,000/- |
iii) |
u/s.54F investment in property |
Rs.8,56,89,844/- |
|
|
9,56,89,844 |
The assessee was asked to substantiate its claim u/s.54F of the Act vide letter dt.6.3.15 stating that the assessee had purchased property from the Debt Recovery Tribunal vide DRC 211/2012 for a consideration of Rs. 10.10 crores by public auction. As per the documents it is seen that the assessee has purchased 43,600 sq.ft. of land described in Schedule A and Schedule B of the agreement with five parts. However, as per provisions of sec.54F of the Act, only investment in a residential house property is eligible for deduction. Further, as per schedule 1 A of the registered document, the land value is Rs. 8,72,00,000/- and the building value is Rs. 1,38,00,000/- and the assessee is not allowed the deduction for vast stretch of land included in the sale, further the schedule B property has no residential building itself, therefore, the AO disallowed the claim u/s.54F of the Act.
3.1 In response, the assessee substantiated the claim vide letter dated 17.3.2015 and submitted as under :-
a. The property measuring land of 43600 sq.ft. along with a building was auctioned for sale as a single property by DRT-I, in this regard DRT advertisement letter is enclosed.
b. The land is contiguous with a residential building measuring 5571 sq.ft. as mentioned in Form 1A of the sale certificate issued by DRT-I.
c. The said sale certificate issued by the DRT-3, Chennai also shows the same as land measuring 43600 sq.ft. together with building thereby treating the sale as one unit (property).
d. The previous owners of the property for reasons best known to them had purchased the land under 5 different documents as mentioned in the schedule in the DRT sale certificate, however the DRT has sold the property as a single property and did not permit break-up of the same. The auction notice by the DRT-3, Chennai clearly shows that it is a single composite unit and with a condition that the property cannot be split. Further, the previous owner held the property as a single residential unit consisting of the entire property offered for sale by DRT, which is also supported by the assessment made for property tax by local authorities.
Further, the aforesaid residential house is being assessed to property tax by the corporation of Chennai for the past seven years as a single residential house and the electricity is also for the said single residential house.
e. There is no evidence on record that the assessee made two separate investments in residential house and in land separately.
f. The assessee had furnished before the AO all the required documents to support its contention that the entire purchase is a single residential house comprising house, servant room, pooja/prayer hall, motor room, well, garden, etc. covering the entire land area. Hence, there is no vacant land and further, the house was sold with proper compound wall that covers all 4 sides as one single unit.
3.2 In support of his contention, the assessee relied on the following circulars by CBDT and case laws :
i. Circular No.667 dated 18.10.1993 issued by the CBDT
ii. CIT Vs. Kalpagam (Smt.)(M) 227 ITR 733 (Madras)
i. ITO Vs. P.B.Rodriques [11 TTJ) (Bom) 347]
ii. Addl. CIT Vs. Narandra Mohan Uniyal (34 SOT 152 [Del])
iii. CIT Vs. Sunita Aggarwal [284 ITR 20 (Del)]
iv. ACIT Vs. Anandhi Karthikeyan (ITA No.1242/Mds/2009)
Further, the assessee drew attention to the patta, chitta and adangal issued in respect of the above mentioned property by the Revenue Department, conveying the fact that the said property is a single unit. The assessee further submitted that the action of the AO in disallowing the claim of exemption u/s.54F of the Act is erroneous and unjustified and pleaded to direct the AO to delete the disallowance made.
4. The CIT(Appeals) observed that the issue in this appeal is whether the assessee invested the capital gains in a residential property which also comprised of some land. According to the CIT(Appeals), the starting point in this could be the newspaper advertisement for e-auction sale made by the Debts Recovery Tribunal-III(DRT) at Chennai dated 18.9.2013. The advertisement was captioned “in the matter of State Bank of India, SAM Branch, Chennai v. M/s. Agnite Education Ltd. & Others”. The auction which was originally to be held on 18.9.2013 was rescheduled for 17.10.2013, in the description of properties Schedule A and Schedule B were spelt out in detail. The AO has reproduced relevant portions in his order to show that the assessee had invested in 60 cents / 26,136 sq.ft. of land described in Schedule A and Schedule B. Further, the survey numbers corresponding to Schedule A houses the residential property while survey numbers corresponding to Schedule B, the property is not having any residential building / construction. The CIT(Appeals) observed that according to the AO these are different sale deeds with DRT which issued a single Debt Recovering Certificate clubbing all the five properties. For the reason that relief u/s.54F of the Act would be available only on investment in residential property, the AO restricted the relief to the part of property in Schedule A, which was transacted and where the residence was located. The CIT(Appeals) further observed that the AO treated Schedule B of the property being open land without any construction, to be not eligible for relief u/s.54F of the Act and not disputed that the assessee had purchased property from the DRT vide DRC 211/2012 for a consideration of Rs. 10.10 crores by public auction. Further, as per the documents it was seen that the assessee had purchased 43600 sq.ft. of land described in Schedule A and B together with building thereupon.
4.1 Before the CIT(Appeals), the assessee placed on record the plan of property purchased and after perusal of the same, he observed that the property, which is rectangular bound by compound walls on four sides houses the impugned building being house property in the South Western corner of the property with a shed on the South Eastern part of the property, car parking and again a shed on the South Western and North Western part of the property. The opening of the gate giving access to the property is on the North Eastern Corner of the property while a well as also a motor room situated in the corner of North Eastern part of the property. The CIT(Appeals), further observed that the property consisted of a residential house along with land appurtenant thereto housing car parking, sheds, well, motor room etc. in it as a single composite unit. Further there is a road / foot path running from the entrance gate to the property itself as also to the car parking and shed areas.
4.2 After perusing the e-auction sale advertisement, the CIT(Appeals) observed that by way of a note it has been underscored that Schedule A and B will be sold in single lot only where the upset price was Rs. 10 crores only. The inference sought to be drawn is the property could not be purchased in pieces i.e. Schedule A and Schedule B separately and it follows that it had to be a composite purchase of the property which included the house property and land appurtenant thereto.
4.3 The CIT(Appeals) observed that the provisions as contained in sec.54F of the Act provides for relief from capital gains to be charged on transfer of certain capital assets in the case of investment in residential house. According to the CIT(Appeals), the issue which arises for consideration is with regard to investment in “residential house” and observed that would residential house in this context include land appurtenant thereto or it should be viewed in a isolated manner. The CIT(Appeals) further observed that by way of common prudence the person desiring to benefit from the capital gain by investment prescribed in sec.54F of the Act would settle for purchase of a residential property and the quantum of capital gains to be invested was to the extent of Rs. 10 crores. The CIT(Appeals) observed that the property in question which was purchased by the assessee fitted the bill. The assessee having noticed that a residential property is for sale by auction by the DRT settled for the purchase of the same. According to the CIT(Appeals), normally any prudent person would have looked for such an opportunity and to say that the property ought to be stand alone residential property would be reading into the provision something which is absent.
4.4 The CIT(Appeals) relying on the decision of the Kerala High Court in the case of Smt. Asha George v. ITO (351 ITR 123) observed that in the above case, on the issue of sec.54F of the Act, the High Court affirmed the view taken by the ITAT of restricting the exemption to the extent of land available in the acquisition of residential house. However, this was so done as the assessee had not produced material to show that the entire area in question here being to the extent of 1.92 acres should be considered as land appurtenant to it. This is not so in the case of the assessee, who has graphically by way of presenting the plan as also placing reliance on several supporting documents pleaded its case that the impugned property was a composite one from which vacant land could not be artificially bifurcated or segregated. According to the CIT(Appeals), the submissions of the assessee are underscored.
4.5 After perusal of documents submitted and case laws taken up by the assessee, the CIT(Appeals) observed that the certificate of sale of immovable property dated 27.11.2013 in DRC No. 211/2012 evidences that Mr. K.N.Raja, in this case, the assessee, who has paid a sum of Rs. 10.10 crores and being declared the purchaser at sale by auction held on 17.10.2013 in respect of immovable property which holds out the impugned property as a composite unit as is evident from the citation as follows:
“All that piece and parcel of land admeasuring 43,600 sq.ft. (Schedule A & B) together with building thereupon situated at Uthandi Village, within the sub Registration Distric t of Neelankari and Registration District of Chennai South, details of which are as under : ‘The certificate of sale recognizes Schedule A & B together with building thereupon’.”
4.6 According to the CIT(Appeals), the Circular No.667 dated 18.10.1993 relied upon by the assessee refers to cost of such residential house can be taken to include the cost of the plot also and that the cost of land is an integral part of the cost of residential house whether purchased or built. The CIT(Appeals) relied on the decision of the Madras High Court in the case of CIT v. Smt. M. Kalpagam (227 ITR 733(Mad), wherein, the Court was seized with the matter where the assessee has sold the entire plot consisting of main building, cow sheds, sit-outs, path ways and vacant land. With the sale proceeds it purchased a new house and claimed relief u/s.54F of the Act. The AO bifurcated the entire land into two parts, one area consisting of cow sheds, sit-outs etc. considered as appurtenant to main building and another consisting of vacant land considered as not appurtenant to main building and accordingly, he bifurcated the sale consideration. The ITAT held, after looking into the property plan, that the entire property was utilized by the assessee and, therefore, entire plot should be considered as one unit. Further that no part of the land could be separated and treated as separate asset and the entire property should be treated as one unit of land and building. The CIT(Appeals) further observed that in ITO v. P.B.Rodriques (11 TTJ 347), the Tribunal Mumbai ‘B’ Bench seized with the matter where the assessee sold a residential house which occupied only one tenth area of the land held that the exemption was available to the whole of the capital gains. The case of CIT v. Smt. Sunitha Aggarwal (284 ITR 20) dealt with a property purchased by the assessee comprising of two distinctive units owned by two different persons where the Tribunal gave a finding of fact to the effect that the property purchased by the assessee was a single unit and was used for residential purposes ever since possession of different portion of said property was taken over from vendors. It further held that execution of four different sale deeds in respect of four different portions did not materially affect nature of transaction or nature of property acquired since property in question was used by the assessee for her own purposes and investment made in purchase of same was considered eligible for deduction u/s.54 of the Act. The CIT(Appeals) also observed that in Addl. CIT, Range-1 v. Narandra Mohan Uniyal, 34 SOT 152, Delhi Bench of the Tribunal affirmed the cost of vacant land appurtenant to land forming part of a residential unit to be considered for claim of exemption u/s.54F even if no construction has been done on the appurtenant land. Finally, the CIT(Appeals) relied on the decision of the Tribunal in the case of ACIT v. Anandhi Karthikeyan, wherein, the Tribunal, in ITA No.1242/Mds/2009 dated 6.11.2009 observed that the land cost would be part and parcel to the residential house for the purpose of deduction u/s.54F of the Act and on those facts even if the residential house constructed in a lesser area than the approved plan the deduction cannot be denied u/s.54F of the Act. In that case, while the total area shown in the sketch was 12000 sq.ft., in the final plan, the covered area was shown as 2680 sq.ft. with three car parking space and drive way small pool and pump house. The CIT(Appeals) observed that the AO had inferred that the so called construction of residential house was with the design towards a make believe activity to get eligibility u/s.54F of the Act. Besides, the assessee placed on record chitta, adangal dated 30.6.2014 after registration mentioning the impugned property as a single property. Accordingly, the CIT(Appeals) observed that the plea advanced by the assessee has to be upheld in as much as the property would constitute a single unit being residential house property eligible for exemption u/s.54F of the Act on the investment made in respect of capital gain arising in the hands of the assessee and the same cannot be dissected / bifurcated to land and building separately as has been done by the AO. Against this, the Revenue is in appeal before us.
5. We have heard both the parties and perused the material on record. For better understanding, provisions of section 54F which deal with provisions of Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house, read as under :-
"54F. (1) [Subject to the provisions of sub-section (4), where in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,..."
6. It is crystal clear from the plain reading of section 54F that exemption is allowable in respect of amount invested in the construction of a residential house. There is no any rider under section 54F that no deduction would 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 building is being constructed. When the land is purchased and building is constructed thereon, it is not necessary that such construction should be on the entire plot of land, meaning thereby a part of the land which is appurtenant to the building and on which no construction is made, there is no denial of exemption on such investment. Therefore, the contention of the learned DR that there is a distinction with respect to investment in appurtenant land as per sections 54 and 54F is not tenable at all. In the instant case, there is no dispute to the fact that investment of capital gains was made within the statutory period and moreover within the same financial year. Residential house was constructed on the part of plot of land, the exemption claimed in respect of investment made in land cannot be declined when all the other conditions as stipulated under section 54F are being satisfied. While dealing with the objection of the Assessing Officer, the CIT(A) has categorically given a finding that residential building was located in the said land so purchased was of a plot having area of 43,600 sq.ft. consisting of 2 Schedule of property A & B. In ‘B’ Schedule of property, no residential building and there is only land. Both these plots were having 1000 sq.mtrs. of land. Both the plots formed part of one residential unit and are contiguous and adjoining to each other. The comments of the Assessing Officer to the effect that exemption under section 54F is eligible only for construction of house is not tenable insofar as even cost of land forming part of the residential unit on which no construction is done is also eligible for exemption under section 54F. Thus, the cost of vacant land appurtenant to and forming part of the residential unit is to be considered for claim of exemption under section 54F even if no construction has been done on the appurtenant land. The provisions of section 54F clearly provide for exemption if the net consideration received as a result of transfer of any capital asset, other than a residential house, is invested in the purchase or construction of a residential house. The new residential house is not debarred from having a land appurtenant to any size and it is also not the case of the Assessing Officer that the land appurtenant to the building is not entitled to exemption under section 54F. Had it been a case of land not appurtenant to the building so constructed, then the contention of the Assessing Officer to the effect that investment of capital gains made in the second plot i.e. schedule ‘B’ which is not appurtenant to the building so constructed is not eligible for exemption, can be favourably accepted. On the contrary, the expression "land appurtenant" in section 54F of the Act was held to be construed in a broad and non-technical sense and it was held that the meaning given to that expression in other Acts should be irrelevant. The Hon'ble Delhi High Court in the case of Sunita Aggarwal (284 ITR 20(Delhi)) has observed that while claiming exemption under section 54, the property though purchased from two different persons by virtue of four different.sale instances in the shape of four different parcels, constitutes one single residential unit of the assessee.
7. In the present case, the assessee purchased the whole property as a single property by auction by DRT and it cannot be said that all the properties are different properties so as to deny the deduction u/s.54F of the Act. Further, the jurisdictional High Court in the case of CIT vs. Smt. V.R.Karpagam in 373 ITR 127(Mds.) wherein held that:-
“10. The above said amendment to section 54F of the Income-tax Act, which will come into effect only from April 1, 2015, makes it very clear that the benefit of section 54F of the Income-tax Act will be applicable to constructed one residential house in India and that clarifies the situation in the present case, i.e, post-amendment, viz., from April 1, 2015, the benefit of section 54F will be applicable to one residential house in India. Prior to the said amendment, it is clear that a residential house would include multiple flats/residential units as in the present case where the assessee has got five residential flats. We may also mention here that all the authorities below have clearly understood that the agreement signed by the assessee with M/s. Mount Housing Infrastructure Ltd., is that the assessee will receive 43.75 per cent. of the built-up area after development, which is construed as one block, which may be one or more flats. In that view of the matter what was before the Assessing Officer is only equivalent of 56.25 per cent. of the land transferred, equivalent to 43.75 per cent. of the built-up area received by the assessee. This built-up area got translated into five flats. Hence, we are of the opinion that the transaction in this case was not with regard to the number of flats but with regard to the percentage of the built- up area vis-a-vis the undivided share of land. 11. In similar circumstances, this court, by order dated January 4, 2012, in T. C. (A.) No. 656 of 2005 held as follows :
"The above provision refers to a residential house meaning thereby that even if there are four different flats and if it is considered for the property assessed as one unit and one door number is given, it should be construed as a residential unit, namely, one unit. In that sense, the said provision is available to the assessee."
12. In the decision reported in Smt. Dr. P. K. Vasanthi Rangarajan [2012] 75 DTR 56, this court, while dealing with the benefit of exemption under section 54F, followed the abovesaid decision of this court in T. C. (A.) No. 656 of 2005 and granted the benefit to the assessee under section 54F of the Income-tax Act on the investment made in the four flats.
13. Hence, the abovesaid decisions of this court make it clear that the property should be assessed as one unit even though different flats are available. Here also, as per the assessment order, all the flats have one door number, namely, Door No. 29F, Race Course, Coimbatore.”
7.1 Similar view was fortified by the jurisdictional High Court in the G.Chinnadurai Vs. ITO in 96 CCH 148 (Mad.). Similar issue came for consideration before the Mumbai Tribunal in the case of ITO Vs. P. B. Rodriques in [1981] 11 TTJ 347 (ITAT[Bom]) wherein held that:-
“6. We have considered the rival contentions advanced by both the sides. It would be better to set out s. 54 below necessary for the proper appreciation of issues involved in this appeal:
“ 54(1), Where a capital gain arises from the transfer of a Capital Asset to which the provisions of s. 53 are not applicable, being buildings or lands appurtenant thereto the income of which is chargeable under the head 'Income from house property', which in the which years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his mainly for the purposes of his own or the parent's own residence hereinafter in this section referred to as the original asset, and the assessee has within a period of one year before or after that date purchases, or has within a period of two years after that date constructed, then, instead of the capital gain being charged to income tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,”
We agree with the ld. commentator relied upon by the assessee that the use of the word "mainly" in the section would confer the benefit of s. 54 on the assessee if the major portion of the building was used for residential purposes by him or by his parent. In the present case the Commr. (A) has brought on record, and his findings have not been successfully impugned before us, that while the total area or the plot sold was 2146 sq. yards, the let out structure built in 1960 occupied only 108 sq. yards. Thus, the property sold was substantially self occupied by the assessee and the provisions of s. 54 were rightly relied upon by the assessee before the lower authorities.
7. As for the contention of the Deptl. Rep. about the meaning of "appurtenant thereto" we agree with Shri V.H. Patil that the land appurtenant to the building would not only be the land married to the super-structure but would include the land adjacent to and surrounding the super-structures as may be found necessary for the beneficial and proper enjoyment of the buildings. In our opinion, lands appurtenant to the buildings within the meaning of s. 54 would be those enjoyed with and occupied with the buildings in question. Considering the location and the various structures on the plot of land and having seen the site plan we are convinced that the entire plot of land could be treated as land appurtenant to the buildings sold by the assessee. The dictionary meaning given to us by the Deptl. Rep. does not really bear out the contention of the Department. The extract from the Law Lexicon (Venkatramiah) as given to us by the Deptl. Rep. is given below :
Appurtenance :
The word "Appurtenance" has the meaning of 'usually occupied' and would include a structure erected on a land for the purpose of its enjoyment'Molend vs. Kissan 30 ITR (Bom) 250 p 263. The term also signifies things both corporeal or incorporeal belonging to another thing as principal. Tomlin's Law Dictionary. Prima facic it supports nothing more than what is strictly appertaining to the subject matter of the devise or grant and which would in truth pass without being specially mentioned. Evans vs. Angel (1958) 53 E.R. 874".
It would be clear therefrom that the entire land including the structures could be called “appurtenance" and it does not follow at all from the above definition or meaning that the land appurtenant to a building should be restricted to that married to the superstructures. We are, therefore, in agreement with the order of the Commr. (A).”
7.2 Being so, in our opinion, the assessee shall be granted with deduction u/s.54F of the Act as the investment in entire property to be considered as a single residential unit, since the consideration received from sale of capital asset was so invested.
7.3 In the result, the appeal of Revenue is dismissed.