2019 (12) TMI 828 - AT - Income Tax

Tribunal limits land exemption to 25% under Section 54 Income-tax Act

The Tribunal upheld the decision to limit the exemption under Section 54 of the Income-tax Act to 25% of the land, rejecting the assessee's argument for a ... Exemption u/s 54 - residential house property - how much area of the total plot area to be considered land appurtenant thereto - assessee is dental surgeon by profession and is Professor in Medical College - case of the assessee was selected for framing scrutiny assessment by Revenue u/s 143(3) read with Section 143(2) - HELD THAT:- It is admitted by assessee before the authorities below that assessee is having a social standing. The assessee is running its clinic from one of the best localities of Chennai namely T.Nagar. Thus, assessee is a man of means having high social status and standing. The investments u/s 54 of the 1961 Act are required to be made in buildings or lands appurtenant thereto , being a residential house and we have already seen definition of ‘residential house’ as above in this order. Therefore , only land which is appurtenant to residential house can be considered for claiming deduction u/s 54. This is a question of fact which requires investigation into facts and the facts may differ from case to case. The land may be integral part but the same may not necessarily be appurtenant to the building thereon as the same may not be required for enjoyment of the Building situated on the land. We are of the considered view that Revenue has rightly placed reliance on decision of Smt. Asha George v. ITO [2013 (1) TMI 545 - KERALA HIGH COURT] and in the case of CIT v. Zaibunnissa Begum (1985) [1984 (7) TMI 62 - ANDHRA PRADESH HIGH COURT] The assessee holds plot of land of 4973.125 square feet. It has building existing of 220 square feet on said plot of land which is even less than 5% of the total plot of land . Thus, it could not be said that rest of the plot of land is appurtenant thereto the building of 220 square feet existing on said plot of land for enjoyment of the said building. The assessee has claimed that there is open space which is used for car park, septic tank, garden etc. . No doubt, these open spaces may be integral part but certainly these are not required to enjoy building existing of 220 square feet on plot of land of 4973.125 square feet. How much land should be treated as appurtenant thereto is a question of fact and depends upon facts and circumstances of the case and in each case , the facts may differ . Both the authorities below have concurred that 25% of the total plot area to be considered land appurtenant thereto. These may require estimation which may involve guess work and it could not be said that estimation done by authorities below in instant case is perverse or without any reasonable basis. We are not inclined to interfere with the decision taken by both the authorities below as we have observed that estimation done by authorities below is honest and reasonable estimates based on facts of the case and could not be said to be a perverse view taken by authorities below. Our above view is strengthened by Decision of Hon’ble Supreme Court in the case of Kachwala Gems v. JCIT [2006 (12) TMI 83 - SUPREME COURT] - Decided against assessee. Issues Involved:1. Confirmation of the addition of Rs. 65,36,333/- as disallowance of capital gain exemption claimed under Section 54 of the Income-tax Act.2. Determination of whether the land purchased qualifies as residential land for the purpose of Section 54 exemption.3. Assessment of the extent of land appurtenant to the constructed area eligible for exemption under Section 54.Issue-Wise Detailed Analysis:1. Confirmation of the Addition of Rs. 65,36,333/- as Disallowance of Capital Gain Exemption Claimed Under Section 54:The assessee, a dental surgeon and professor, sold a flat and claimed capital gains exemption under Section 54 of the Income-tax Act by investing in a new residential property. The Assessing Officer (AO) observed that the assessee sold the flat for Rs. 1,20,00,000/- with a guideline value of Rs. 1,44,52,000/-. After deducting the indexed cost of acquisition, the long-term capital gains were computed at Rs. 1,03,53,327/-. The AO allowed only Rs. 38,16,994/- as exemption under Section 54, disallowing the remaining Rs. 65,36,333/- on the grounds that only a small portion of the land purchased was used for residential construction.2. Determination of Whether the Land Purchased Qualifies as Residential Land for the Purpose of Section 54 Exemption:The assessee purchased land described as agricultural in the sale deed but claimed it was residential. The AO accepted this claim based on an encumbrance certificate from the Sub-Registrar showing the land as residential. The AO allowed partial exemption under Section 54, considering the land as residential but limiting the exemption to the constructed area and appurtenant land.3. Assessment of the Extent of Land Appurtenant to the Constructed Area Eligible for Exemption Under Section 54:The AO deputed an inspector to verify the construction on the land, who reported a small structure of 150 square feet with an attached bath and toilet but no kitchen. The AO concluded that only 25% of the land, proportionate to the constructed area, could be considered appurtenant and eligible for exemption. The assessee argued that the entire plot should be considered, citing additional features like car parking and garden. However, both the AO and CIT(A) upheld the decision to limit the exemption to 25% of the land.The Tribunal reviewed the facts, noting that the constructed area was minimal (3-5% of the total plot). It referred to relevant case laws and definitions, including the Supreme Court's explanation of 'land appurtenant to a building.' The Tribunal concluded that only the land necessary for the enjoyment of the building could be considered appurtenant. Given the small constructed area, the Tribunal found the AO's estimation of 25% to be reasonable and upheld the disallowance of the remaining exemption claim.Conclusion:The Tribunal dismissed the appeal, agreeing with the AO and CIT(A) that the assessee's claim for a higher exemption under Section 54 was not justified based on the facts and legal precedents. The appeal was dismissed, and the addition of Rs. 65,36,333/- was confirmed.