Residential house exemption under section 54/54F upheld where appurtenant land was not proved to be substantially agricultural.

A composite residential property with appurtenant open land remained eligible for exemption under section 54/54F because the land was not shown, on the limited remand inquiry, to have been substantially used for agriculture or otherwise divorced from the residential use of the house. The assessment and appellate orders had exceeded the narrow scope of remand by treating the open land as agricultural without conclusive material. The residential house, boundary wall, driveway, garden and limited kitchen-garden use supported the view that the land formed part of the residential unit, and the addition was deleted.

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Issues: Whether the property purchased by the assessee, comprising a residential house with land appurtenant thereto, was eligible for exemption under section 54/54F of the Income-tax Act, 1961 despite the revenue's case that the open land was agricultural in nature; and whether the levy of interest under section 220 of the Income-tax Act, 1961 survived independently.

Analysis: The matter had earlier been restored for a limited inquiry into the nature of use of the land, namely whether agricultural activity was actually carried on. In the second round, the assessment order and the appellate order were found to have travelled beyond that limited remit and to have treated the appurtenant open land as agricultural without conclusive material. The record showed a composite residential property with boundary wall, driveway, constructed house, garden and limited kitchen-garden type use, while the inspector's report did not establish substantial agricultural operations over the land as a whole. The land could not be segregated from the residential unit merely because a portion remained open or carried some vegetation, and the use of the property as a residential house with appurtenant land remained the controlling consideration for exemption.

Conclusion: The assessee was entitled to exemption under section 54/54F on the composite residential property with appurtenant land, and the addition was deleted.

Ratio Decidendi: For exemption under section 54/54F, land forming part of and appurtenant to a residential house cannot be split away from the residential unit unless the revenue establishes, on the limited remand inquiry, that the land was in fact used substantially for agriculture or otherwise outside the residential use.

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