TaxTMI 
TaxTMI 
2003 (4) TMI 249
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....er of Income-tax is not justified in holding that the appellant has purchased two houses and that she will forfeit the claim for exemption under section 54F of the Income-tax Act. 7. The learned Commissioner of Income-tax erred in not following the case law brought to the notice and is not justified in holding that cases sited are distinguishable." Thus, the grievance of the assessee in this appeal relates to denial of exemption in respect of capital gains under section 54F of the Act. 3. The assessee filed a return of income for the assessment year 1999-2000 on 30-6-1998, admitting an income of Rs. 57,390. The same was processed under the provisions of section 143(1)(a) of the Act, on 3-12-1999. Subsequently, it was noticed that the assessee had understated her income, and so, a notice under section 148 was issued, and the assessment was reopened. The assessee filed a return disclosing the same income as was disclosed earlier. The reason for having given the notice under section 148 was that the assessee had wrongly claimed the relief under section 54F of the Income-tax Act, ignoring the provisions of section 54F(2). This issue requires some elaboration with reference to the fa....
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....granted for the assessment year 1998-99 had to be withdrawn. His comments in this regard are as under- "The provisions of section 54F(2) of the Income-tax Act, 1961 says that if the assessee purchases within two years after the date of transfer of the original asset, or constructs, within the period of three years after such date, any residential house other than the New Asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as per 54F(1)(a)/54(1)(b) shall be deemed to be income chargeable under the head 'Capital gains' relating to long-term assets of the previous year in which such residential house is purchased or constructed. In this case, the assessee has sold the original asset on 6-2-1998 and purchased a new asset on 1-7-1998. However, she has purchased on 15-7-1998, a residential house other than the New Asset which was purchased on 1-7-1998. This act of the assessee has squarely made the assessee ineligible to claim the exemption under section 54F of the Income-tax Act. The contention of the assessee is that the claim of the Department that two residential houses were purcha....
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....ection 54F granted to her for the assessment year 1998-99. Accordingly, the contention of the assessee is not accepted and rejected as not tenable and the deduction claimed and granted to her under section 54F for the assessment year 1998-99 is withdrawn now and the Long Term Capital Gains are included in the total income of the assessee for the assessment year 1999-2000" The Assessing Officer then proceeded to compute the capital gains at Rs. 9,06,652 in the following manner- "Long Term Capital Gains Sale proceeds received Rs. 9,40,000 Cost of acquisition on 26-10-1978 @ Rs. 15 per sq.yd. Total cost of acquisition as per Deed: Rs. 6,000 The rate as on 1-1-1981 as ascertained from the sub- registrar's office is Rs.25 per sq.yard. Adopting this rate the total cost comes to Rs. 10,075 Cost of acquisition as per cost Inflation Index Rs. 10,075 X 331/100 Rs. 31,348 -------------- Rs. 9,06,652... " 7. On appeal, the CIT(A) agreed with the reasoning of the Assessing Officer and upheld the addition of Rs. 9,06,652. His remarks in this behalf are as under- "4.3 Considering the facts of the case, it is clear that the appellant became a full-fle....
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....Thus, the appellant was the full-fledged owner of the new asset (the ground floor) as on 15-7-1998 when she purchased the first floor as an entirely independent property for which there was no bar for anyone else to buy the same. Accordingly, the property purchased on 15-7-1998 was an additional acquisition thereby disqualifying the appellant from availing the benefit of exemption under section 54F of the Act. 4.6 Keeping in view the facts and circumstances of the case, it is held that the Assessing Officer was justified in disallowing the claim of the appellant under section 54F of the Act. Therefore the assessment order does not need any interference." Aggrieved by the above orders of the Revenue authorities, the assessee preferred this second appeal before us. 8. There is no dispute before us about the quantum of capital gains on the sale of the vacant plot of Rs. 9,40,000, but the only dispute is whether the ground floor and first floor bought through separate sale deeds, constituted one residential house or two separate residential houses, and whether the provisions of section 54F(2) are attracted in the facts and circumstances of the present case. 9. Before us, the learne....
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....n the first floor, she bought an additional self-contained house, entailing the withdrawal of the exemption under section 54F, and the inclusion of the said capital gains in the assessment year under appeal. He posed the question whether the assessee would not have claimed any exemption under section 54F, if she had not purchased the first floor, and simply purchased the ground floor alone. Evidently, the assessee would have claimed exemption under section 54F, when she bought the ground floor. It is claimed that when the additional floor was purchased, which is a self-contained unit and hence constituted separate residential house she attracted the provisions of section 54F(2), and hence withdrawal of exemption under section 54F is justified. 11. We are of the view that the assessee deserves to succeed. Section 54F(2) of the Income-tax Act reads as under- "54F (1) (2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property" other than the new asset, the a....
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....e residential house. It is only the convenience of the vendor that prompted the purchase of the ground and first floor by the assessee through two separate sale deeds. The proximity of the dates of the two sale deeds, viz. 1-7-1998 and 15-7-1998, dearly indicates a design to artificially split a single transaction into two. Whether the parties have violated any other law in the process of that artificially splitting is altogether a different issue, and it has no bearing on the determination of the issue involved in the present appeal. We are of the view that the question is not whether the assessee obtained a complete title for a residential house when he bought the ground floor under the first sale deed dated 1-7-1998. Obviously, the said sale deed dated 1-7-1998 conferred a complete and perfect title on the house. That does not mean that the assessee acquired a separate residential house when she bought the first floor by the separate sale deed dated 15-7-1998. The second sale deed also conferred a complete and perfect title, but that is only in respect of what we regard as an extension to the ground floor, and not to a separate residential house. 12. We are also of the view tha....