TaxTMI 
TaxTMI 
2024 (6) TMI 71
X X X X Extracts X X X X
X X X X Extracts X X X X
....e claim of indexation both on cost of acquisition and improvement of land sold at Pataudi vide Deed No.72, against the transaction which was duly established and treated by the AO as 'adventure in the nature of trade'/business transaction. 3. Whether on the facts in the circumstances of the case and in law, the Ld. CIT(A) has erred by allowing full cost of improvement of land against the sale transaction for portion of the land which was allowed by the AO proportionately. 4. Whether on the facts in the circumstances of the case and in law, the Ld. CIT(A) has erred by allowing full cost of improvement of land alongwith indexation in the case of land sold at Pataudi vide deed No.987 despite the fact that the assessee has failed to substantiate the claim of cost of improvement during the assessment proceedings. The AD has categorically mentioned that the cheques regarding cost of improvement were issued by the assessee in October 2007 whereas the impugned property was purchased on 26.03.2008 and the said fact was not duly appreciated by the Ld. CIT(A). 5. Whether on the facts in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f large deduction claimed u/s 54 of the Income Tax Act, 1961, large value sale consideration of property and cash deposits. 5. During the year, the assessee declared Long Term Capital Gains of Rs. 66,23,908/- and Short Term Capital Gain of Rs. 2,28,405/- and claimed exemption u/s 54F of Rs. 1,84,23,729/-. The details of the capital gains are as under: Long Term Capital Gains 1. Deed No. 72 - Rs. 5,93,000/- 2. Deed No. 821 - (loss) Rs. 2,59,000/- 3. Deed No. 987 - Rs. 47,49,200/- 4. Taj Land - Rs. 1,84,23,729/- & claimed exemption u/s 54F 5. Other Land - Rs. 15,40,600/- Total LTCG Rs. 66,23,000/- (excluding Section 54F) Short Term Capital Gains 1. Patudi Nabab - 1 - Rs. 5,58,475/- 2. Patudi Nabab - 2 - Rs. 4,24,000/- Total - Rs. 9,82,000/- 6. The Assessing Officer examined each transaction and redetermined the capital gains. 1. Deed No. 72 - Rs. 5,93,000/- 7. The details submitted by the assessee before the Assessing Officer pertaining to the transactions of deed no. 72 are as under: Cost of acquisition - Rs. 13,46,820/- Cost of improvement - Rs. 21,59,570/- Sale consideration - Rs. 62,50,250/- L....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... clear case of capital accretion and not profit derived from an adventure in the nature of trade. Cases of realization of investments consisting of purchase and resale, though profitable, are clearly outside the domain of adventures in the nature of trade. In deciding the character of such transactions several factors are relevant, such as, e.g., whether the purchaser was a trader, and the purchase of the commodity and its resale were allied to his usual trade or business or incidental to it, the nature and quantity of the commodity purchased and resold; any act subsequent to the purchase to improve the quality of the commodity purchased and thereby make it more readily resaleable; any act prior to the purchase showing a design or purpose; the incidents associated with the purchase and resale: the similarity of the transaction to operations usually associated with trade or business; the repetition of the transaction; the element of pride of possession. A person may purchase a piece of art, hold it for some time and, if a profitable offer is received, sell it. During the time that the purchaser had its possession, he may be able to claim pride of possession and aesthetic satisfactio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ld the entire piece of land for 5 long years and that fact in itself shows the Intention of the assessee to make investment in the said plot for capital appreciation. That the improvement made in the plot of land which was barren and uneven by resorting to land tilling, fencing etc, was only with a view to make the land saleable and further plotting of the said land was also part of the same exercise. Simply because the piece of land in this transaction has been bifurcated into 5 different parts to make it saleable after a long period of 5 years from the date of investment, per se cannot grant the character of the said pieces of land as "stock in trade" so as to give it a colour of business activity or adventure in the nature of trade. Applying the principles emerging from the above cases to the facts and circumstances instant case it is held that there is nothing to show that the first step of purchase of land was taken in the course of a trading transaction. The land was kept well over 5 years. What was realized on the sale of land was accretion to the capital. It is not a case where the appellant can be set to have plunged into the waters of trade. 18. Having gone through the u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... acquired, the assessee sold 50% of the land. * The assessee sold the property on Sept/13 & Aug/13 * The assessee claimed cost of improvement of Rs. 20,30,250. * The assessee produced a bill dated 10.01.2011 on the letter head of once Sh. Darshan Pal, Thekedar. * The assessee claimed the entire amount has been paid in cash. 24. The Assessing Officer held that no evidence in respect of payment has been furnished, no identity proof of Sh. Darshan Pal was submitted, no address of Sh. Darshan Pal and contact number has been submitted in the reply given to the AO. 25. The ld. CIT(A) deleted the addition holding as under: "7.2 With respect to the above Ground of Appeal which is in reference to disallowance of half of the cost of acquisition and further the entire cost of improvement, the submission of the Appellant is twofold. As regards the disallowance of Cost of Acquisition it has been submitted that while it is true that the assessee/Appellant did not sell the entire piece of land evidenced by deed, but the claim of entire cost of acquisition to be deducted from the sale consideration was made on the peculiar facts on hand. That the assessee had purchased the land which w....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... earth bricks etc. The bill of the contractor was also filed before the A.O. The reality is that that most of these expenses were incurred on that part of land which got transacted. That is why these portions got sale worthy. Hence the need and factum of having incurred expenses stand duly supported by the circumstances and the assessee had discharged the initial onus. That as regards the non service of notice u/s 133(6) it has been submitted that these are nomadic labour contractors who keep moving in the area and normally do not have permanent address. The events in question relate to the period 2010, which is quite back in time. Locating them in 2016-17 would be a stupendous task. Therefore in the circumstances nonservice cannot be used against the appellant. Regarding the payment in cash it needs to be appreciated that these payments are disbursed over a period of time of holding the property and not is onetime payment. The assessee is not running a business and hence not maintaining formal books of accounts in the context. Otherwise this has been met out of cash in hand. The assessee/ appellant has also placed on record his letter to Nagarpalika of Patuadi" (Annexure-G) in r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s been provided at Mumtajpur, Teshsil Pataudi, District Gurgoan. That not much can be made of the non- service of the notice u/s 133(6) issue to Shri Darshan Pal, more so in face of the fact that a hand written reply in his name has been received through post in the office of the AO on 26.12.2016. The Appellant had filed copy of the contract copy of signed bill and earth brick bills evidencing construction of boundary to avoid any encroachment on the sold piece of land. In support of fencing/construction of brick wall the assessee has also provided copy of letter written to secretary, Municipality, Pataudi dated 10.10.2011. Thus taking into totality all these contemporaneous evidences as also the fact that it is the AO who had all the powers to enforce the attendance of Darshan Pal the Contractor, the addition made by the AO by disallowing the cost of improvement for Rs. 20,30,250/- is directed to be deleted and the Ground of Appeal No. 5 is allowed." 26. Having heard the arguments of both the parties. We find that the ld. CIT(A) has given relief observing, * There was an old house which has to be demolished. * Land has to be cleared, filled and levelled. * Boundary was cons....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... + Rs. 6,000/- Stamp duty on 15.11.2007. 4 Kanal 5 Marla at Khata No. 59/61 Farukhnagar Teh. Pataudi, Dist. Gurugram purchased for Rs. 10,70,000/- + Rs. 64,200/- Stamp duty on 16.11.2007. 3 Marla at Khata No. 62/65 Farukhnagar Teh. Pataudi, Dist. Gurugram purchased for Rs. 37,500/- + Rs. 2,250/- Stamp duty on 19.11.2007. 2 Marla at Khata No. 62/65 Farukhnagar Teh. Pataudi, Dist. Gurugram purchased for Rs. 90,000/- + Rs. 5,400/- Stamp duty on 16.11.2007. 6 Kanal 8 Marla at Khata No. 59/61 Farukhnagar Teh. Pataudi, Dist. Gurugram purchased for Rs. 10,70,000/- + Rs. 64,200/- Stamp duty on 19.11.2007. 27.06.2013 39 Marla 32388500 10.3 The assessee has worked out the capital gains on the above sale as below: Sales consideration: Rs. 3,23,88,500/- Less: Cost of Acquisition-81,94,450*939/551= Rs. 1,39,64,771/- Long term capital gain Rs. 1,84,23,729/- Less: Exemption u/s 54F (-) Rs. 1,84,23,729/- Analysis of Claim of exem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that there was no need on the part of the assessee to obtain any approval of construction since he had bought an already constructed house. The assessee has also submitted a certificate from Town and Country Planning dated 01.12.2016 which says that the said land is a residential land. As per the letter plot in Khasra No. 257 - 258 sector 104, Gurgaon is shown as a part of residential land in the Master Plan of Gurugram. Further the assessee has also relied upon the Khasra issued by the Patwari where it is mentioned that a "Makan" is also situated in the khasra of agricultural land purchased by the assessee. With regards to the present situation of the property where an electricity connection of 45KV has been taken by the assessee in 2016 it has been stated that the present status of the property does not prove that when the property was purchased it was not a residential house. 10.8 The submission made by the assessee has been duly considered. It is not a matter of dispute that whether a constructed structure or 'Makan' was a part of the property purchased by the assessee. The registered sale deed as well as the khasra issued by the Patwari clearly mentions this fact. The issue u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ential house, by furnishing documents of following nature: * The plan of the house and the approval for construction from the relevant authorities. * Title deed. * Tenancy agreement, if any. * Photograph, if any. habitability of the building for the purpose of residence which may include kitchen, bathroom etc. 10.13 The assessee has however, not been able to furnish conclusive evidences in support of his claim. It was also observed on perusal of the registry deed that in the column of the type of land it was mentioned as "Araji Jarai" which means agriculture land. For ascertaining the nature of land a letter was issued to the Sub Registrar/Tehsildar of the area. He was also requested to intimate about the value of constructed area taken for stamp duty purpose. The reply received from the Tehsildar is reproduced under: It may be seen from the above letter that the Sub Registrar has categorically stated that the meaning of the word "Araji Jarai" is an agriculture land. Further it stated that out of the total stamp duty only Rs. 20,500/- was charged against the covered area and stamp duty of Rs. 33,99,500/- was for the remaining agricultural land. 10.15 The inquiries conduc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ft. only 500 sq. ft. is the area of constructed portion with no evidence of use as a residential house. The assessee has not been able to produce any evidence in his support on this point. Therefore, the land of about 45,000 sq. ft cannot be stated to be a land appurtenant to the house as claimed by the assessee. 10.18 My views find support from the case law cited in 351 ITR 123 (2013) HIGH COURT OF KERALA Smt. Asha George vs. ITO where the honorable court on the similar issue concluded as under: "12. Section 54F is intended to encourage construction of or acquisition of residential house with the aid of the proceeds from the transfer of any long term capital asset, which is not a residential house. The provision contemplates computing the cost of the residential building, but the value of the plot on which the farm house stands and the land appurtenant could also be considered. The tribunal has categorically found that the appellant has not produced material to show that the entire area of 1.92 acres should be considered as land appurtenant to it. It is in such circumstances, the tribunal made an estimation and directed that the value of the plot on which the farm house is loca....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... evade tax. A little probing was sufficient in the present case to show that the apparent was not the real. The taxing authorities were not required to put on blinkers while looking at the documents produced before them. They were entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents." 10.23 In view of the facts and circumstances of the case and on the basis of inquiry conducted the only irresistible conclusion which can be drawn is that the claim of assessee u/s 54F is not as per the conditions laid down in the Act. Therefore, an addition of Rs. 1,84,23,729/- is being made to the total income of the assessee on account of disallowance of exemption u/s 54F of the Income Tax Act, 1961." 29. Aggrieved, the assessee filed appeal before the ld. CIT(A). 30. The ld. CIT(A) deleted the addition holding that the assessee has purchased a house "Makan", hence the exemption u/s 54F is to be allowed. 31. For the sake of ready reference, the arguments taken up by the assessee before the ld. CIT(A) and the decision of the ld. CIT(A) is reproduced below: "8. In Ground No.6 the Appellant has contended that the AO has erred in refu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e is the assessee eligible to clain deduction under section 54F on the entire property being mainly a land of about 1 acre size. The AO requested the assessee to furnish the evidence to prove that how a small area of 500 sq. ft. which was purchased jointly in name of 3 co- owner could be eligible for deduction u/ 54F on a land of more than 90 times size for which the total investment of Rs. 5,41,36,367/- was made. The AO has referred to the Supreme Court decision in Indem Mechanical Pvt. Ltd. to explain the meaning of residence. In para 10.15 the AO has therefore concluded that from the inquiries conducted it is established that investment of Rs. 1.84 crores was not in purchase of a residential house but was for purpose of land where some constructed area was existing when the assessee purchased it. That this structure may have been used for any purpose but there is nothing on record to prove that it was a residential house. That thus it is obvious that the investment was primarily in land and not in residential house as claimed by the assessee. In para 10.17 the AO is further of the view that out of the total area of the land of about 45,000 sq. ft. only 500 sq. ft. is the are....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n, as an alternative, goes to prove his acceptance about existence of a residential house, on the lines mandated by sec 54F. It is further submitted that existence of a shed along with the residential unit involving casting of pavers cannot be fatal, as these are temporary structures, erected post purchase of the house and the land appurtenant to it. Its existence does not change the basic character of the residential house. The section does not put bar on the manner of utilization of land and the land appurtenant once it has been purchased. Post purchase of the mandated residential house, developments like enhancing the electricity connection to 45 kw in 2016 does not obliterate the existence of residential property at the time of transaction and thereafter. That the assertion that the land on which the house is situated has been stated as agriculture is also not factually correct. All that the letter of Sub Registrar says is it is ARJAI JARAI i.e. capable of agriculture operations. In any case it is not all material to the issue. The section is neutral as to what kind of land the residential house should be situated on and in whether it is located in urban or rural area.. The l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng 54F that house should be on rent, however assessee let out the property for residential purpose in next year that is FY 2014-15(A copy of such agreement has been enclosed as Annexure-I). Further, it is during the assessment proceedings only that the assessee came to know that tenant has started certain warehouse activities on let out property without permission of assessee. He has issued a legal notice to the tenant for using residential property for commercial use through his advocate. A copy of Notice has been enclosed as Annexure-J. However we reiterate that this does not go to hit on claim u/s 54F being not a contemporaneous event. 4.) Photographs of Makan: Photographs of Makan showing habitability like kitchen, room etc. of house are enclosed as Annexure-K. 5.) The habitability of the building for the purpose of residence which may include kitchen bathroom etc.: It is stated that habitability of the building stands prove through the photograph and rent agreement mentioned above. Further it is stated that a domestic electricity connection bill of property was also submitted at the time of assessment, which certifies that property was meant for residential use not c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction under section 54/54F, provided that the acquisition of plot and also the construction thereon, are completed within the period specified in these sections." The issue has also been settled through various judicial decisions wherein it is held that the word residential house used in section 54F of Income Tax Act cannot be restricted only to the constructed area but would also include the land on which said residential house is built/constructed, which are as under:- I. Additional Commissioner of Income Tax Range -I Dehradun vs. Shri Narendra M Uniyal (ITA No. 1624/Del/2009). "10. It is crystal clear from the plain reading of Section 54 & 54F that exemption is allowable in respectg of amount invested in the construction of a residential house. There is no any rider u/s 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 neces....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se of Vishnu Trading & Investment Co. (128 TAXMAN 777) and also the decision in case of Shyam Sunder Makhija (38 ITD 125 - Jaipur) found that assessee is eligible for exemption under section 54F................................Since all the details are placed on record from which it is established that assessee purchased a plot of land and then constructed the house on it. The house constructed on agricultural land or on other land does not matter, but the fact that house should be constructed and from the report it is very much clear that a residential house was constructed as this fact has been mentioned by valuer in para 14 of his valuation report. In view of these facts and circumstances, we hold that Id. CIT (A) was justified in allowing the claim of the house. Accordingly, we confirm the order of Id. CIT (A)." III. Deputy Commissioner of Income Tax vs. Kalyanaraman Nataraja (82 taxmann.com 93 - Chennai - Trib.), dated 01.05.2017. "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 he allowed in respe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....land thereto and any subsequent violation by the lessee of the said residential premise at a later date cannot be determinative of the disallowance of the claim of exemption u/s 54F by the assessee. In a result the Ground of Appeal no. 6 is allowed." 32. Aggrieved, the Revenue filed appeal before the Tribunal. Before us, the ld. Sr. DR argued that the ld. CIT(A) has ignored all the gathered evidences and also under played the evidences of brick manufacturing unit existing over the land. The submissions of the Sr. DR in writing are as under: Facts How CIT(A) dealt Argument The AO has denied exemption 54F extent on claimed u/s except to the of Rs 1.75 lacs cogent reasons & evidences including for reason that a brick manufacturing was unit found on said property and images of same also inserted in order. Further many other anomalies have been pointed out including the fact that on a land of around 1 acre so called structure building was on 500 sq ft only and said structure cannot be called as residential one. (refer pages 19 to 26 of AO's order) CIT(A) has ignored all the gathered evidences and the order of AO is relied upon also underplayed of evidence of having brick manuf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e is whether it was a residential house and in that case he has agreed that the assessee is eligible for claim u/s 54 on the entire property. Out here it may be mentioned that on a residential land there cannot be any structure or 'Makan' that could be other than residential. 34. Heard the arguments of both the parties and perused the material available on record. 35. We find that the entire deal consists of 10 properties purchased on 23.07.2007 to 19.11.2007 at Farukhnagar. The cost of acquisition shown by the assessee was Rs. 81,94,450/- and the indexed cost of acquisition worked out by taking indexation at 939/551 was Rs. 1,39,64,771/-. The sale consideration being Rs. 3,23,88,500/-, the Long Term Capital gains worked out was Rs. 1,84,23,729/-. The assessee subsequently claimed the Long Term Capital Gains as exempt u/s 54F owing to purchase of new residential property within the allowed time. The cost of acquisition and the cost of sale are not in dispute. The Long Term capital gains determined is also not in dispute. The only dispute before us is whether the Long Term Capital Gains have been rightly utilized for purchase of residential house as per the provisions of Section 5....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... without any basis when the stamp duty authorities and the revenue authorities have duly considered it as agricultural land. 39. The Departmental Representative argued that the ld. CIT(A) has totally ignored the evidence of having brick manufacturing unit over the land. 40. The ld. Counsel has also argued that the domestic connection of the electricity of 1 KW, the town planning certificate indicating the land as residential, patwari certificate of existence of "Makan" should make the assessee eligible for exemption u/s 54F. 41. The provisions of Section 54F are as under: "[Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house. 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 32a[con....
X X X X Extracts X X X X
X X X X Extracts X X X X
....us year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, 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 provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred.] [(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is tariff. Further, it also notifies that where a portion of the dwelling is used regularly for the conduct of a business, the consumption in that portion shall be separately metered and billed under the appropriate Non-Domestic tariff or Industrial power supply tariff. If separate meters are not provided, the entire supply will be classified under Non-Domestic supply or industrial power supply tariff as applicable. Thus, in this case it cannot be said that since domestic supply has been given, it assumes the character of a residential house for the purpose of application of Section 54F. If the same simile is used it becomes akin to the argument that all the illegal colonies/houses which have been provided with domestic collection, should be considered as legal as there is a legal domestic electricity supply. Thus, we are not inclined to accept the rationale of the ld. CIT(A) that since there was a domestic electricity connection, the residential house has been said to be purchased. Similarly, the ratio of the size & location of the house will come into fore only once the factum of purchase of house has been proved. We are well aware that the size & location of the residential hous....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the residential house should be taken to include the cost of the plot as, in a situation of purchase of any house property, the consideration paid generally includes the consideration for the plot also. 2. The Board has examined the issue whether, in cases where the residential house is constructed within the specified period, the cost of such residential house can be taken to include the cost of the plot also. The Board are of the view that the cost of the land is an integral part of the cost of the residential house, whether purchased or built. Accordingly, if the amount of capital gain for the purposes of section 54, and the net consideration for the purposes of section 54F, is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction under section 54/54F, provided that the acquisition of plot and also the construction thereon, are completed within the period specified in these sections. 43. Thus, even the CBDT Circular held that deduction u/s 54F can be given on the combined cost of construction of the residential land and cost of plot. The cost of pl....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 44. In this case, the basic documents of either existence of a house or construction of a house are lacking. The land purchased was agricultural land, stamp duty paid was on agricultural land. 45. We have also examined the judicial pronouncements on this issue. We are in agreement with the judgment of Hon'ble Supreme Court in Associated Indem Mechanical Private Ltd. vs. West Bengal Small Scale Industrial Development Corporation Ltd. [2007 (3) SCC 607] relied upon by the Assessing Officer which explained the meaning of "residential". The Hon'ble Apex Court held that, "A residence ordinarily means a place where one resides; the act or fact of abiding or dwelling in a place for some time; an act of making one's home in a place. "Residential" ordinarily means-used, serving or designed as a residence or for occupation by residents; relating to or connected with residence. Gardens or grounds or any furniture supplied or fittings or fixtures affixed in a building or seat in the room can by no stretch of imagination be called or said to be a residential building, but they are included in the definition of premises". 46. In the case of Amit Gupta vs. DCIT (supra), it was held that, "....