Section 54
This query is : Resolved
Guest
Guest
(Querist)
26 September 2007
A person sold a house and with in the said period he invested in oder to get exemption u/s 54. But he bought a house not in India, but outside India. Can he get exemption? If no.. is that particularly mentioned/stated in the Act, that the newly bought residential house must situated in India?
Also what if the house sold situated outside India and the bought house was in India?
Note: Assuming all the relevant claims have satisfied by the Assessee.
Also what if the house sold situated outside India and the bought house was in India?
Note: Assuming all the relevant claims have satisfied by the Assessee.
28 September 2007
Please read the below judgement and circular:
[1985] 151 ITR 320 (AP)
HIGH COURT OF ANDHRA PRADESH
Commissioner of Income-tax
v.
Zaibunnisa Begum
B.P. JEEVAN REDDY AND Y.V. ANJANEYULU, JJ.
REFERRED CASE NO. 210 OF 1978
JULY 17, 1984
JUDGMENT
Y.V. Anjaneyulu, J.—Two questions are referred to this court by the Income-tax Appellate Tribunal under section 256(1) of the I.T. Act, 1961:
"(1) Whether, on the facts and in the circumstances of the case the entire land or any part of it could be treated appurtenant to the building for the purpose of applying the provisions of section 54 of the Income-tax Act, 1961?
(2) Whether the department was justified in reading 'reasonableness' before the words 'land appurtenant thereto' in section 54 of the Income-tax Act and whether the Tribunal was right in repelling such an interpretation?"
The matter relates to the assessment year 1964-65. The assessee and her three sisters were the joint owners of a house property consisting of a fairly large building and extensive land, each one owning 1/4th share. The building has a built-up area of 17,136 sq. ft. and the total extent of land including the land on which the building stands is 13,029 sq. yards. The building as well as the entire extent of land was acquired by the Government under the Land Acquisition Act for construction of the office of the Accountant-General. Compensation was initially awarded by the Land Acquisition Officer and it was enhanced by the Second Additional Chief Judge, City Civil Court, Hyderabad, pursuant to a reference made under section 18 of the Land Acquisition Act. The compensation finally awarded was:
Rs.
(a) Compensation for land
5,21,160
(b) Compensation for the building
1,71,360
(c) Solatium
1,03,878
7,96,398
In the Income-tax return filed for the assessment year 1964-65, the assessee declared her share of capital gain arising on the transfer of the land and building by way of compulsory acquisition. The assessee claimed that she constructed a building for her residential purposes at a cost of Rs. 80,000 within a period of two years from the date of transfer of the abovesaid building together with land. Accordingly, the sum of Rs. 80,000 was claimed as deduction under section 54 of the I.T. Act, 1961 (hereinafter referred to as "the Act"), from out of her share of capital gain. Omitting matters which are not the subject-matter of dispute in the present reference, it is enough to state that the ITO determined the assessee's 1/4th share of capital gain on the transfer of the land and building jointly owned by the assessee and her three sisters at Rs. 1,42,283 and set off against the same a sum of Rs. 75,000 which he estimated as the cost of building constructed by the assessee for her residential purposes under section 54 of the Act. Doing so, he arrived at the capital gain for the purpose of assessment at Rs. 67,283 and included the same in the total income.
Against the order of the ITO, the assessee filed an appeal before the AAC and questioned the correctness of the computation of the capital gain at Rs. 1,42,283. The dispute, inter alia, related to the original cost (market value) of the land and building as on January 1, 1954, and also the determination by the ITO of the cost of the building newly constructed for the assessee's residential purposes at only Rs. 75,000 against Rs. 80,000 claimed. The question regarding determination of the original cost (market value) as on January 1, 1954, is not relevant for the purpose of the present reference and it is not, therefore, necessary to refer to that matter. On the question of the estimated cost of construction of the new residential house at Rs. 75,000, the AAC did not interfere with the estimate made by the ITO at Rs. 75,000. The AAC went further into the question whether the deduction of Rs. 75,000 representing the cost of construction of the new residential house could be set off against the entirety of capital gain arising on the sale of building as well as the land or should be limited to the extent of capital gain arising on the sale of the building and land "reasonably appurtenant" to the building. The provisions of section 54(1) of the Act were construed by the AAC as permitting the set-off of the amounts spent on the construction of a new building for residential purposes only against the capital gain arising on the transfer of the building and land, which is "reasonably appurtenant" to the building. The AAC was of the view that, if the land contiguous to a building is vast in extent, the entire extent of land could not be considered to be appurtenant to the building and only a reasonable portion of such land could be so considered under law. He, accordingly, directed the ITO to redetermine the capital gain on the transfer of the building and the land reasonably appurtenant to the same and, if such capital gain should be less than Rs. 75,000, restrict the deduction under section 54(1) of the Act only to the extent of the restricted sum. The AAC obviously held the view that the capital gain derived on the sale of land, which is not reasonably appurtenant to the building should be taxed in entirety and no part of the sum of Rs. 75,000 spent on the construction of the new residential house should be set off against such capital gain. As the ITO did not examine the question from the above points of view, he directed the ITO to re-work out the capital gain on the aforesaid basis.
The assessee filed an appeal to the Income-tax Appellate Tribunal questioning the correctness of the above view of the AAC. It was urged before the Income-tax Appellate Tribunal that the AAC wrongly construed the provisions of section 54(1) of the Act, inasmuch as the language of section 54(1) did not provide for the classification of the land appurtenant to a building as "reasonably appurtenant" and otherwise. According to the assessee, the entire extent of land contiguous to the building should be considered as land appurtenant to the building for purposes of section 54(1) of the Act and the sum of Rs. 75,000 spent on the construction of the new residential house should be set off against the entirety of the capital gain arising on the sale of the building as well as the land. The Income-tax Appellate Tribunal accepted the assessee's contention. The Tribunal was of the view that the AAC was in error in qualifying the word "appurtenant" occurring in section 54(1) as "reasonably appurtenant". In that view of the matter, the Tribunal reversed the order of the AAC concerning this point. Thereupon, the Commissioner of Income-tax asked for and obtained the present reference from the Tribunal under section 256(1) of the Act.
Sri M. Suryanarayana Murthy, learned counsel for the Revenue, submitted that on a plain construction of the provisions contained in section 54(1), it must be held that the expression "being buildings or lands appurtenant thereto" should necessarily refer only to that extent of land which is reasonably required for purposes of proper enjoyment of the house. According to the learned counsel, if a house stands on a vast extent of land, it would be improper to consider the entire extent of land as appurtenant to the building for purposes of section 54. The learned counsel contends that the deduction under section 54(1) is not permitted against capital gain arising on the sale of (entire) land as such, but only against the sale of the building and land appurtenant thereto. Thus, where a building together with land is sold, the learned counsel urges, it is necessary to enquire and determine the extent of land which is required for the purpose of proper enjoyment of the building as such and the appurtenant land can be restricted only to that reasonable extent and cannot be extended to the entire extent of land. Learned counsel draws attention to the Explanation to section 5(1)(ivc) of the W.T. Act, 1957, which was inserted by the Finance Act of 1976 with effect from April 1, 1977. It would be appropriate to extract the Explanation referred to by the learned counsel:
"Explanation.—For the purposes of this clause,—...
(b) 'land appurtenant', in relation to any dwelling unit or units comprising a building, means,—
(i) in an area where there is any law in force providing for the minimum extent of land contiguous to the land occupied by any building to be kept as open space for the enjoyment of such building, the minimum extent of land contiguous to the land occupied by the building comprising such dwelling unit or units required to be kept as open space under such law;
(ii) in any other area, an extent of land not exceeding one-third of the plinth area of the building comprising the dwelling unit or units at the ground level contiguous to the land occupied by such building".
Learned counsel states that the same considerations should prevail for determining the land appurtenant for purposes of section 54 of the I.T. Act also. Learned counsel relied on certain decisions to which we shall presently refer, supporting his contention that the extent of the land appurtenant to a building has to be determined with reference to the facts of each case bearing essentially in mind the extent of land required for proper enjoyment of the building.
Sri Parvatha Rao, learned counsel appearing for the assessee, reiterates the pleas taken by the assessee before the lower authorities. According to the learned counsel, there is absolutely no provocation for restricting the land appurtenant to building to any reasonable extent for purposes of section 54 of the Act. According to the learned counsel, the language of section 54 does not lend support to the Revenue's plea that any enquiry could be conducted for purposes of determining the extent of the land reasonably required for the purpose of proper enjoyment of the house and to treat such reasonable extent only as land appurtenant to the building. Learned counsel states that the Explanation to section 5(1)(ivc) of the W.T. Act relied on by the Revenue cannot be applied for purposes of section 54 of the I.T. Act. Learned counsel further contended that the extent of land in the present case is, in any event, not so extensive as to call for any determination of the land reasonably appurtenant to the building, especially in view of the fact that the building was owned by four co-owners and the total extent of land of 13,029 sq. yards was necessary for the proper enjoyment of the building by all the four co-owners. It was pointed out that there was no material for the authorities below to show that the land contiguous to the building was used for any purpose other than the enjoyment of the house and, consequently, no enquiry was called for.
We may now notice the relevant provisions of the Act. Under section 45 of the Act, any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to Income-tax under the head "Capital gains". The expression "capital asset" is defined in section 2(14) of the Act as meaning property of any kind held by an assessee, whether or not connected with his business or profession. The definition excludes certain categories of capital assets which are not relevant for our purpose. Section 48 of the Act provides that the income chargeable tinder the head "Capital gains" shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the capital asset and the cost of any improvement thereto. Section 54 of the Act, which is relevant for our present purpose, deals with capital gain arising on the sale of property used for residence and it may be usefully extracted below:
"54. Profit on sale of Property used for residence.--Where a capital gain arises from the transfer of a capital asset to which the provisions of section 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 two 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, and the assessee has within a period of one year before or after that date purchased, or has within a period of two years after that date constructed, a house property for the purposes of his own residence, 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,—
(i) if the amount of the capital gain is greater than the cost of the new asset, the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from-its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain".
It is clear from the above provisions that if capital gain arises on the transfer of buildings or lands appurtenant thereto, the income of which is chargeable under the head "Income from house property", and within the specified period an assessee acquires a house property for the purpose of his own residence, then the capital gain shall be reduced by the cost of the new house property. This is the plain effect of the provisions of section 54. The basic requirement is that the capital gain should arise from the transfer of buildings or lands, the income of which is chargeable under the head "Income from house property". If land alone is sold, the provisions of section 54 will have no application, inasmuch as the income from the land is not chargeable under the head "Income from house property". In order to secure the benefit of section 54, it is necessary that the building together with land is transferred and the income from such building and land is chargeable under the head "Income from house property" under section 22 of the Act. Inasmuch as the cost of the new house property acquired by the assessee for the purpose of his own residence is liable to be set off against the capital gain arising on the transfer of the buildings or lands appurtenant thereto, the question arises whether the expression "lands appurtenant thereto" covers the entire extent of land transferred along with the building or only a portion of such land as may be considered appurtenant to the building (emphasis supplied by us). The Revenue contends that the expression "land appurtenant thereto" does not cover the entire extent of land that may be transferred along with the building, but is limited only to the extent of land which is required for the proper enjoyment of the house and may, therefore, be considered as appurtenant to the building. In other words, what the Revenue contends is that if, in a given case, a vast extent of land is also transferred along with the building, it is not permissible to consider the entire extent of land as appurtenant to the building. An enquiry should be conducted for the purpose of ascertaining the extent of land required for effectively and properly enjoying the building and the land appurtenant should be restricted only to that extent and the capital gain ascertained accordingly. The set-off of the cost of the new house property acquired by the assessee for the purpose of his own residence can be made against the capital gain so computed.
The expression "land appurtenant thereto" occurring in section 54 of the Act has not been defined. It must, therefore, be understood in its popular and non-technical sense. It is not possible to accept the Revenue's contention that clause (b) of the Explanation to section 5(1)(ivc) of the W.T. Act, 1957, defining "land appurtenant" for the purpose of that clause should be considered equally applicable for the purpose of understanding that expression occurring in section 54 of the I.T. Act. If the Legislature thought that the same technical meaning given in clause (b) of the Explanation to section 5(1)(ivc) of the W.T. Act should be applied to that expression occurring in section 54 of the I.T. Act, nothing would have prevented the Legislature from doing so. The above Explanation was introduced in the W.T. Act with effect from April 1, 1977, and the I.T. Act has been amended any number of times between 1977 and 1984, and yet the Legislature did not think it fit to define the expression "land appurtenant thereto" occurring in section 54 of the I.T. Act in terms identical to clause (b) of the Explanation to section 5(1)(iv c) of the W.T. Act. It is interesting to find that the above Explanation in the W.T. Act is only for the purpose of section 5(1)(ivc) because it is specifically stated so. That Explanation can have no application for any other purpose in the W.T. Act itself. It is therefore, difficult to accept the Revenue's contention that the above technical meaning in clause (b) of the Explanation to section 5(1)(ivc) of the W.T. Act should be extended to section 54 of the I.T. Act. It must also be remembered that we are dealing with the Income-tax assessment year 1964-65 and the amendment in the W.T. Act came into force only on April 1, 1977. It is equally difficult to accept the assessee's contention that whatever be the extent of land transferred along with the house, should be considered appurtenant to the building. The fallacy in this contention will be apparent if we take into account the fact that the land contiguous to a building can be used for purposes other than the enjoyment of the building. Take for instance a case where a part of the land contiguous to the building is independently leased for a fire-wood depot. The land contiguous to the building may be so vast in its extent that a person can conveniently lay out the surplus extent of land into plots and sell those plots without causing detriment to the proper enjoyment of the building. Could it be said that, in these cases, the land leased for a firewood depot or sold by laying out into plots constituted land appurtenant to the building? We do not think so. There is force in the contention of the learned standing counsel for the Revenue that the expression "land appurtenant thereto" occurring in section 54 of the Act is a matter of enquiry depending upon the facts and circumstances of each case and the authorities must determine the extent of land that is considered to be appurtenant to the building based on some acceptable criteria to which we shall advert a little later.
Our attention has not been drawn to any decided cases on this point under the I.T. Act or, for that matter, under the W.T. Act. We have already stated that the expression "land appurtenant thereto" occurring in section 54 of the Act is used in a broad, popular and non-technical sense and it must be so understood.
We may now examine some decisions bearing on this point arising under different enactments. In Palaniappa Chettiar v. Vairavan Chettiar [1960] 1 MLJ (Sh. N.) 29, a case arising under the Madras Buildings (Lease and Rent Control) Act, the Madras High Court held that the word "appurtenant" includes all structures of property abutting or adjacent to the main tenement or property, which are proper and necessary for its due enjoyment.
In Trim v. Sturminster Rural District Council [1938] 2 KB 508; 2 All ER 168 (CA), which arose under the Housing Act, 1936, the meaning of the expression "house" turned out to be significant. Under section 188 of the said Act, that expression was defined as including "any yard, garden, outhouses, and appurtenances belonging thereto or usually enjoyed therewith". The question arose whether a cottage and ten acres of adjoining grass land came within the expression of "house" for the above purpose. It was held that it was not the cottage together with the whole of the ten acres of land, but only the cottage with its outhouses, yards, curtilage and gardens, that constituted the "house" within the definition, inasmuch as the term "appurtenances" was there used in its well-established legal sense as including only such matters as outhouses, yards and gardens, and not land as meaning a corporeal hereditament. It was further held that the question as to exactly how much of the ten acres ought to be included in the appurtenances of the cottage and, therefore, in the "house" was one for the decision of the county court judge, his decision to be confined, however, to matters which, on the face of it, would be something considerably less than the whole of the ten acres.
We may notice the judgment of the Madras High Court in Irani v. Chidambaran Chettiar, AIR 1953 Mad 650. The matter arose under the Madras Buildings (Lease and Rent Control) Act, 1946. The question in that case was whether the 1st defendant was a "tenant in possession of a building" within the meaning of the Act. He would be a tenant of a building if what was leased to him was within the definition contained in the Act. The word "building" is defined in the Madras Act as meaning "any building or hut or part of a building or hut let or to be let separately for residential or non-residential purposes and includes: (a) the garden, grounds and outhouses, if any, appurtenant to such building, hut or part of such building, or hut and let or to be let along with such building or hut, (b) any furniture supplied by the landlord for use in such building or hut or part of a building or hut". After considering the legal and popular meaning of the expression "appurtenant", Satyanarayana Rao J. observed at page 655 of the report as under:
"The meaning of the word 'appurtenant' given in the Oxford Dictionary is:
'Belonging as a property or legal right; constituting a property or right subsidiary to one which is more important; appertaining as if by right to; proper, suited or appropriate to; relating to, pertinent".
That is the primary meaning of the word 'appurtenant'. In Budhi Mal v. Bhati, AIR 1915 All 459, "an appurtenance" is defined as an appendage, an adjunct, or something belonging to another thing as principal and passing as an incident to it. In Trim v. Sturminster Rural District Council [1938] 2 KB 508; 2 All ER 168 (CA), the learned judge considered the meaning of the word 'appurtenance' at pages 515 and 516 (of [1938] 2 KB) and observed that the word 'appurtenance' had never been extended to include land, as meaning a corporeal hereditament, which does not fall within the curtilage of the yard of the house itself-that is, not within the parcel of the demise of the house. That may be so. In the definition contained in the Act, the grounds and outhouses, if any, appurtenant to such building are included in the definition. As pointed out in Thomas v. Owen [1888] 20 QBD 225 (CA) at pp. 231, 232, the word 'appurtenance' has also a secondary meaning as equivalent to 'usually occupied' and this was cited with approval in Woodfall on Landlord and Tenant. If from 1914 this entire ground was occupied for the purpose of continuing the superstructure along with the building belonging to the lessor and the whole of it is treated as one unit, the site may be treated as an appurtenance in the secondary sense of the word."
In a separate but concurring judgment, Raghava Rao J. observed at pages 658 and 659 of the report as under:
"In my opinion the word 'appurtenant' occurring in the definition of 'building' in the Act with which we are concerned is used in the broad, secondary and non-technical sense of 'relating to', 'usually enjoyed or occupied with' and 'adjoining' just noticed by me. The idea of the legislature seems to be that if grounds appurtenant to the building in this sense are let along with the building they should stand attracted to the operation of the Act. That the grounds should also be let along with the building would not be a matter of specific provision in the definition of the statute, if the primary or legal sense of the word 'appurtenant' were intended, as in that case anything appurtenant to another in that sense would pass with it under the demise whether specifically let or not along with it. It is settled law that where a word admits of senses more than one, that sense is to be adopted which best harmonises with the context and promotes in the fullest manner the policy and object of the legislature. The paramount object in construing statutes is to ascertain the legislative intent and the rule of strict construction is not violated by permitting the words to have their full meaning, or the more extensive of two meanings best effectuating the intention. They are indeed frequently taken in the widest sense, sometimes in a sense more wide than etymologically belongs or is popularly attached to them in order to carry out effectively the legislative intent, or to use Lord Coke's words 'to suppress the mischief and advance the remedy' (vide Maxwell on the Interpretation of Statutes, 9th edition, by Sir Gilbert Jackson, 280)".
It is clear from the observations of Satyanarayana Rao J. and Raghava Rao J. above referred to that, if the expression is used in the Act in a primary sense, then the meaning attached to that primary sense must be given irrespective of other considerations. We have already stated that the expression "land appurtenant thereto" was defined in a primary sense for purposes of section 5(1)(iv c) of the W.T. Act. It would follow that the expression occurring in section 5(1)(iv c) should be understood in that primary sense and it is not open to the courts to impose any other considerations. Where, however, the expressions used convey more than one sense a primary and secondary sense that sense. is to be adopted which best harmonises with the context and promotes in the fullest manner the policy and object of the Legislature. In our opinion, the expression "land appurtenant thereto" has also a secondary meaning as equivalent to "usually enjoyed or occupied with". There is no indication that the Legislature used the above expression in section 54 of the I.T. Act limiting its sense and meaning artificially to any particular extent. Considerations governing the limitations imposed upon the meaning of that expression under sister enactments like the W.T. Act and the Urban Ceiling and Regulation Act, 1976, cannot be imported into section 54 of the I.T. Act. In our opinion, that expression is used in section 54 of the I.T. Act in a wider sense. It is, therefore, imperative that the tax authorities will have to determine the extent of land appurtenant to a building transferred, taking into consideration a variety of circumstances that may be relevant for the purpose. It is not possible to lay down infallible tests to be applied for the determination of the extent of land appurtenant to a building, as the tests vary depending upon the facts and attendant circumstances of each case. For instance: (1) If the building together with the land is treated as an indivisible unit and enjoyed as such by the persons occupying the building, it is an indication that the entire extent of land is appurtenant to the building; (2) If the building has extensive lands appurtenant thereto and even if the building and the land have been treated as one single unit and enjoyed as such by the occupiers, an enquiry could be made to find out whether any part of the land contiguous to the building can be put to independent user without causing any detriment to the effective and proper enjoyment of the building as such. Such an enquiry should be conducted not based on any artificial considerations but from the point of view of the persons occupying the building. The number of persons or different branches of families residing in the building, the requirements of the persons occupying the building consistent with their social standing, etc., are relevant for the purpose. If any surplus is arrived at on such enquiry, then the extent of such surplus land may not qualify to be treated as land appurtenant to the building; (3) If there is any evidence to indicate that any portion of the land contiguous to the building was put to user other than the enjoyment of the building, then that provides a safe indication regarding the extent of land put for such user' For instance, the land used by the occupiers for commercial, agricultural and horticultural purposes, although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to the building; (4) If the owner or occupier is deriving any income from the land which is not liable to be assessed as income from house property under section 22 of the I.T. Act, then the extent of such land does not qualify to be treated as land appurtenant to the building, and (5) any material pointing to the attempted user of the building for purposes other than the effective and proper enjoyment of the house would also afford a safe guide to determine the extent of surplus land not qualifying to be treated as land appurtenant to the building.
The above tests are illustrative and by no means exhaustive. It is for the tax authorities to apply their mind properly to the facts of each case and to devise tests suitable and appropriate to each case.
In the present case, it is stated that the total extent of land is 13,029 sq. yards and this included the land on which the building is constructed. It is also stated that four co-owners are separately residing in this building prior to its acquisition. Although the AAC did not spell out how the land appurtenant should be determined, he merely directed the ITO to make an enquiry to determine the extent of land that is reasonably appurtenant to the building. We do not find any error in the direction given by the AAC. While it is true, as Sri Parvatha Rao, learned counsel for the assessee, contends, that there is no material on record to indicate that the land was put to any non-residential user and the building and land was not treated as a single unit in the past, it is clear that the ITO did not apply his mind to the matter. If the ITO applies his mind and makes an appropriate enquiry to determine the extent of land appurtenant to the building in the present case, he may conceivably come to a conclusion that the entire extent of land appurtenant to the building could be treated as "land appurtenant" to the building. We see no reason why this enquiry directed by the AAC should be shut out, inasmuch as there is no legal infirmity in giving a direction to the ITO to make an appropriate enquiry. In our opinion, the Tribunal was in error in coming to the conclusion that the AAC was not justified in directing the ITO to enquire into the matter for the above purpose.
In the absence of necessary details, it is not possible for this court to indicate any answer to the question referred, that is to say, whether the entire land or any part of it could be treated as appurtenant to the building for the purpose of applying the provisions of section 54 of the I.T. Act. We, therefore, return the reference unanswered with a direction that the ITO shall make an enquiry into the matter bearing in mind the principles set out above and come to an appropriate conclusion regarding the extent of land appurtenant to the building. The assessee will be entitled to adduce necessary evidence during the course of such inquiry.
Date of Issue: 13/7/1989
Section(s) Referred: 64
Statute: Income-Tax Act
[2] Exemption of capital gain arising on sale of property used for residence.
Section 54 of the Income-tax Act, 1961, provides for exemption in respect of capital gain arising from the transfer of a long-term capital asset, being a residential house, the income of which is chargeable under the head "Income from house property", if the conditions laid down in the said provision are fulfilled.
2. Under section 23(2) of the Income-tax Act, as amended by the Finance Act, 1986, the annual value of one house in the occupation of the owner for purposes of his own residence is taken as nil. A question has been raised whether capital gain arising from the transfer of such a house property would be entitled to exemption under section 54 of the Act.
3. The question appears to have been raised because of the words underlined in para. 1 above. As the annual value of a self-occupied house would be taken to be nil by virtue of section 23(2) of the Act, an Assessing Officer may take the plea that the income of such a house is not chargeable under the head "Income from house property".
4. The Board is of the view that such a construction of the aforesaid provision in section 54 of the Act is not correct. Income from a self-occupied residential house is chargeable under the head "Income from house property", even though in certain circumstances such income may be computed at nil or at a negative figure of virtue of section 23(2) read with section 24 of the Act.
5. Thus, a person shall be entitled to claim exemption under section 54 of the Act even in respect of a self-occupied residential house.
[1985] 151 ITR 320 (AP)
HIGH COURT OF ANDHRA PRADESH
Commissioner of Income-tax
v.
Zaibunnisa Begum
B.P. JEEVAN REDDY AND Y.V. ANJANEYULU, JJ.
REFERRED CASE NO. 210 OF 1978
JULY 17, 1984
JUDGMENT
Y.V. Anjaneyulu, J.—Two questions are referred to this court by the Income-tax Appellate Tribunal under section 256(1) of the I.T. Act, 1961:
"(1) Whether, on the facts and in the circumstances of the case the entire land or any part of it could be treated appurtenant to the building for the purpose of applying the provisions of section 54 of the Income-tax Act, 1961?
(2) Whether the department was justified in reading 'reasonableness' before the words 'land appurtenant thereto' in section 54 of the Income-tax Act and whether the Tribunal was right in repelling such an interpretation?"
The matter relates to the assessment year 1964-65. The assessee and her three sisters were the joint owners of a house property consisting of a fairly large building and extensive land, each one owning 1/4th share. The building has a built-up area of 17,136 sq. ft. and the total extent of land including the land on which the building stands is 13,029 sq. yards. The building as well as the entire extent of land was acquired by the Government under the Land Acquisition Act for construction of the office of the Accountant-General. Compensation was initially awarded by the Land Acquisition Officer and it was enhanced by the Second Additional Chief Judge, City Civil Court, Hyderabad, pursuant to a reference made under section 18 of the Land Acquisition Act. The compensation finally awarded was:
Rs.
(a) Compensation for land
5,21,160
(b) Compensation for the building
1,71,360
(c) Solatium
1,03,878
7,96,398
In the Income-tax return filed for the assessment year 1964-65, the assessee declared her share of capital gain arising on the transfer of the land and building by way of compulsory acquisition. The assessee claimed that she constructed a building for her residential purposes at a cost of Rs. 80,000 within a period of two years from the date of transfer of the abovesaid building together with land. Accordingly, the sum of Rs. 80,000 was claimed as deduction under section 54 of the I.T. Act, 1961 (hereinafter referred to as "the Act"), from out of her share of capital gain. Omitting matters which are not the subject-matter of dispute in the present reference, it is enough to state that the ITO determined the assessee's 1/4th share of capital gain on the transfer of the land and building jointly owned by the assessee and her three sisters at Rs. 1,42,283 and set off against the same a sum of Rs. 75,000 which he estimated as the cost of building constructed by the assessee for her residential purposes under section 54 of the Act. Doing so, he arrived at the capital gain for the purpose of assessment at Rs. 67,283 and included the same in the total income.
Against the order of the ITO, the assessee filed an appeal before the AAC and questioned the correctness of the computation of the capital gain at Rs. 1,42,283. The dispute, inter alia, related to the original cost (market value) of the land and building as on January 1, 1954, and also the determination by the ITO of the cost of the building newly constructed for the assessee's residential purposes at only Rs. 75,000 against Rs. 80,000 claimed. The question regarding determination of the original cost (market value) as on January 1, 1954, is not relevant for the purpose of the present reference and it is not, therefore, necessary to refer to that matter. On the question of the estimated cost of construction of the new residential house at Rs. 75,000, the AAC did not interfere with the estimate made by the ITO at Rs. 75,000. The AAC went further into the question whether the deduction of Rs. 75,000 representing the cost of construction of the new residential house could be set off against the entirety of capital gain arising on the sale of building as well as the land or should be limited to the extent of capital gain arising on the sale of the building and land "reasonably appurtenant" to the building. The provisions of section 54(1) of the Act were construed by the AAC as permitting the set-off of the amounts spent on the construction of a new building for residential purposes only against the capital gain arising on the transfer of the building and land, which is "reasonably appurtenant" to the building. The AAC was of the view that, if the land contiguous to a building is vast in extent, the entire extent of land could not be considered to be appurtenant to the building and only a reasonable portion of such land could be so considered under law. He, accordingly, directed the ITO to redetermine the capital gain on the transfer of the building and the land reasonably appurtenant to the same and, if such capital gain should be less than Rs. 75,000, restrict the deduction under section 54(1) of the Act only to the extent of the restricted sum. The AAC obviously held the view that the capital gain derived on the sale of land, which is not reasonably appurtenant to the building should be taxed in entirety and no part of the sum of Rs. 75,000 spent on the construction of the new residential house should be set off against such capital gain. As the ITO did not examine the question from the above points of view, he directed the ITO to re-work out the capital gain on the aforesaid basis.
The assessee filed an appeal to the Income-tax Appellate Tribunal questioning the correctness of the above view of the AAC. It was urged before the Income-tax Appellate Tribunal that the AAC wrongly construed the provisions of section 54(1) of the Act, inasmuch as the language of section 54(1) did not provide for the classification of the land appurtenant to a building as "reasonably appurtenant" and otherwise. According to the assessee, the entire extent of land contiguous to the building should be considered as land appurtenant to the building for purposes of section 54(1) of the Act and the sum of Rs. 75,000 spent on the construction of the new residential house should be set off against the entirety of the capital gain arising on the sale of the building as well as the land. The Income-tax Appellate Tribunal accepted the assessee's contention. The Tribunal was of the view that the AAC was in error in qualifying the word "appurtenant" occurring in section 54(1) as "reasonably appurtenant". In that view of the matter, the Tribunal reversed the order of the AAC concerning this point. Thereupon, the Commissioner of Income-tax asked for and obtained the present reference from the Tribunal under section 256(1) of the Act.
Sri M. Suryanarayana Murthy, learned counsel for the Revenue, submitted that on a plain construction of the provisions contained in section 54(1), it must be held that the expression "being buildings or lands appurtenant thereto" should necessarily refer only to that extent of land which is reasonably required for purposes of proper enjoyment of the house. According to the learned counsel, if a house stands on a vast extent of land, it would be improper to consider the entire extent of land as appurtenant to the building for purposes of section 54. The learned counsel contends that the deduction under section 54(1) is not permitted against capital gain arising on the sale of (entire) land as such, but only against the sale of the building and land appurtenant thereto. Thus, where a building together with land is sold, the learned counsel urges, it is necessary to enquire and determine the extent of land which is required for the purpose of proper enjoyment of the building as such and the appurtenant land can be restricted only to that reasonable extent and cannot be extended to the entire extent of land. Learned counsel draws attention to the Explanation to section 5(1)(ivc) of the W.T. Act, 1957, which was inserted by the Finance Act of 1976 with effect from April 1, 1977. It would be appropriate to extract the Explanation referred to by the learned counsel:
"Explanation.—For the purposes of this clause,—...
(b) 'land appurtenant', in relation to any dwelling unit or units comprising a building, means,—
(i) in an area where there is any law in force providing for the minimum extent of land contiguous to the land occupied by any building to be kept as open space for the enjoyment of such building, the minimum extent of land contiguous to the land occupied by the building comprising such dwelling unit or units required to be kept as open space under such law;
(ii) in any other area, an extent of land not exceeding one-third of the plinth area of the building comprising the dwelling unit or units at the ground level contiguous to the land occupied by such building".
Learned counsel states that the same considerations should prevail for determining the land appurtenant for purposes of section 54 of the I.T. Act also. Learned counsel relied on certain decisions to which we shall presently refer, supporting his contention that the extent of the land appurtenant to a building has to be determined with reference to the facts of each case bearing essentially in mind the extent of land required for proper enjoyment of the building.
Sri Parvatha Rao, learned counsel appearing for the assessee, reiterates the pleas taken by the assessee before the lower authorities. According to the learned counsel, there is absolutely no provocation for restricting the land appurtenant to building to any reasonable extent for purposes of section 54 of the Act. According to the learned counsel, the language of section 54 does not lend support to the Revenue's plea that any enquiry could be conducted for purposes of determining the extent of the land reasonably required for the purpose of proper enjoyment of the house and to treat such reasonable extent only as land appurtenant to the building. Learned counsel states that the Explanation to section 5(1)(ivc) of the W.T. Act relied on by the Revenue cannot be applied for purposes of section 54 of the I.T. Act. Learned counsel further contended that the extent of land in the present case is, in any event, not so extensive as to call for any determination of the land reasonably appurtenant to the building, especially in view of the fact that the building was owned by four co-owners and the total extent of land of 13,029 sq. yards was necessary for the proper enjoyment of the building by all the four co-owners. It was pointed out that there was no material for the authorities below to show that the land contiguous to the building was used for any purpose other than the enjoyment of the house and, consequently, no enquiry was called for.
We may now notice the relevant provisions of the Act. Under section 45 of the Act, any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to Income-tax under the head "Capital gains". The expression "capital asset" is defined in section 2(14) of the Act as meaning property of any kind held by an assessee, whether or not connected with his business or profession. The definition excludes certain categories of capital assets which are not relevant for our purpose. Section 48 of the Act provides that the income chargeable tinder the head "Capital gains" shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the capital asset and the cost of any improvement thereto. Section 54 of the Act, which is relevant for our present purpose, deals with capital gain arising on the sale of property used for residence and it may be usefully extracted below:
"54. Profit on sale of Property used for residence.--Where a capital gain arises from the transfer of a capital asset to which the provisions of section 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 two 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, and the assessee has within a period of one year before or after that date purchased, or has within a period of two years after that date constructed, a house property for the purposes of his own residence, 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,—
(i) if the amount of the capital gain is greater than the cost of the new asset, the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from-its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain".
It is clear from the above provisions that if capital gain arises on the transfer of buildings or lands appurtenant thereto, the income of which is chargeable under the head "Income from house property", and within the specified period an assessee acquires a house property for the purpose of his own residence, then the capital gain shall be reduced by the cost of the new house property. This is the plain effect of the provisions of section 54. The basic requirement is that the capital gain should arise from the transfer of buildings or lands, the income of which is chargeable under the head "Income from house property". If land alone is sold, the provisions of section 54 will have no application, inasmuch as the income from the land is not chargeable under the head "Income from house property". In order to secure the benefit of section 54, it is necessary that the building together with land is transferred and the income from such building and land is chargeable under the head "Income from house property" under section 22 of the Act. Inasmuch as the cost of the new house property acquired by the assessee for the purpose of his own residence is liable to be set off against the capital gain arising on the transfer of the buildings or lands appurtenant thereto, the question arises whether the expression "lands appurtenant thereto" covers the entire extent of land transferred along with the building or only a portion of such land as may be considered appurtenant to the building (emphasis supplied by us). The Revenue contends that the expression "land appurtenant thereto" does not cover the entire extent of land that may be transferred along with the building, but is limited only to the extent of land which is required for the proper enjoyment of the house and may, therefore, be considered as appurtenant to the building. In other words, what the Revenue contends is that if, in a given case, a vast extent of land is also transferred along with the building, it is not permissible to consider the entire extent of land as appurtenant to the building. An enquiry should be conducted for the purpose of ascertaining the extent of land required for effectively and properly enjoying the building and the land appurtenant should be restricted only to that extent and the capital gain ascertained accordingly. The set-off of the cost of the new house property acquired by the assessee for the purpose of his own residence can be made against the capital gain so computed.
The expression "land appurtenant thereto" occurring in section 54 of the Act has not been defined. It must, therefore, be understood in its popular and non-technical sense. It is not possible to accept the Revenue's contention that clause (b) of the Explanation to section 5(1)(ivc) of the W.T. Act, 1957, defining "land appurtenant" for the purpose of that clause should be considered equally applicable for the purpose of understanding that expression occurring in section 54 of the I.T. Act. If the Legislature thought that the same technical meaning given in clause (b) of the Explanation to section 5(1)(ivc) of the W.T. Act should be applied to that expression occurring in section 54 of the I.T. Act, nothing would have prevented the Legislature from doing so. The above Explanation was introduced in the W.T. Act with effect from April 1, 1977, and the I.T. Act has been amended any number of times between 1977 and 1984, and yet the Legislature did not think it fit to define the expression "land appurtenant thereto" occurring in section 54 of the I.T. Act in terms identical to clause (b) of the Explanation to section 5(1)(iv c) of the W.T. Act. It is interesting to find that the above Explanation in the W.T. Act is only for the purpose of section 5(1)(ivc) because it is specifically stated so. That Explanation can have no application for any other purpose in the W.T. Act itself. It is therefore, difficult to accept the Revenue's contention that the above technical meaning in clause (b) of the Explanation to section 5(1)(ivc) of the W.T. Act should be extended to section 54 of the I.T. Act. It must also be remembered that we are dealing with the Income-tax assessment year 1964-65 and the amendment in the W.T. Act came into force only on April 1, 1977. It is equally difficult to accept the assessee's contention that whatever be the extent of land transferred along with the house, should be considered appurtenant to the building. The fallacy in this contention will be apparent if we take into account the fact that the land contiguous to a building can be used for purposes other than the enjoyment of the building. Take for instance a case where a part of the land contiguous to the building is independently leased for a fire-wood depot. The land contiguous to the building may be so vast in its extent that a person can conveniently lay out the surplus extent of land into plots and sell those plots without causing detriment to the proper enjoyment of the building. Could it be said that, in these cases, the land leased for a firewood depot or sold by laying out into plots constituted land appurtenant to the building? We do not think so. There is force in the contention of the learned standing counsel for the Revenue that the expression "land appurtenant thereto" occurring in section 54 of the Act is a matter of enquiry depending upon the facts and circumstances of each case and the authorities must determine the extent of land that is considered to be appurtenant to the building based on some acceptable criteria to which we shall advert a little later.
Our attention has not been drawn to any decided cases on this point under the I.T. Act or, for that matter, under the W.T. Act. We have already stated that the expression "land appurtenant thereto" occurring in section 54 of the Act is used in a broad, popular and non-technical sense and it must be so understood.
We may now examine some decisions bearing on this point arising under different enactments. In Palaniappa Chettiar v. Vairavan Chettiar [1960] 1 MLJ (Sh. N.) 29, a case arising under the Madras Buildings (Lease and Rent Control) Act, the Madras High Court held that the word "appurtenant" includes all structures of property abutting or adjacent to the main tenement or property, which are proper and necessary for its due enjoyment.
In Trim v. Sturminster Rural District Council [1938] 2 KB 508; 2 All ER 168 (CA), which arose under the Housing Act, 1936, the meaning of the expression "house" turned out to be significant. Under section 188 of the said Act, that expression was defined as including "any yard, garden, outhouses, and appurtenances belonging thereto or usually enjoyed therewith". The question arose whether a cottage and ten acres of adjoining grass land came within the expression of "house" for the above purpose. It was held that it was not the cottage together with the whole of the ten acres of land, but only the cottage with its outhouses, yards, curtilage and gardens, that constituted the "house" within the definition, inasmuch as the term "appurtenances" was there used in its well-established legal sense as including only such matters as outhouses, yards and gardens, and not land as meaning a corporeal hereditament. It was further held that the question as to exactly how much of the ten acres ought to be included in the appurtenances of the cottage and, therefore, in the "house" was one for the decision of the county court judge, his decision to be confined, however, to matters which, on the face of it, would be something considerably less than the whole of the ten acres.
We may notice the judgment of the Madras High Court in Irani v. Chidambaran Chettiar, AIR 1953 Mad 650. The matter arose under the Madras Buildings (Lease and Rent Control) Act, 1946. The question in that case was whether the 1st defendant was a "tenant in possession of a building" within the meaning of the Act. He would be a tenant of a building if what was leased to him was within the definition contained in the Act. The word "building" is defined in the Madras Act as meaning "any building or hut or part of a building or hut let or to be let separately for residential or non-residential purposes and includes: (a) the garden, grounds and outhouses, if any, appurtenant to such building, hut or part of such building, or hut and let or to be let along with such building or hut, (b) any furniture supplied by the landlord for use in such building or hut or part of a building or hut". After considering the legal and popular meaning of the expression "appurtenant", Satyanarayana Rao J. observed at page 655 of the report as under:
"The meaning of the word 'appurtenant' given in the Oxford Dictionary is:
'Belonging as a property or legal right; constituting a property or right subsidiary to one which is more important; appertaining as if by right to; proper, suited or appropriate to; relating to, pertinent".
That is the primary meaning of the word 'appurtenant'. In Budhi Mal v. Bhati, AIR 1915 All 459, "an appurtenance" is defined as an appendage, an adjunct, or something belonging to another thing as principal and passing as an incident to it. In Trim v. Sturminster Rural District Council [1938] 2 KB 508; 2 All ER 168 (CA), the learned judge considered the meaning of the word 'appurtenance' at pages 515 and 516 (of [1938] 2 KB) and observed that the word 'appurtenance' had never been extended to include land, as meaning a corporeal hereditament, which does not fall within the curtilage of the yard of the house itself-that is, not within the parcel of the demise of the house. That may be so. In the definition contained in the Act, the grounds and outhouses, if any, appurtenant to such building are included in the definition. As pointed out in Thomas v. Owen [1888] 20 QBD 225 (CA) at pp. 231, 232, the word 'appurtenance' has also a secondary meaning as equivalent to 'usually occupied' and this was cited with approval in Woodfall on Landlord and Tenant. If from 1914 this entire ground was occupied for the purpose of continuing the superstructure along with the building belonging to the lessor and the whole of it is treated as one unit, the site may be treated as an appurtenance in the secondary sense of the word."
In a separate but concurring judgment, Raghava Rao J. observed at pages 658 and 659 of the report as under:
"In my opinion the word 'appurtenant' occurring in the definition of 'building' in the Act with which we are concerned is used in the broad, secondary and non-technical sense of 'relating to', 'usually enjoyed or occupied with' and 'adjoining' just noticed by me. The idea of the legislature seems to be that if grounds appurtenant to the building in this sense are let along with the building they should stand attracted to the operation of the Act. That the grounds should also be let along with the building would not be a matter of specific provision in the definition of the statute, if the primary or legal sense of the word 'appurtenant' were intended, as in that case anything appurtenant to another in that sense would pass with it under the demise whether specifically let or not along with it. It is settled law that where a word admits of senses more than one, that sense is to be adopted which best harmonises with the context and promotes in the fullest manner the policy and object of the legislature. The paramount object in construing statutes is to ascertain the legislative intent and the rule of strict construction is not violated by permitting the words to have their full meaning, or the more extensive of two meanings best effectuating the intention. They are indeed frequently taken in the widest sense, sometimes in a sense more wide than etymologically belongs or is popularly attached to them in order to carry out effectively the legislative intent, or to use Lord Coke's words 'to suppress the mischief and advance the remedy' (vide Maxwell on the Interpretation of Statutes, 9th edition, by Sir Gilbert Jackson, 280)".
It is clear from the observations of Satyanarayana Rao J. and Raghava Rao J. above referred to that, if the expression is used in the Act in a primary sense, then the meaning attached to that primary sense must be given irrespective of other considerations. We have already stated that the expression "land appurtenant thereto" was defined in a primary sense for purposes of section 5(1)(iv c) of the W.T. Act. It would follow that the expression occurring in section 5(1)(iv c) should be understood in that primary sense and it is not open to the courts to impose any other considerations. Where, however, the expressions used convey more than one sense a primary and secondary sense that sense. is to be adopted which best harmonises with the context and promotes in the fullest manner the policy and object of the Legislature. In our opinion, the expression "land appurtenant thereto" has also a secondary meaning as equivalent to "usually enjoyed or occupied with". There is no indication that the Legislature used the above expression in section 54 of the I.T. Act limiting its sense and meaning artificially to any particular extent. Considerations governing the limitations imposed upon the meaning of that expression under sister enactments like the W.T. Act and the Urban Ceiling and Regulation Act, 1976, cannot be imported into section 54 of the I.T. Act. In our opinion, that expression is used in section 54 of the I.T. Act in a wider sense. It is, therefore, imperative that the tax authorities will have to determine the extent of land appurtenant to a building transferred, taking into consideration a variety of circumstances that may be relevant for the purpose. It is not possible to lay down infallible tests to be applied for the determination of the extent of land appurtenant to a building, as the tests vary depending upon the facts and attendant circumstances of each case. For instance: (1) If the building together with the land is treated as an indivisible unit and enjoyed as such by the persons occupying the building, it is an indication that the entire extent of land is appurtenant to the building; (2) If the building has extensive lands appurtenant thereto and even if the building and the land have been treated as one single unit and enjoyed as such by the occupiers, an enquiry could be made to find out whether any part of the land contiguous to the building can be put to independent user without causing any detriment to the effective and proper enjoyment of the building as such. Such an enquiry should be conducted not based on any artificial considerations but from the point of view of the persons occupying the building. The number of persons or different branches of families residing in the building, the requirements of the persons occupying the building consistent with their social standing, etc., are relevant for the purpose. If any surplus is arrived at on such enquiry, then the extent of such surplus land may not qualify to be treated as land appurtenant to the building; (3) If there is any evidence to indicate that any portion of the land contiguous to the building was put to user other than the enjoyment of the building, then that provides a safe indication regarding the extent of land put for such user' For instance, the land used by the occupiers for commercial, agricultural and horticultural purposes, although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to the building; (4) If the owner or occupier is deriving any income from the land which is not liable to be assessed as income from house property under section 22 of the I.T. Act, then the extent of such land does not qualify to be treated as land appurtenant to the building, and (5) any material pointing to the attempted user of the building for purposes other than the effective and proper enjoyment of the house would also afford a safe guide to determine the extent of surplus land not qualifying to be treated as land appurtenant to the building.
The above tests are illustrative and by no means exhaustive. It is for the tax authorities to apply their mind properly to the facts of each case and to devise tests suitable and appropriate to each case.
In the present case, it is stated that the total extent of land is 13,029 sq. yards and this included the land on which the building is constructed. It is also stated that four co-owners are separately residing in this building prior to its acquisition. Although the AAC did not spell out how the land appurtenant should be determined, he merely directed the ITO to make an enquiry to determine the extent of land that is reasonably appurtenant to the building. We do not find any error in the direction given by the AAC. While it is true, as Sri Parvatha Rao, learned counsel for the assessee, contends, that there is no material on record to indicate that the land was put to any non-residential user and the building and land was not treated as a single unit in the past, it is clear that the ITO did not apply his mind to the matter. If the ITO applies his mind and makes an appropriate enquiry to determine the extent of land appurtenant to the building in the present case, he may conceivably come to a conclusion that the entire extent of land appurtenant to the building could be treated as "land appurtenant" to the building. We see no reason why this enquiry directed by the AAC should be shut out, inasmuch as there is no legal infirmity in giving a direction to the ITO to make an appropriate enquiry. In our opinion, the Tribunal was in error in coming to the conclusion that the AAC was not justified in directing the ITO to enquire into the matter for the above purpose.
In the absence of necessary details, it is not possible for this court to indicate any answer to the question referred, that is to say, whether the entire land or any part of it could be treated as appurtenant to the building for the purpose of applying the provisions of section 54 of the I.T. Act. We, therefore, return the reference unanswered with a direction that the ITO shall make an enquiry into the matter bearing in mind the principles set out above and come to an appropriate conclusion regarding the extent of land appurtenant to the building. The assessee will be entitled to adduce necessary evidence during the course of such inquiry.
Date of Issue: 13/7/1989
Section(s) Referred: 64
Statute: Income-Tax Act
[2] Exemption of capital gain arising on sale of property used for residence.
Section 54 of the Income-tax Act, 1961, provides for exemption in respect of capital gain arising from the transfer of a long-term capital asset, being a residential house, the income of which is chargeable under the head "Income from house property", if the conditions laid down in the said provision are fulfilled.
2. Under section 23(2) of the Income-tax Act, as amended by the Finance Act, 1986, the annual value of one house in the occupation of the owner for purposes of his own residence is taken as nil. A question has been raised whether capital gain arising from the transfer of such a house property would be entitled to exemption under section 54 of the Act.
3. The question appears to have been raised because of the words underlined in para. 1 above. As the annual value of a self-occupied house would be taken to be nil by virtue of section 23(2) of the Act, an Assessing Officer may take the plea that the income of such a house is not chargeable under the head "Income from house property".
4. The Board is of the view that such a construction of the aforesaid provision in section 54 of the Act is not correct. Income from a self-occupied residential house is chargeable under the head "Income from house property", even though in certain circumstances such income may be computed at nil or at a negative figure of virtue of section 23(2) read with section 24 of the Act.
5. Thus, a person shall be entitled to claim exemption under section 54 of the Act even in respect of a self-occupied residential house.
Guest
Guest
(Querist)
28 September 2007
I was highly delighted with your response.. Let me understand, whether the Act specifically said the House property must situate in India. Because the above case law highlighted the word "appurtenant but didnot explains its situation. Kindly explain me... I thank you very much. The other reated doubts were resolved with your response. I thank you very much..
29 September 2007
word appurtenant comes from the defination of house property as per the Head Income from House Property, which is clear that No Income of house property is taxable if property is outside India.
Therfore its clear that HP should be in India Only.
In any case if house sold is situated outside India then the gain is taxable only in the hand of resident assessee and definitely he mayget benefit of sec 54
Therfore its clear that HP should be in India Only.
In any case if house sold is situated outside India then the gain is taxable only in the hand of resident assessee and definitely he mayget benefit of sec 54
Guest
Guest
(Querist)
01 October 2007
Wow! thats great!... can u give me any case law regarding...In any case if house sold is situated outside India then the gain is taxable only in the hand of resident assessee and definitely he may get benefit of sec 54
06 November 2007
If you want the gist please post your address. I will courier.
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