Good case
Exemption depends on how you want to claim it
Exemption u/s 54 and 54f can be taken simultaneously.
Shed with roof footing is a house property (according to the definition of building)
"After some years he purchased the adjacent land and constructed a small house and shifted his residence there."
A new house property.
"3. Whether the fresh purchase of land and construction will be taken as improvement or purchase of another house?"
A new house property..
"He rented out the work shed with the machines to some other person."
Must be receving composite rent, i.e for building and machines , are those two let out seperable? That is can you seperate the two rents from the composite rent. If no, then rent from building and machines is to be charged under sec 28 (PGBP) or 56 (income from other sources) (as the case maybe)
If the let outs are seperable, Building is to be assessed u/s 22 and machine rent u/s 56 or 28 (as the case maybe)
"He shisted his own work station to a bigger place in the next street."
He purchased new land. Work station was not in open,was it? Was there any building? If then this is a new property, (but NOT A RESIDENTIAL house property) u/s 22. It shall be under head Profit and gains from business and profession. Cap gain can be utilized for exemption u/s 54f
"He every year constructed rooms and other things."
In house ? Then such an expense is Cost of improvement under Sec 55
"As of now the property has only one door number and is built in such a way that ther is no physical demarcation or space between the two places and looks as one building. ( But has two documents of purchase of land in two different years) Now he intends to sell the house and buy a new poshed house."
As per decision made in CIT v. Kodandas Chanchlomal .House property for the purposes of sec 54 has the same meaning as the concept of house property under ss. 22 to 27 which make it clear that the expression "house property" takes into account an independent residential unit
In accordance with the judgement of this case you can claim the property to be seperate and opt for exemption u/s 54 and 54F. In your case the assesse has documents of different properties and indexation would be different for different units of house property.
Note: For the purpose of sec 54 the part of the property which is being used in business will not be treated as part of residential house property as it is covered in PGBP. Further that part of the property which is let out will also not be treated as part of residential house property. Unless the assesse changes the office of his building and vaccant the part of the property being let out
As per decision made in CIT v. D. Ananda Basappa, (Karnataka High Court) the flats could be treated to be one house if flats/floors had been combined to make one residential unit.
As per this judgement you can claim it to be as a single residential house property and can claim exemption u/s 54
note: For this purpose the part of the property which is being used in business will not be treated as part of residential house property as it covers in PGBP. Further that part of the property which is let out will also not be treated as part of residential house property. Unless the assesse changes the office of his building and vaccant the part of the property being let out
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