1. The assessee is in appeal against the order dated 7-8-1987 of the learned Commissioner of Income-tax (Appeals), Jodhpur for the assessment year 1983-84.
2. The assessee, Shri Shyam Sunder Mukhija, is an Individual who derives income from business of kerosene and tyres under the proprietary name and style of M/s Naraindas Shyamsunder (Dalda), Bhilwara, from running a petrol pump under the name and style of M/s Naraindas Shyam Sunder (PP), Jaipur, from salary from M/s. Navlok Exhibitors (P.) Ltd., Jaipur, share income from five partnership firms and income from interest on deposits. The question involved in this appeal relates to the exemption from capital gains claimed by the assessee under Section 54F of the Income-tax Act, 1961. During the accounting period relevant to the assessment year in question, the assessee sold 800 shares of M/s. Sangam Exhibitors Pvt. Ltd., New Delhi to three parties for Rs. 2,80,000 and earned a net capital gain of Rs. 2 lakhs. The assessee had purchased on 9-1-1984 jointly along with his wife Smt. Santosh Mukhija and father Shri Jaswant Ram Mukhija 3 bighas and 3 biswas (1 Bigha = 3025 s.yd.) of land for a sum of Rs. 45,000 on Pansal House Road, near Industrial area, Bhilwara. The report dated 10-3-1986 of Income-tax Inspector was that this was a farm house consisting of a big swimming pool, a room, latrine and bath etc. and that nobody was living there and now and then, the assessee's father used to visit that place during the day time and sometimes some picnic parties were also arranged there. The conclusion drawn by the Inspector was that this 'farm house' was not used by the assessee or any other persons for his residence and that all the members of the family were residing in the house situated in the city Bazar No. 2. The Income-tax Officer, therefore, sent a letter dated 13-3-1986 to the assessee proposing to disallow the exemption. In that letter, reference was made to the aforesaid report of the Inspector and it was said that it was not a residential house, but only a farm house constructed on agricultural land which had not so far been converted as a residential land by the State Government and residential house could not be legally constructed on unconverted agricultural land. It is also said that the said house was not being used for residential purpose. However, the reply dated 25-3-1986 of the assessee was that the assessee constructed the house which was meant for the residence of the assessee; that it was not let out to any one; that the assessee had constructed it for the purpose of his residence and the swimming pool was part and parcel of the residential house and the assessee did not have any other residential house. It was also said that the assessee was living with his parents in the house belonging to his father. He also enclosed copies of the site plan of the house. Lastly it was said that there was no bar to the construction of the residential house on the agricultural land and that moreover the assessee had applied for its conversion and paid the conversion charges though he had not received any orders. It was also claimed that "no objection" from the UIT had been obtained for its conversion. However, the Income-tax Officer took the view that the construction was not a residential house but only a swimming pool with small supplementary construction to use the swimming pool for picnic parties. The deduction claimed was accordingly disallowed.
3. In appeal, the learned Commissioner (Appeals) confirmed the disallowance on the same ground and hence this appeal.
4. Before us on behalf of the assessee Shri B. Khosla, the learned counsel submitted that out of the total 3 bighas, 3 biswas of land a portion 90' x 70' was earmarked for construction and the rest of the land was also not used for agricultural purpose. He submitted that on the portion so earmarked, a swimming pool 25' x 40' was made and a drawing room, toilet and kitchen, measuring 25' x 25'. He submitted that it was very much a residential house and that a house on agricultural land answered the description of "residential house" as referred to in Section 54F. He submitted that it was only 1 km. from Bhilwara Railway station and that no income was declared as 'S.O.P.' for the assessment year 1985-86 as it was lying vacant. He also submitted that a complete house was constructed thereafter. On the other hand, Shri -H.L. Khandelwal, the learned Departmental Representative strongly relied upon the orders of the income-tax authorities.
5. We have considered the rival submissions. The assessment order shows that the Income-tax Officer had gone through the purchase deed. He stated on the basis thereof that the land had been purchased only for the purpose of owning a joint farm house. That is how the Inspector as well as the assessee referred to there being a farm house. A farm house, according to the dictionary meaning, is a farmer's house attached to a farm. In the present case there is no evidence that there was any farm in existence. The assessee had paid Rs. 7560 on 7-4-1984 as conversion charges. He again paid Rs. 4200 as development charges before the UIT, Bhilwara on 26-5-1984. The expression 'residential house' used in Section 54F has not been defined. The popular meaning of the word 'house' is a place or building used for habitation of man.
"Residential house" is a dwelling house as distinct from a house of business, warehouse, office, shop, etc. In other words, residential house is a building used as a place of abode in which people reside or dwell in contra-distinction to one which is used for commercial or business purposes. A farm house is also a residential house. Therefore, the Income-tax Officer could not take the view that what was in existence could not be called as a residential house. Since a house is called residential house with reference to the purpose of its user, it may not be necessary that somebody should live in it continuously. It is enough if it was a house for residence. The description of the construction, which is not in dispute, shows that it was a complete unit having a big hall, kitchen, toilet and verandah notwithstanding the size of the swimming pool, which was also there. As rightly pointed out on behalf of the assessee, there was no prohibition regarding the construction of a residential house on agricultural land. Therefore, we are of the view that the assessee is entitled to the deduction claimed under Section 54F, there being no other aspect or objection from the side of the Department about the claiming of such deduction. In coming to this finding, we have duly taken into consideration the decisions cited in the order of the Income-tax Officer as well as the learned Commissioner (Appeals). The Assessing Officer is accordingly directed to deal with the matter of assessability of the capital gains taking into consideration the exemption allowable to the assessee under Section 54F.