Smt. Hansa Bai Sanghi Vs. Income-tax Officer - Court Judgment

Excerpt:
1. this is an appeal by the assessee. it is directed against the order of the cit(a)-v, hyderabad, dated 28.3.2002 for the assessment year 1999-2000. "2. the learned commissioner of income-tax is not justified in sustaining the addition of rs. 9,06,652 by way of capital gain on the sale of a house site. 3. the learned commissioner of income tax erred in holding that the appellant was not entitled to exemption under section 54f of the income-tax act. 4. the learned commissioner of income tax should have seen that the appellant has purchased only a single house in two lots under a composite deed and that she has treating it as single house. therefore, the commissioner of income tax should have held that the appellant is entitled to exemption under section 54f of the income tax act. 5. the.....

Judgment:
1. This is an appeal by the assessee. It is directed against the order of the CIT(A)-V, Hyderabad, dated 28.3.2002 for the assessment year 1999-2000.

"2. The learned Commissioner of Income-tax is not justified in sustaining the addition of Rs. 9,06,652 by way of Capital Gain on the sale of a house site.

3. The learned Commissioner of Income Tax erred in holding that the appellant was not entitled to exemption Under Section 54F of the Income-tax Act.

4. The learned Commissioner of Income Tax should have seen that the appellant has purchased only a single house in two lots under a composite deed and that she has treating it as single house.

Therefore, the Commissioner of Income Tax should have held that the appellant is entitled to exemption Under Section 54F of the Income Tax Act.

5. The learned Commissioner of Income tax is not justified in holding that the appellant has purchased two house and that she will forfeit the claim for exemption Under Section 54F of the Income Tax Act.

7. The learned Commissioner of Income tax erred in not following the case law brought to the notice and is not justified in holding that cases sited are distinguishable." Thus, the grievance of the assessee in this appeal relates to denial of exemption in respect of capital gains Under Section 54F of the Act.

3. The assessee filed a return of income for the assessment year 1999-2000 on 30.6.1998, admitting an income of Rs. 57,390. The same was processed under the provisions of Section 143(1)(a) of the Act, on 3.12.1999. Subsequently, it was noticed that the assessee had understated her income, and so, a notice Under Section 148 was issued, and the assessment was reopened. The assessee filed a return disclosing the same income as was disclosed earlier. The reason for having given the notice Under Section 148 was that the assessee had wrongly claimed the relief Under Section 54F of the Income-tax Act, ignoring the provisions of Section 54F(2). This issue requires some elaboration with reference to the facts of the case, which are so under- 4. The assessee sold a plot of land admeasuring 403 sq.yards at Yellareddyguda, Hyderabad on 6.2.1988 for a consideration of Rs. 9,40,000. In the return of income filed for the assessment year 1988-99 on 5.11.1998, the assessee did not mention anything either about the sale of plot or the capital gains arising therefrom. The case was taken up for scrutiny, and when assessee was called upon to explain why the capital gain on the sale of plot was not disclosed, it was explained that the sale proceeds were deposited into Capital Gains Account No.022239 maintained with Bank of Baroda, and that the assessee was entitled to exemption Under Section 54 of the Act. So, the capital gain on the sale of plot was exempted from tax, for the assessment year 1998-99.

5. The assessee utilised the sale proceeds on the sale of plot of land, for the purchase of a house bearing municipal No. 19-5-9/97 (54B MIGH), Bahadurpura Colony, Hyderabad on 1.7.1998 for a consideration of Rs. 3,95,000. The vendor of this house purchased it from the A.P. Housing Board, vide sale deed dated 2.3.1988. When it was bought from the A.P.Housing Board, it consisted of only ground floor. Subsequently, first floor was put up thereon. The assessee purchased this first flor of the building on 15.7.1998. Thus, the ground floor of the building, with built up area of 1750 sq.ft. alongwith 50% undivided share in the land (viz. 171 sq.yds.) was bought by the assessee under the first sale deed dated 1.7.1998 for a consideration of Rs. 3,95,000, and the first floor of the building with a built up area of 1600 sq.ft. alongwith 50% undivided share in land (viz. 171 sq.yards) was bought by the assessee under the second sale deed dated 15.7.1998 for a consideration of Rs. 2,85,000. Both the ground and first floors purchased under two separate sale deeds as noted above, bear the same municipal No. 19-5-9/97 (54B MIGH).

6. In the impugned order for the assessment year 1999-2000, the assessing officer took the view that the ground floor and the first floor constituted two residential houses, even though they bore the same municipal number and as the assessee had bought not one simple residential house, but two residential houses, the provisions of Section 54F(2) were attracted, and that the exemption in respect of capital gains on the sale of plot of land at Yellareddygude, granted for the assessment year 1998-99 had to be withdrawn. His comments in this regard are as under- "The provisions of Section 54F(2) of the I.T.Act, 1961 says that if the assessee purchases within TWO years after the date of Transfer of the original asset, or constructs, within the period of THREE years after such date, any residential house other than the NEW ASSET, the amount of capital gain arising from the transfer of the original asset not charged Under Section 45 on the basis of the Cost of such new asset as per 54F(1)(a)/54(1)(b) SHALL be deemed to be income chargeable under the head 'capital Gains' relating to long-term assets of the previous year in which such residential house is purchased or constructed.

In this case, the assessee has sold the original asset on 6.2.1998 and purchased a new asset on 1.7.1998. However, she has purchased on 15.7.1998, a residential house other than the NEW ASSET WHICH Was purchased on 1.1998. This act of the assessee has squarely made the assessee ineligible to claim the exemption Under Section 54F of the Income-tax Act. The contention of the assessee is that the claim of the Department that two residential houses were purchased is not correct as the building is only one and even the entrance to the house is the same. Registration was done so only for the convenience of the Vendor, but the purchaser was same i..e the assessee. The contention of the assessee cannot be accepted for the following reasons: The house purchased on 1.7.1998 is the ground floor of the bolting for Rs. 3,85,000/- is an independent residential Unit capable of being used as a house in itself. As per the sale deed, the house was purchased by the previous owner from the A.P.Housing Board and the same was under his absolute enjoyment upto the date of sale. Also as per the statement enclosed to the sale deed, it is clearly mentioned that the property, it is seen that the construction was of RCC roof and type of structure was load bearing walls and the actual rent assessed by the local body also is noted. It can also be seen from the blueprint of the Plan of Ground floor (new asset) portion of the house which was purchased by the assessee on 1.7.1998 that the house consists of two halls, two bed-rooms with toilets, kitchen, verandah, Puja Room etc. This itself indicates that the ground floor portion itself is a "House" capable of being let out independently and by the purchase of this house, the assessee has made herself eligible for claiming deduction Under Section 54F. The second house purchased i.e. the first floor portion of the house also is an independent house in itself capable of being let out or occupied independently. By purchasing this house, i.e. a house other than the "new asset" within Two years from the date of transfer of the original asset, the assessee has violated the provisions of the Act, which will result in withdrawal of the eduction already granted to her Under Section 54F for the assessment year 1998-99. The assessee's contention that first floor and ground floor of the house share a common entrance, does not hold any water since having a common entrance itself does not mean that the entire building inside was only one Unit. In this connection, it can also be noted that multi-storeyed building which house apartments, have a common entrance only though each portion therein is an individual residential unit. Thus, it is abundantly clear that the assessee has purchased two houses one on 1.7.1998 and another on 15.7.1998 and thereby made herself liable for withdrawal of eduction Under Section 54F granted to her for the assessment year 1998-99.

Accordingly, the contention of the assessee is not accepted and rejected as not tenable and the eduction claimed and granted to her Under Section 54F for the assessment year 1998-99 is withdrawn now and the Long Term Capital Gains are included in the total income of the assessee for the assessment year 1999-2000." The assessing officer then proceeded to compute the capital gains at Rs. 9,06,652 in the following manner- 7. On appeal, the CIT(A) agreed with the reasoning of the assessing officer and upheld the addition of Rs. 9,06,052. His remarks in this behalf are as under- "4.3 Considering the facts of the case, it is clear that the appellant became a full fledged owner of an independent, self-contained, identifiable as well as transferable property alongwith 50% undivided share in the land representing a complete residential unit, as on 01.07.1998. This is evident from the schedule of the property purchased as annexed to the sale deed dt.

01.07.98.

4.4 The sale deed dt. 01.07.98 shows that the vendor offered to sell and the vendee agreed to purchase the ground floor admeasuring a built up area of 1720 sq.ft. alongwith 50% undivided share in the land (171 sq.yds) together with all rights and easements whatsoever together with all rights, title, interests, etc. authorising the vendee to hold and enjoy the property for ever at her discretion.

The sale deed did not speak of anything relating to the first floor of the property. Rather, the deed specified that the appellant was sold the ground floor free from all encumbrances, charges etc. and she was to be the absolute and exclusive owner entitled to enjoy the entire ground portion of the house by using it in her own way and as per her own desire. There was no mention of either the first floor or a possible link with the future sale of the first floor. In other words, the transfer of the ground floor was complete in all respects and the transaction has nothing to do with the sale of the first floor. Therefore, legally the vendor was free to sell the first floor as an entirely independent transaction to anyone of his choice and there was neither any restriction or any compulsion on his part to sell the first floor to the appellant. Therefore, the transfer of the ground floor was a totally free and unqualified act which had nothing to do with the subsequent sale of the first floor. The fact that the appellant, like any other person, also purchased the first floor with the remaining 50% undivided share in the land subsequently on 15.07.1998 in an entirely independent transaction, would not mean that the second transfer on 15-07-98 was nothing but culmination of the first transfer on 01.07.98. Had the property been registered with the entire land and only the ground floor in the first instance, perhaps, the appellant could have claimed that a single property was registered on different occasions part by part.

But, the fats of the case are otherwise, therefore, the decisions cited by the learned Authorised Representative have no application in the present case.

4.5 Thus, the appellant was the full fledged owner of the now asset (the ground floor) as on 15.07.98 when she purchased the first floor as an entirely independent property for which there was no bar for anyone else to buy the same. Accordingly, the property purchased on 15.07.98 was an additional acquisition thereby disqualifying the appellant from availing the benefit of exemption Under Section 54F of the Act.

4.6 Keeping in view the facts and circumstances of the case, it is held that the Assessing Officer was justified in disallowing the claim of the appellant Under Section 54F of the Act. Therefore, the assessment order does not need any interference." Aggrieved by the above orders of the Revenue authorities, the assessee preferred this second appeal before us.

8. There is no dispute before us about the quantum of capital gains on the sale of the vacant plot of Rs. 9,40,000, but the only dispute is whether the ground floor and first floor bought through separate sale deeds, constituted one residential house or two separate residential houses, and whether the provisions of Section 54F(2) are attracted in the facts and circumstances of the present case.

9. Before us, the learned counsel for the assessee reiterated the contentions urged before the Revenue authorities. He explained that when the vendee purchased the house from the A.P. Housing Board, he acquired only ground floor and he subsequently put up the first floor thereon, and that there was only one kitchen for both the floors and the stair-case leading to the first floor was from inside the ground floor. In other words, the first floor had no independent access. It is not a case of both the floors having the same or common access, but it is a case of the first floor having access through the ground floor. He further claimed that both the floors had a common water connection. He further explained that the assessee had to buy the building through two separate sale deeds, only for the convenience of the seller, as otherwise, the seller would have to obtain a clearance certificate from the Income-tax authorities. Simply because the assessee had to go by the convenience of the vendor, it is pleaded, it does not mean that the assessee purchased two residential houses through two separate sale deeds. He also explained that when the assessee bought the floor, only copy of the title deed received from A.P. Housing Board was given as there was no separate title deed in favour of the vendor for the first floor which was not sold at that time, and it was only when the first floor was bought by the assessee, that the title-deed in original received from the A.P. Housing Board was parted by the vendor. He placed reliance on the decision of the Allahabad Court in the case of Shiv Narayan Chaudhuri v. CWT (108 ITR 104) in which it was held that several self-contained dwelling units which are continuous and situate in the same compound and within common boundaries and having unity of the structure could be regarded as one house. He also relied upon the decision of the Bombay Bench of the Tribunal in Smt. Kalwanti D.Alreja v. ITO - (1996) 54 TTJ (Bom) 593 and also the decision of the Ahmedabad Bench of the Tribunal in Balvantram V. Chimna v. ITO - (2001) 72 TTJ(Rhd.)451, in support of the propositions.

10. The learned Departmental Representative, on the other hand, strongly supported the orders of the Revenue authorities. He argued that the assessee had acquired a complete title for a residential house, when the ground floor was bought, and that when she bought the portion on the first floor, she bought an additional self-contained house, entailing the withdrawal of the exemption Under Section 54F, and the inclusion of the said capital gains in the assessment year under appeal. He posed the question whether the assessee would not have claimed any exemption Under Section 54F, if she had not purchased the first floor, and simply purchased the ground floor alone. Evidently, the assessee would have claimed exemption Under Section 54F, when she bought the ground floor. It is claimed that when the additional floor was purchased which is a contained unit and hence constituted separate residential house she attracted the provisions of Section 54F(2), and hence withdrawal of exemption Under Section 54F is justified.

11. We are of the view that the assessee deserves to succeed. Section 54F(2) of the Income-tax Act reads as under: (2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head 'Income from house property", other than the new asset, the 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 residential house is purchased or constructed.

It is evident from the language of the section that the provisions of Section 54F(2) are attracted when the assessee purchases within two years or constructs within three years period, another residential house. So, the question is whether the first floor purchased by the assessee in the present case, constituted by itself purchase of a second residential house or whether it is simply an extension of the ground floor. We are of the view that the first floor constituted in the circumstances of the present case only an extend on the ground floor and it is not another residential house. Firstly, it did not bear a separate municipal number. It is a different matter that the vendor would have applied for and obtained a separate municipal number, if he did not sell the same to the assessee, an was actually done. As on the date of purchase of the first floor by the assessee, viz., 15.7.1998, it did not have a separate municipal number. Secondly, the first floor did not have even a separate or independent access. The access to it was only through the ground floor. This is evident from the plan of the ground floor, which may be seen at page-31 of the assessee's paper-book. It is altogether a different matter that the vendor would have put up a separate stair-case, had he not sold the first floor to the assessee, as was done. Similarly, the first floor did not have a separate kitchen as on the date of purchase by the assessee. This is evident from the sketch attached to the sale deed dated 15th July, 1998, which can be seen at page 49 of the paper=book. The first floor had only three rooms, a hall and a verandah, and it had no kitchen. It is again a different mater that but for the sale of the first floor to the assessee, the vendor would have converted one of the rooms into a kitchen or constructed a separate kitchen, but as on the date of purchase of the first floor, it did not have a kitchen. In the circumstances, the first floor cannot be regarded as a separate residential house. It is only the convenience of the vendor that promoted the purchase of the ground and first floors by the assessee through two separate sale deeds. The proximity of the dates of the two sale deeds, viz. 1.7.1998 and 15.7.1998, clearly indicates a design to artificially split a single transaction into two whether the parties have violated any other law in the process of that artificially splitting is altogether a different issue, and it has no bering on the determination of the issue involved in the present appeal. We are of the view that the question is not whether the assessee obtained a complete title for a residential house when he bought the ground floor under the first sale deed dated 1.7.1998. Obviously, the said sale deed dated 1.7.1998 conferred a complete and perfect title on the house.

That does not mean that the assessee acquired a separate residential house when she bought the first floor by the separate sale deed dated 15.7.1998. The second sale deed also conferred a complete and perfect title, but that is only in respect of what we regard as an extension to the ground floor, and not to a separate residential house.

12. We are also of the view that the case-law cited by the learned counsel for the assessee supports her case. In the case of Smt.

Kalwanti D. Alreja v. ITO (1996) 54 TTJ (Bom) 593 considered by the Bombay Bench of the Tribunal, the assessee claimed exemption Under Section 54F. She utilised the capital gains arising on the sale of shares for the purchases of 1/5th share in the house in which she already had 2/5 undivided share. The Revenue authorities disallowed the claim for exemption Under Section 54F mainly on the ground that the assessee was already having 2/5th share in the same property, and so, the assessee owned a residential house on the date of transfer of the original asset, and so was hit by the proviso to Section 54F(1). The Tribunal held that assessee was entitled for exemption Under Section 54F. It observed that in order to deny exemption, the assessee must own an identifiable residential unit. In other words, Tribunal held that the 2/5th undivided share owned by the assessee did not constitute an identifiable residential house. The Tribunal illustrated this point with an example and observed as under- "10. Take an example. X constructs a house on a plot owned by him.

First year he sells shares and construct ground floor of the house.

Next year again he sells the shares and construct first floor.

Benefit Under Section 54F cannot be denied just because X in the first year owns ground floor of the house. The meaning of the word owns on the date of transfer of original asset is in relation to an identifiable different asset and not in respect of the same unit.

Therefore, in our opinion conditions precedent for availing the benefit of Section 54F did exist in the facts and circumstances of the case. We therefore, direct the AO to allow the benefit of Section 54F to the assessee. In view of this finding it is not necessary to decide the other issues. We, therefore, decline to comment over the same.

We have also considered a decision of the Bombay Bench of the Tribunal in the case of Gulshanbanoo R. Mukhi (Mrs.) v. Jt. CIT - 83 (ITD 649), which apparently is against the assessee. But, that is a case where another/second residential house was purchased, and the facts of that case are not on par with those of the present case. So, we are of the view that this case is distinguishable. For these reasons, we hold that the denial of exemption Under Section 54F to the assessee is not justified. Consequently, orders of the Revenue authorities are set aside and the addition of Rs. 9,06,652 is deleted.