Thursday, February 28, 2013

Section 54F is intended to encourage construction of or acquisition of residential house and u/s 54B the assessee must establish that the land was being used for agricultural purpose for a period of two years prior to the date of the transfer

Smt. Asha George vs ITO

Appellant had 1/4th share in 1.10 acres of land in Ayyanthole Village. The same was sold for Rs. 44 lakhs on 14.11.2004. The assessee received Rs.11 lakhs as her share. In her return, she computed her capital gain at nil after claiming indexation on cost of acquisition and cost of improvement and further claiming exemption under Section 54F on the basis of a property purchased at Koothattukulam, a farm house with 1.92 acres of land for Rs.11 lakhs on 28.3.2005. During the course of the assessment proceedings, the appellant took up the contention that she is entitled to exemption under Section 54B of the Act. The tribunal has arffirmed the findings of the authorities that the appellant is not entitled to the benefit of Section 54B for the reason that the property at Ayyanthole Village which she sold was not used for agricultural purposes for a period of two years prior to the date of the sale as required under Section 54B of the Act. It is the further finding of the tribunal that the appellant is entitled only to take Rs.2 lakhs as the cost of acquisition over and above Rs.1 lakh allowed as value of super-structure under Section 54F of the Act.

Aggrieved by the order of ITAT, appeal before Hon`ble High court.

Whether the sale proceeds of the land at Ayyanthole were within the scope of Section 54B of the Income Tax Act  and subsequent purchase of land (at Koothattukulam) in which a farm house is situated satisfied the requirements of Section 54F and/or Section 54B and thus there was no liability to pay any long term capital gains tax on the sale of land at Ayyanthole, in the Assessment Year 2005-06 ?”.

Before high court assessee submit that the approach of the tribunal in denying the benefit of the exemption under Section 54B is unsupportable. There were materials before the authorities indicating that the land at Ayyanthole was indeed being put to agricultural use for a period of two years. In this regard, he drew our attention to certain photographs showing coconut trees. He also relied on the receipt for the water cess. Further more, he drew support from the certificate of the village officer. It is further pointed out that a receipt was produced from the Electricity Board and it was contended that the connection was an agricultural one. He would point out further that the tribunal and the authorities have taken into consideration irrelevant facts. In this regard, he would point out that the fact that the purchaser of the property at Ayyanthole had converted the land and an apartment complex was set up, should not have weighed with the authority in denying the benefit under Section 54B of the Act. The assessing officer also finds that it cannot stand to reason that an agricultural property lying right under the nose of the District Administration could be converted into a commercial complex without any issues. According to the appellant, what is relevant is the use to which the land was put as provided. Still further more, he would submit that the fact that the appellant had not originally set up the claim under Section 54B could not disentitle her from claiming the benefit under Section 54B, if it is otherwise available. It is further contended that the authorities have been influenced by the fact that no agricultural income from the property at Ayyanthole was returned. The finding of the authorities is that neither the appellant, nor her family members have shown any agricultural income in their returns. It is stated that her father was stated to be a business man dealing in supply of meat to the zoo and the mother, a Nurse by profession who earns income from salary and, therefore, they ought to have disclosed agricultural income, if there was any, in their returns.

Further it was also as far as the land at Koothattukulam along with the farm house admeasuring 1 acre 92 cents is concerned, the finding of the tribunal estimating and limiting the value of the plot on which the farm house is located and the value of the land appurtenant thereto and thus the estimating the value of the plot and the land at Rs.2 lakhs and allowing the same in addition to the value of the super structure, may not be the correct view. He would submit that the farm is connected with the enjoyment of the house being an integral part and, therefore, the value of the entire land should have been considered.

On behalf of revenue it was contend that the findings of the tribunal are unexceptionable. No substantial question of law has been made out. He would point out that a perusal of the substantial questions of law would show that there is no substantial question of law raised that the findings rendered are perverse so as to warrant interference under Section 260A of the Act. He would further contend that no reliance can be placed on the photographs. The photographs were not even produced before the assessing officer. The order of the assessing officer is dated 10.12.2009 and it is only before the appellate authority that some photographs were produced. There is no material to indicate as to whether the photographs related to the property in question. He would also reiterate that the conduct of the appellant in not raising the claim under Section 54B of the Act may be borne in mind and the claim under Section 54B of the Act is only raised as an after-thought.
 
Hon`ble high court observed that the order of assessment that the appellant’s late father had applied for sanction for construction of a compound wall before the Thrissur Urban Development Authority. The appellant had claimed in the return, exemption on the basis of Section 54F of the Act. But, during the assessment proceedings, the appellant relied on Section 54B of the Act. In other words, initially the appellant even did not have a case that the land at Ayyanthole was used for agricultural purposes. A perusal of the order of assessment would show that the appellant had produced tax receipt of property and a receipt from the KSEB. The opening and closing meter reading, as per the receipt, is the same. It is also found that tax receipt does not throw light on the nature of the property. It does not say that the tax is levied in respect of agricultural property. The agricultural income been declared in the return, it would have been a circumstance to assist the authorities to conclude that the appellant is entitled to the benefit of Section 54B of the Act. It is true that for the applicability of Section 54B, what the purchaser of the land does with it, may not be relevant. If he puts a land falling under Section 54B of the Act for a non-agricultural use, that cannot be a circumstance to deprive the previous owner of his right to claim under Section 54B of the Act. Equally, the emphasis under Section 54B is the use to which the land is put (In fact, the tribunal has correctly held that it is the user of the land and not the nature of the land that is relevant). In other words, it is not necessary that the land which is transferred, must be an agricultural land as such. The fact that the land is located in an urban area, cannot by itself be relevant to deny the benefit under Section 54B. What is essential is that it must be used for agricultural purposes for a period of two years prior to the date of the transfer.
 
Further the property in the hands of the purchaser was used for putting up an apartment complex. Therefore, we cannot certainly blame the officer for not conducting any inspection. At least, the appellant has not posted us with sufficient materials with reference to which we could have formed an opinion that the nature of the property continued to be such that the officer could have conducted an inspection. The photographs were, no doubt, produced before the appellate authority. But, as rightly pointed out by the learned counsel for the Revenue, the photographs, we must remind ourselves, could be relied on only if it is established that it related to the property. Therefore, it may not be safe for us to overturn a finding of fact in a proceeding under Section 260A of the Act which is premised on a substantial question of law being made out. The other material produced by the appellant before the assessing officer appear to be a self-defeating act, as the receipt of the electric connection, though shown to be for agricultural one, related to the meter which reveals that the opening and closing reading is the same. We must remind ourselves that the requirement of Section 54B of the Act is that the assessee must establish that the land was being used for agricultural purpose for a period of two years prior to the date of the transfer. Certainly, this material does not in any way establish the said facts.
 
As far as the certificate issued by the Agricultural Officer, a copy of which was handed over to us is concerned, we notice that it is seen issued in the year 2012. We do not know on what basis the officer could have given such a certificate. Admittedly, the land was already converted for the construction of an apartment complex. We must also remind ourselves that unlike the decision reported in CIT v. Smt. Savita Rani, where one of the materials was the inclusion of agricultural income in the return, there is no such return filed. At any rate, we cannot on a re- appreciation of all these materials, overturn the findings of facts entered by the tribunal. Unless the finding of fact is perverse or contrary to the weight of the evidence, the law does not permit us to re-appreciate the evidence and interfere. It is no doubt true that no substantial question of law about the finding be perverse is raised. We do not doubt our power to frame an additional substantial question of law, provided one such question arose. But, we are not inclined to think that the finding of fact rendered under Section 54B is perverse. We therefore repel the case under Section 54B of the Act.
 
Further as contended that the officer should have granted, at any rate, the benefit of exemption under Section 54F of the Act in regard to the value of the property, namely the officer should have deducted the entire Rs.11 lakhs paid for purchasing 1 acre 92 cents with the farm house.
 
Hon`ble High court observed that Section 54F is intended to encourage construction of or acquisition of residential house with the aid of the proceeds from the transfer of any long term capital asset, which is not a residencial house. The provision contemplates computing the cost of the residential building, but the value of the plot on which the farm house stands and the land appurtenant could also be considered. The tribunal has categorically found that the appellant has not produced material to show that the entire area of 1.92 acres should be considered as land appurtenant to it. It is in such circumstances, the tribunal made an estimation and directed that the value of the plot on which the farm house is located and the land appurtenant be fixed as Rs.2 lakhs. We are unable to accept the contention of the appellant that the value of the entire land must be considered in arriving at the value of the residential building. We find no illegality committed by the tribunal. It is not open to the appellant to invoke Section 54B of the Act in regard to the rest of the land at Koothattukulam. This is for the reason that the appellant has not been able to satisfy the requirements of Section 54B as already noted by us in regard to the land at Ayyanthole. Therefore, at any rate, there can be no basis for invoking Section 54B of the Act for deducting the value of the land purchased at Koothattukulam. Therefore, we reject the contention of the appellant.

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