Facts of the Case

The assessee, an individual, filed her return of income for Assessment Year 2015-16 declaring total income of ₹14,36,970. During the year, the assessee sold a parcel of land described in the sale deed as “open land” and claimed exemption under section 54 of the Income-tax Act, 1961 on the long-term capital gains arising therefrom.

The Assessing Officer observed that section 54 applies only where a residential house property—being a building or land appurtenant thereto—is transferred. Since the sale deed clearly showed transfer of only open land without any residential structure, the Assessing Officer disallowed the exemption claimed under section 54 amounting to ₹68,45,580. The learned CIT(A) confirmed the disallowance.

 

Issues Involved

  1. Whether sale of open land, without transfer of the residential building, qualifies for exemption under section 54.
  2. Whether land once appurtenant to a bungalow retains the character of “residential house property” when sold independently.

 

Petitioner’s Arguments

The assessee contended that the land sold was part of the residential property and was appurtenant to a bungalow originally held by the family. It was argued that merely describing the land as “open land” in the sale deed should not change its character as residential property. Reliance was placed on judicial precedents including P.K. Lahri v. CIT (Allahabad High Court) and C.N. Anantharam v. ACIT (Karnataka High Court) to claim exemption under section 54.

 

Respondent’s Arguments

The Revenue argued that section 54 clearly requires transfer of a residential house, and where only land is sold independently without the building, exemption is not available. It was contended that the assessee sold only a plot of land capable of independent use, while the bungalow continued to remain with the assessee. Reliance was placed on decisions such as M. Anil v. ITO, CIT v. Zaibunnissa Begum, and other Tribunal and High Court rulings holding that sale of land alone does not qualify for section 54 relief.

 

Court Order / Findings

The Income Tax Appellate Tribunal held that the facts of the case clearly established that the assessee sold only open land, while the residential bungalow remained in her possession. The Tribunal observed that even if the land was earlier appurtenant to the bungalow, once it is severed and sold independently, it loses the character of residential house property.

The Tribunal distinguished the case laws relied upon by the assessee and agreed with the settled legal position that sale of land without the residential building amounts to sale of adjacent land and not residential house property. Accordingly, the Tribunal upheld the findings of the Assessing Officer and the CIT(A) and confirmed that section 54 exemption was not available.

 

Important Clarification

The Tribunal clarified that the expression “land appurtenant thereto” under section 54 is fact-specific and applies only when land is transferred along with the residential building. Where land is sold separately and is capable of independent enjoyment, the transaction does not qualify as transfer of a residential house. The appeal was accordingly dismissed.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1770879701_SUCHITRATANDONPRAYAGRAJVS.ASSISTANTCOMMISSIONEROFINCOMETAXCIRCLE2ALLAHABADALLAHABAD2.pdf 

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