Shed Of 500 Mtr. On Agricultural Land Can't Be Considered As Residential House, Section 54F Exemption Not Allowable: ITAT

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has denied the exemption under Section 54F of the Income Tax Act on the 500-meter shed made on agricultural land that cannot be considered a residential house.

The bench of Kul Bharat (Judicial Member) and B. R. R. Kumar (Accountant Member) has observed that the size of the residential house is not a criteria for claiming exemption under Section 54F. The very fact that there existed any residential house and whether the assessee constructed any house subsequent to the purchase of the land has not been proved in this case. At the same time, it has also been proved by the Revenue that there is no such residential dwelling or residential house that is entitled to exemption under § 54F. Thus, based on the evidence collected, collated, examined, verified, and investigated by the department, the covered area, which is 500 m2 of agricultural land, cannot be considered a residential house.

Section 54F offers an exemption from long-term capital gains tax on the sale of non-residential assets when the gains are reinvested in a new residential property within a specified timeframe.

The appellant/assessee sold a property known as Taj Land for a consideration of Rs. 3,23,88,500 to Taj Real Estate Pvt. Ltd. The assessee had purchased different small lands in November 2007 from different persons (totaling 10 different deeds), which were sold under a single registry to Taj Real Estate Developer.

The assessee, in support of his claim under Section 54F, has furnished a copy of the registered deed purchased by the assessee jointly in the names of Meenu Gupta, Nirmal Garg, and Shri Himanshu Garg (assessee). On perusal of the registry, it is observed that the purchased property is a land of approximately 1 acre, comprising a constructed area of 500 sq. ft. The total cost of the property paid by the co-owners was Rs. 5,41,36,367. The share of the assessee in the property is 47.5/119 of the total land and constructed area.

As per the documents of the registry of the property, it is observed that the claimed property was mainly a land of about one acre in size, where a covered area of 500 sq. ft. is also stated to be situated. It is nowhere mentioned in the registry that the constructed building is a residential house. The registry mentions a covered area of 500 sq. ft., or a "Makan." It does not say “Rihayshi Makan,” or residential house. Thus, the department denied the claim of the assessee under Section 54F, as it was not evident from the documents.

The inspector of the office was directed to visit the property to ascertain the correctness of the claim of the assessee. On his visit to the property, he found that a concrete-brick manufacturing unit was being run by one Shri Bharat Bhushan under the name of M/s Surabh Ferrocon.

The assessee was shown cause to prove his claim under Section 54F. The assessee submitted that the assessee had obtained a domestic connection of 1 KW after the purchase of the property, which proves that the said building was a residential house. The premise was purchased by the assessee with a view to relocating with his parents by using the entire land and the said building as a residential house.

The assessee also relied on the registered documents, where it is mentioned that the said property comprises an area of 500 square . feet of constructed building. As far as the approval of construction for a residential house, it was mentioned that there was no need on the part of the assessee to obtain any approval of construction since he had bought an already constructed house. The assessee has also submitted a certificate from Town and Country Planning dated December 1, 2016, which says that the said land is residential land. As per the letter plot in Khasra No. 257–258 sector 104, Gurgaon is shown as a part of residential land in the Master Plan of Gurugram. Further, the assessee has also relied upon the Khasra issued by the Patwari, where it is mentioned that a “Makan” is also situated in the khasra of agricultural land purchased by the assessee. The property where an electricity connection of 45 KV was taken by the assessee in 2016 has been stated to have a present status that does not prove that when the property was purchased, it was not a residential house.

The tribunal noted that the inquiries conducted by this office, therefore, establish that the claimed investment of Rs. 1.84 crore was not in the purchase of a residential house but was for the purchase of land. It may be seen that the nature of the property purchased by the assessee is not a residential house but an urban agricultural land where some constructed area was existing when the assessee purchased it. The structure may have been used for any purpose, but there is nothing on record to prove that it was a residential house. For claiming exemption of Rs. 1.84 crores under Section 54F, the assessee has made an investment jointly with two other buyers in a 500-square-foot constructed area whose market value as per the registrar was Rs. 3,25,000/- and on which stamp duty of Rs. 20,500/- was charged from the buyers. It is obvious that the investment was primarily in the land and not in the residential house, as claimed by the assessee. The total area of the land was about 45,000 sq. ft., and the covered area was 500 sq. ft., as per the registry.

The tribunal held that the claim of the assessee for exemption under Section 54F has been rightly denied by the Assessing Officer.

Counsel For Appellant: Niraj Jain

Counsel For Respondent: Vivek K. Upadhyay

Case Title: ACIT Versus Himanshu Garg

Case No.: ITA No. 819/Del/2020

Click Here To Read The Order