INCOME TAX ACT, 1961

Section 54

Capital gains - Exemption under section 54 - -

Assessee sold a flat and capital gains arising from sale of the flat was claimed as an exempt under section 54 on account of investment in construction on land purchased by the assessee out of sale proceeds. AO noticed that land purchased by assessee was to the tune of 4973 square feet valued at Rs. 1,24,00,000 but assessee had constructed only 150 square feet.Thus, AO held that only 25% of land being 1243 square feet could be considered to be land appurtenant to the constructed area of 150 square feet for purposes of section 54 and balance of land to the tune of 3749 square feet was held by AO to be not appurtenant to constructed area and ineligible for deduction under section 54. assessee claimed that there was open space which was used for car park, septic tank, garden, etc.Held: Deduction under section 54 is allowable to the extent of investment made in residential property only which should naturally be confined to value of building and land appurtenant to such building. How much land should be treated as appurtenant thereto is a question of fact and depends upon facts and circumstances of each case. In the instant case, assessee held plot of land of 4973 square ft. He had building existing on said plot of land which was even less than 5% of the total plot of land. Thus, it could not be said that rest of the plot of land was appurtenant thereto for enjoyment of the said building. No doubt, open spaces might be integral part but certainly these were not required to enjoy building existing of 150 square feet on plot of land of 4973 square feet. Accordingly, estimation made by AO, i.e., 25% of total plot area to be considered land appurtenant, was not perverse or without any reasonable basis.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 2013-14

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