Thursday, March 26, 2015

Sec. 54 relief allowed on cap gain from land, viz, long-term asset, though flat that existed on it was short-term asset


Where assessee constructed a building on land, which was long-term capital asset even though said building was short-term capital asset, assessee was entitled to claim benefit of section 54 to the extent capital gain attributable to land.

Facts:


a)Assessee transferred a building (used for residential purposes) within 3 years of its purchase which was constructed on a land, viz, long-term capital asset.

b)Assessee claimed exemption under Section 54 in respect of investment made by him in another residential house to the extent capital gain attributable to sale of land.

c)The Assessing Officer (AO) opined that capital gain as was attributable to long-term capital asset, viz, land would not qualify for relief under section 54 as the building which existed on the same was a short-term capital asset.

d)The appellate authorities upheld the order passed by the AO. Aggrieved-assessee filed the instant appeal before the High Court. The High Court held in favour of assessee as under:

1)The legislature has defined the meaning of house property as ‘building or land appurtenant thereto’. In view of the aforesaid definition of house property, a land appurtenant to a residential house is entitled to benefit under Section 54. Therefore, if a land appurtenant to a residential house could be entitled to benefit under Section 54, it was difficult to accept that the land on which the residential building was constructed would not be entitled to the said benefit.

2)When a property, i.e., residential house is sold, the sale consideration includes the value of the land and the value of the construction. The AO treated the capital gain on sale of land (on which the residential house was constructed) as a long-term capital gain while the capital gain on sale of building was treated as a short-term capital gain. Therefore, if, for levying tax under the Act, such a distinction could be made, one failed to understand why that distinction would not be kept in mind in extending the benefit under section 54.

3)Therefore, the assessee was entitled to the benefit of section 54 to the extent capital gain attributable to land. - C.N. ANANTHARAM V. ASSISTANT CIT [2015] 55 taxmann.com 282 (Karnataka)
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