COMMISSIONER OF INCOME-TAX VS M. ICALPAGAM
1999 P T D 2480
[227 I T R 733]
[Madras High Court (India)]
Before K.A.- Thanikkachalam and N V. Balasubranwnian, jj
COMMISSIONER OF INCOME-TAX
Versus
M. ICALPAGAM
July Tax. Case No. 9g4 of 1984 (Reference No-880 of 1984), decided on 18/01/1996.
Income-tax---
----Capital gains---Exemption---Sale of building and land appurtenant thereto and construction of another building for residence ---Meanin of and appurtenant thereto"---She of property more than twenty years back-- Property situate at a distance from city---Finding that entire extent of land adjoining residence was used as pathways, servant quarters, etc.---Entire land was appurtenant to building---Indian Income Tax Act, 1961, S-54.
The question whether certain land is appurtenant to a house is one of fact. The following five tests can be applied to understand the meaning of the words "land appurtenant" more precisely: (1) If the building together with the land is treated as an indivisible unit and enjoyed as such by the persons occupying the building, it is an indication that the entire extent of land is appurtenant to the building; (2) if the building has extensive lands appurtenant thereto and even if the building and the land have been treated as one single unit and enjoyed as such by the occupiers, an enquiry could be made to find out whether any part of the land contiguous to the building can be put to independent user without causing any detriment to the enjoyment of the building as such. Such an enquiry should be conducted not based on any artificial considerations but from the point of view of the persons occupying the building. The number of persons or different branches of families residing in the building, the requirements of persons occupying the building, consistent with their social standing, etc., are relevant for the purpose. If any surplus is arrived at on such enquiry, then the extent of such surplus land may not qualify to be treated as land appurtenant to the building; (3) if there is any evidence to indicate that any portion of the land contiguous to the building was applied to user other than the enjoyment of the building, then that provides a safe indication regarding the extent of land applied for such user. For instance, the land used by the occupiers for commercial or agricultural purpose although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to the building; (4) if the owner or occupier is deriving any income from the lands which is not liable to be assessed as income from house property under section 22 of the income Tax Act, 1961, then the extent of such land does not qualify to be treated as land appurtenant to the building; and (5) any material pointing to the attempted user of the land for purposes other than the effective and proper enjoyment of the house would also afford a safe guide to determine the extent of surplus land not qualifying to be treated as land appurtenant to the building. The above tests are illustrative and by no means exhaustive. It is for the tax authorities to apply their mind properly to the facts of each case and to devise tests suitable and appropriate to each case.
The assessee sold a property comprising a house and land measuring 10 grounds and 29 sq. ft. for a sum of Rs.2,70,000 in the assessment year 1975-76. With the proceeds the assessee constructed a new house and claimed relief under section 54 of the Income-tax Act in the computation of capital gains exigible to tax. The Income-tax Officer was of the opinion that applying the norms of the Urban Land Ceiling Act, only an area of 2 grounds and 580 sq. ft. could be taken as land appurtenant to the building and the balance of the vacant land should be treated as a separate asset. Accordingly, the Income-tax Officer apportioned the sale consideration of Rs.2,70,000 as Rs.1,10,000 for the value of the building and the appurtenant land so restricted by him and the balance of Rs.1,60,000 relating to the piece of the vacant land. The Tribunal found that the building was of an odd size with projections in different directions and the surrounding area of land had been marked id an economical manner because eve a perfect rectangle to cover that building would have been larger than the quadrant actually made to circumscribe that building. The Tribunal found that there was a car porch, a covered sit-out, a lawn with flower beds, outhouse, cowshed and others in that appurtenant land. The driveway from the road to the building alone occupied 6,750 sq. ft. The building was situated in an area of 4,500 sq. ft. The balance 7-1/2 grounds was situated in-between the sit outs, cowshed, gardens, etc., and could be considered as part of the courtyard. The building was an old one situated far away from the city. Therefore, the Tribunal came to- the conclusion that no .part of the land-could be separated and treated as a separate asset and the entire property sold should be treated as one unit of land and building. On a reference:
Held, that on considering the facts arising in this case and after looking into the plan of the building, the Tribunal came to the conclusion that the entire extent of ten grounds and 29 sq. ft. was used by the owner of the property by way of residence, pathway, sitouts, servants quarters, cowsheds, etc. he property was sold, about twenty years ago. The fact that the property was situated far away from the city and the standard of living at that time had to be taken into account. The Tribunal was justified in treating the entire extent of land of ten grounds and 29 sq. ft. as appurtenant to the main building.
CIT v. Zaibunnisa Begum (1985) 151 ITR 320 (AP); Kalipada Ghosh v. Tulsidas Dutt AIR 1960 Cal. 467 and Larsen and Toubro Ltd. v. Trustees of Dharmamurthy Rao Bahadur Calavala Cunnan Chetty's Charities (1988) 4 SCC 260 ref.
C. V. Rajan for the Commissioner.
A. C. Muthanna for the Assessee.
JUDGMENT
K. A. THANIKKACHALAM, J.---In compliance with the order of this Court, dated-November 8,1982, the following questions are referred by the Tribunal for the opinion of this Court under section 256(1) (sic) of the Income-tax Act:
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in confirming the deletion of capital gains of Rs.1,47,638 arising on the sale of lands measuring 7 grounds and 1,878 sq. ft. not treated as appurtenant to the building, from the assessment of the assessee for the assessment year 1975-76?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding and had valid materials to hold that the entire 10 grounds and 29 sq. ft. should be taken as the land appurtenant to the building and, therefore, the entire capital gains is exempt under section 54 of the Act for the assessment year 1975-76?"
The assessee is an individual. The assessee sold a plot of land measuring 10 grounds and 29 sq. ft. for a sum of Rs.2,70,000 in the assessment year 1975-76. With the proceeds, the assessee constructed a new house and claimed relief under section 54 of the Income-tax Act in the computation of capital gains exigible to tax. The Income-tax Officer was of the opinion that applying the norms of the Urban Land Ceiling Act, only an area of 2 grounds and 580 sq. ft. could be taken as land appurtenant to the building and the balance of the vacant land should be treated as separate asset. Accordingly, the Income-tax Officer apportioned the sale consideration of Rs.2,70,000 as Rs.1,10,000 for the value of the building and the appurtenant land so restricted by him and the balance of Rs.1,60,000 relating to the piece of the vacant land.
On appeal, the first appellate authority found that the house which was situated at Thiruvanmiyur, about eight miles away from the city of Madras, did not fall under the provisions of the Madras City Municipal Act and, therefore, no part of the land could be separated and treated as a separate asset and the entire property sold should be treated as one unit of land and building.
Aggrieved, the Department filed an appeal before the Appellate Tribunal. The Appellate Tribunal found that the building was of an odd size with projections in different directions and the surrounding area of land had been marked in an economical manner because even a perfect rectangle to cover that building would have been larger than the quadrangle actually made to circumscribe that building. The Tribunal found that there was a car porch, a covered sit-out, a lawn with flower beds, outhouse, cowshed and others in that appurtenant land. The driveway from the road to the building alone occupied 6,750 sq. ft. The building is situated in an area of 4,500 sq. ft. The balance of 7-112 grounds is situated in between the sit-outs, cowshed, gardens, etc., and could be considered as part of the court-yard. The building was an old one situated far away from the city. Therefore, the Tribunal came to the conclusion that the vacant land surrounding the main building would form part of and appurtenant to the main building and accordingly it was held that the first appellate authority was correct in holding that no part of the land could be separated and treated as a separate asset and the entire property sold should be treated as one unit of land and building.
Before us, learned standing counsel appearing for the Department submitted that the entire extent of land on which the building is situated would come to 10 grounds and 29. sq. ft. Out of the said extent of the land, the building was constructed on an area of 4,500 ; q. ft. The entire balance of the vacant land cannot be considered as appurtenant to the main property. It was submitted that the Land Ceiling Act is not applicable to the area in which the property in question is situated. Therefore, according to learned standing counsel for the Department, the area appurtenant should be understood as prevalent in common parlance without attributing any technical meaning to the said area. If the word "appurtenant" is understood as prevalent in common parlance, then 7-1/2 grounds which is vacant can be considered as a separate asset and; therefore, the Tribunal was not correct in holding that the entire 10 grounds 29 sq. ft. would form one unit and, therefore, the vacant land surrounding the main building should be considered as appurtenant to the main building. In order to support his contention, learned standing counsel for the Department relied upon a decision of the Andhra Pradesh High Court in the case of CIT v. Zaibunnisa Begum (1985) 151 ITR 320 wherein the Andhra Pradesh High Court has enumerated five tests to understand the meaning of the word appurtenant. Learned standing counsel also relied upon the decision of the Supreme Court in the case of Larsen and Toubro Ltd. v. Trustees of Dharmamurthy Rao Bahadur Calavala Cunnon Chetty's Charities (1988) 4 SCC 260. While considering the word "appurtenant" the Supreme Court held that whether a particular piece of land is appurtenant to the main building or not depends upon the facts and circumstances of each case. Therefore, according to learned standing counsel, the Tribunal was not correct in coming to the conclusion that the entire extent of the land of 10 grounds 29 sq. ft. would form one unit and, therefore, there is no separate appurtenant land to be assessed as a separate asset.
On the other hand, learned counsel appearing for the assessee while supporting the order passed by the. Tribunal submitted that the Tribunal after looking into the plan of the premises concerned came to the conclusion that the entire extent of the land covering ten grounds and 29 sq. ft. was used by the assessee who was in occupation of the main building. According to learned counsel appearing for the assessee, the vacant land surrounding the main building is an inseparable part of the main building. Therefore, it cannot- be separated and assessed separately as not appurtenant to the main building. Learned counsel appearing for the assessee also submitted that the provisions of the Land Ceiling Act cannot be made applicable to the property in question since the said Act came into force much later. Therefore, on the facts the Tribunal came to the conclusion that the 10 grounds and 29 sq. ft. was used by the assessee while in occupation of the main house and, therefore, the 7-1/2 grounds cannot be considered as a separate unit to be assessed separately and. as a separate asset.
We have heard learned standing counsel for the Department as well as learned counsel appearing for the assessee. The assessee is an individual. In the assessment year 1975-76, the assessee sold her property situated at Thiruvanmiyur for a sum of Rs.2,70.000. The extent of the property is 10 grounds and 29 sq. ft. The building occupies an area of 4,500 sq. ft. There is a pathway leading from the main road to the building. The pathway occupies an area of 6,750 sq. ft. There are sit=outs, servants' quarters, cowsheds, etc. Apart from the area occupied by the main building, pathway, sit-out, servants quarters and cowsheds, etc., there is vacant land. The abovesaid constructions are scattered over the area of 10 grounds and 29 sq. ft. Therefore, it cannot be said that apart from the main building in which the assessee is residing, the assessee is not using or utilising the rest of the open ground.
The Income-tax Officer relied upon the Urban Land Ceiling Act and considered that two grounds and 580 sq. ft. would form the land appurtenant to the main building and the rest of the land would be considered as a separate unit. Accordingly, he bifurcated the sale consideration of Rs.2,70,000 into Rs.1,10,000 for the value of the building and appurtenant land and the balance of Rs.1,60,000 was taken as the sale price relating to the value of the land which was not appurtenant to the building. But on considering the facts arising in the case and on looking into the plan submitted by the assessee relating to the property in question, the Tribunal has come to the conclusion that the entire 10 grounds and 29 sq. ft. was utilised by the assessee and, therefore, the Tribunal was of the view that the entire area of 10 grounds and 29 sq. ft. would be appurtenant to the main building:
In Kalipada Ghosh v. Tulsidas Dutt, AIR 1960 Cal 467, the Calcutta High Court while considering section 4 of the Partition Act, 1893, held that the terms "house" or "dwelling house" are ambiguous terms and for the purpose of section 4 of the Partition Act must be liberally construed. The terms should be taken to mean not only the structure or building, but also adjacent buildings, garden, court-yard, orchard and all that is necessary for the convenient occupation of the house. So also the Andhra Pradesh High Court in CIT v. Zaibunnisa Begum (1985) 151 ITR 320, while considering section 54 of the Income Tax Act, 1961, pertaining to the meaning of the words "land appurtenant" formulated the following five tests to understand the meaning of the words "land appurtenant" more precisely (headnote):
"(1) If the building together with the land is treated as an indivisible unit and enjoyed as such by the persons occupying the building it is an indication that the entire extent of land is appurtenant to the building;
(2) If the building has extensive lands appurtenant thereto and even if the building and the land have been treated as one single unit and enjoyed as such by the occupiers, an enquiry could be made to find out whether any part of the land contiguous to the building can be put to independent user without causing any detriment to the enjoyment of the building as such. Such an enquiry should be conducted not based on any artificial considerations but from the point of view of the persons occupying the building. The number of persons or different branches of families residing in the building, the requirements of the persons occupying the building; consistent with their social standing, etc., are relevant for the purpose. If any surplus is arrived at on such enquiry, then the extent of such surplus land may not qualify to be treated as land appurtenant to the building;
(3) If there is any evidence to indicate that any portion of the land contiguous to the building was applied to user other than the enjoyment of the building, then that provides a safe indication regarding the-extent of land applied for such user. For instance, the, land used by the occupier for commercial or agricultural purposes although forming part of the land adjacent to the building, does not qualify to be treated as land appurtenant to the building;
(4) If the owner or occupier is deriving any income from the land which is not liable to be assessed as income from house property under section 22 of the Income-tax Act, then the extent of such land does not qualify to be treated as land appurtenant to the building; and
(5) Any material pointing to the attempted user of the building for purposes other than the effective and proper enjoyment of the house would also afford a safe guide to determine the extent of surplus land not qualifying to be treated as land appurtenant to the building. The above tests are illustrative and by no means exhaustive. It is for the tax authorities to apply their mind properly to the facts of each case and to devise tests suitable and appropriate to each case."
So also, the Supreme Court had an occasion to consider the meaning of the word "appurtenant" in Larsen and Toubro Ltd. v. Trustees of Dharmamurthy Rao Bahadur Calavala Cunnan Chetty's Charities (1988) 4 SCC 260. After taking into consideration the various provisions of the Tamil Nadu City Tenants Protection Act, the Supreme Court held as under (page 271):
"The question, therefore, whether certain land is appurtenant or not is one of fact. The High Court has applied its mind to the nature of the building as well as to the terms of the lease deed. It has kept in mind that the lease relates to a period about 35 years ago, a time when residential houses occupied large extents of land. There used to be a building in the middle surrounded by a vast area covered by garden, arbour, trees and the like. The lease also describes the building as 'Club Chambers' with a municipal door number. The building is itself if a substantial one occupying as many as two grounds. Having regard to the position pertaining at the time when the lease was executed, the first Appellate Court and the High Court came to the conclusion that the land in this case was appurtenant to the building. We see no reason to disturb this finding. On the other hand, we agree that the use of the land, in the circumstances of this case, was incidental to the enjoyment and beneficial use of the building and, therefore, squarely fell within the definition which has been discussed above."
We have already set out the facts in detail in the present case. it remains to be seen that if the building together with the land is treated as an indivisible or integral unit enjoyed as such by the person occupying the building, it is an indication that the entire extent of land is appurtenant to the building. On considering the facts arising in this case and after looking into the plan of the building, the Tribunal came to the conclusion that the entire extent of ten grounds and 29 sq. feet was used by the owner of the property by way of residence, pathway, sit-outs, servants' quarters, cowsheds, etc. Therefore, on reappraising the fact, we do not want to disturb the finding arrived at by the Tribunal on this aspect. It must also be remembered that we are concerned with the assessment made in the assessment year 1975-76 which is about 20 years ago. Therefore, looking at the standard of living prevalent during those times, it cannot be said that a person living in a house situated with an area of ten grounds and 29. sq. ft. that too far away from the city, can be considered in the same standard in which we are looking at the extent of the property in the modern days. Thus, considering the facts arising in this case, in the light of the decisions including that of the Supreme Court cited supra, we hold that there is no infirmity in the order passed by the Tribunal in treating the entire extent of land of ten grounds and 29 sq. ft. as appurtenant to the main building. Accordingly, we answer the questions referred to us in the affirmative and against the Department. No costs.
M.B.A./2082/FC Reference answered.