When land appurtenant was sold without building, it is not sale of residential property but sale of adjacent land and not qualified for exemption under section 54 of the Income Tax Act, 1961
In a recent judgment ITAT Allahabad upheld denial of exemption under section 54 holding that when land appurtenant to the building was sold without building, this will not amount to the sale of the residential property and it will amount to sale of adjacent land.
ABCAUS Case Law Citation:
4568 (2025) (05) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming disallowance of capital gain exemption u/s of the Income Tax Act, 1961 (the Act).
The appellant assessee was an individual and e-filed her return of income. The assessee had sold an open land during the assessment year under consideration and claimed exemption u/s 54 of the Act.
The appellant assessee submitted before the Assessing Officer that the land appurtenant to the bungalow of the appellant assessee was sold and therefore, it has to be treated as house property and the exemption available u/s 54 of the Act should be provided to the appellant assessee.
However, the Assessing Officer did not accept this contention of the assessee and held that the sale deed produced by the appellant assessee showed that the property transferred was the open land and without any building. Hence, the provisions of section 54 of the Act are not applicable to the case.
The contention of the Assessing Officer was that section 54 of the Act speaks of residential house, the income of which is chargeable under the head, “income from house property’. The said residential house could be consisting of the building or land appurtenant thereto. Thus, the land appurtenant thereto has to be sold along with the building and if the land sold without the building will not be considered as ‘residential property’.
Accordingly, the Assessing Officer disallowed the exemption claimed by the assessee u/s 54 of the Act.
Aggrieved, the assessee carried the matter in appeal before learned CIT(A). The CIT(A) dismissed the appeal of the assessee.
Before the Tribunal the assessee contended that the CIT(A) had wrongly observed that the land sold was adjacent land and not residential only because it was mentioned as ‘open land’ in the sale deed and the land sold without building was not residential property and is not eligible for being considered for rebate u/s 54 of the Act.
It was submitted that originally in the lease it was clearly mentioned that it was a house/residential property with a built in house and bungalow. The same property was inherited by the assessee. He submitted that the assessee had sold open land, which was appurtenant to the residential house and the assessee is eligible for exemption u/s 54 of the Act.
The assessee relied on the judgment of Hon’ble Allahabad High Court and on the judgment of Hon’ble Karnataka High Court in support of its contentions.
The Tribunal observed that the facts of case law, relied by the assessee, were distinguishable on facts. In that case the land was belonging to the son and the building was belonging to the father. In that case Hon’ble High Court held that when the land was sold without building, which was belonging to the father, the land in question would be called as adjacent land and not land appurtenant to the building as owners were different. Thus, it was clear that even though land and building were belonging to the same person and only the land was sold without building, this will not amount to the sale of the residential property and it will amount to sale of adjacent land.
The Tribunal further observed that in the judgment of ITAT Cochin relied upon by the Revenue it was held that where the assessee had transferred vacant land and not the building or any residential house, the Assessing Officer had rightly rejected the claim of the assessee in respect of the exemption under section 54. Further, the Hon’ble High Court of Andhra Pradesh has held that if land alone is sold, the provisions of section 54 will have no application, inasmuch as the income from the land was not chargeable under the head Income from house property’. In order to secure the benefit of section 54, it is necessary that the building together with land is transferred and the income from such building and land is chargeable under the head ‘Income from house property’ under section 22 of the Act. The land contiguous to the building may be so vast in its extent that a person can conveniently lay out the surplus extent of land into plots and sell those plots without causing detriment to the proper enjoyment of the building. It could not it be said that in these cases the land leased for a fire-wood depot or sold by laying out into plots constituted land appurtenant to the building.
In view of the above, the Tribunal expressed agreement with the findings of CIT(A) that merely because the land sold was appurtenant to the bungalow, it cannot be held to be the residential property as the bungalow has not been sold but only the adjacent land has been sold. Hence, the provisions of section 54 of the Act are not applicable to the facts of the case.
Accordingly, the appeal was dismissed.
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