INCOME TAX OFFICER Vs. GOPALAN

JUDGEMENT

(1.) Appeal at the instance of the Revenue is against the order dated 18.11.1998 passed by the Income Tax Appellate Tribunal, Cochin Bench in I.T. A. No. 72/Coch/1991. The relevant assessment year is 1984-'85. Only question to be considered in this case is whether the Tribunal was correct in holding that the assessee is entitled to deduction under S.54 of the Income Tax Act, even though for the acquisition of the asset that is, construction of a house the amount that was received by way of sale of his property as such was not utilised.

(2.) S.45 of the Income Tax Act, 1961 provides that "Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in S.53, 54, 54B and 54D, be chargeable to income tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. In the facts of the present case during the accounting year relevant to the assessment year the assessee sold 93.33 cents of land along with building. The claim put forward by the assessee that it was an agricultural land and therefore no income tax under the head of "Capital gains" is liable to be paid was not accepted by the Income Tax Officer. There was a further claim under S.54 in respect of the "Capital gains" on the ground that the amount realised out of the sale of the property was utilised for the construction of a house at Calicut. This claim was not accepted by the assessing officer on the ground that the sale price was not utilised for the construction of the building and it was deposited in private banks. Aggrieved by the above finding of the Income Tax Officer the assessee filed an appeal before the Commissioner of Income tax (Appeals), Cochin. It was submitted on behalf of the assessee that he had completed the construction of a house in Calicut on 31.12.1983 at a cost of Rs.2,98,300/-. The cost of the building which he had sold was valued at Rs. 40,000/-. Therefore, the assessee put forward a contention that cost of the construction of the new house property is more than the capital gains even if any liability of capital gains would arise from the sale of his house. It was further contended that even if the house property was purchased or constructed within a period of one year before the transfer of the old property, he can claim exemption from capital gains in view of the provisions contained under S.54. It is not necessary that consideration received on the sale of the property as such should be utilised for the construction of the new building. The only condition is that new house property should have been purchased within one year before or after the sale or should have been constructed within two years of sale of the property for the purpose of his own residence. The sale was on 28.10.1983 and the new house property was constructed during the period between May 1982 and December 1983.

(3.) The Commissioner of Income tax (Appeals) took the view that the portion of the land other than the portion occupied by the building sold by the assessee has to be considered agricultural land and the sale price of that portion being agricultural land will have to be excluded from the computation of income. It was also held that even if the entire property is considered as non agricultural land, the assessee is entitled for the claim of benefit under S.54 of the Income tax Act, in view of the fact that the assessee constructed a house property in Calicut during the period between May 1982 and December 1983 as per the report of the registered valuer. It was found that S.54 does not require that sale of consideration obtained by the assessee itself should be utilised for the purpose of constructing or acquiring house property. Appeal of the assessee was therefore allowed holding that the appellant is entitled for deduction under S.54 of the Act inrespect of the capital gains arising out of the transfer.