A.S. ATWAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the Income -tax Appellate Tribunal, Chandigarh Bench, Chandigarh {for short 'the Tribunal'), has referred the following question of law arising out of its order dt. 29th Sept., 1984, relating to asst. yr. 1975 -76, for the opinion of this Court : 'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that (i) there was no residential house on plot No. D -10; (ii) the said house, if at all, was not occupied by the assessee or a parent of his for a period of two years immediately preceding the sale thereof; (iii) the new house purchased out of the sale proceeds of the plots sold was not utilised for the purpose of his residence as major portion thereof was let out; and (iv) plot No. D -11 did not form part of plot No. D -10 on which some structure was raised and, therefore, the assessee was not entitled to exemption under Section 54 of the IT Act, 1961.'

(2.) THE assessee purchased a plot of land measuring 2,000 sq. yards in village Sunet, opposite Punjab Agricultural University, Ludhiana, in the year 1970 -71. Subsequently on urbanisation, the property was marked as plot Nos. 10 -D and 11 -D, Sarabha Nagar, by the Improvement Trust, Ludhiana. Vide letter dt. 28th May, 1965, from the chairman, Improvement Trust, Ludhiana, regarding the exemption under Section 56 of the PTI Act, 1922, the assessee was informed that against the original plot of 2,000 sq. yards, he was allotted plot Nos. 10 -D and 11 -D measuring 1,955 sq. yards as per plan deposited in the office of the trust. It was also stipulated in the said letter that the assessee was not allowed to sub -divide the allotted land and shall abide by the building bye -laws and other regulations of the trust for future construction. He was also required to get the construction of the existing structure, if any, regularised. The assessee through this letter was also asked to make certain payments and execute an agreement in the prescribed form. This letter was addressed to the assessee as Shri Avtar Singh, son of Raghbir Singh, Entomologist, Government Agricultural College, Ludhiana. On 3rd Sept., 1984, another letter was addressed to the assessee by the chairman, Improvement Trust, Ludhiana, whereby he was required to maintain similar specifications in respect of the two plots. In this letter, it was also mentioned that the assessee had applied for exemption from acquisition on the ground that he had already done some construction and also planted -research material to carry on his work and the exemption from acquisition of his plot originally of 2,000 sq. yards was given to him as one unit. The assessee was allowed to retain the above plots with minor adjustments in the area subject to payment of development charges. These two plots were identified as two independent units for two houses to be constructed thereon.

(3.) THE ITO proposed to assess the capital gain on the sale of above two plots whereas the assessee claimed exemption under Section 54 of the IT Act, 1961 (for short 'the Act'), on the ground that he had purchased a residential house at Chandigarh within one year of date of sale of the two plots. It was claimed that there was a tin shed on plot No. 10 -D which was used by the assessee for self -residence prior to its sale as required by Section 54 of the Act. The ITO rejected the claim for exemption. According to him, his predecessor had visited the site and found that tin shed was not worth living as there was no amenities of life. provided therein and at best, it could be used as a cattle shed. He further observed that the so -called house was never used by the assessee or his parents for their self -residence. The ITO also recorded the statement of the assessee wherein he admitted that no bill for water supply was paid or received by him and that there was no electric connection in the tin shed. He also observed that even in the sale deed, there was no mention of any house on the aforesaid plot. Reference was also made to the application filed by the assessee for obtaining clearance certificate under Section 230A(1) of the Act on 7th March, 1974, wherein the information regarding the cost of construction of the property and cost of acquisition of land was given as under : '(i) Cost of land only not constructed Rs. 6,000 (ii) Plus development charges paid to Improvement Trust Rs. 9,775 (iii) Tin shed, water connection, barbed wiring boundary plantation fruit grapes and non -fruit trees Rs. 5,000 approximately.' From the above, the ITO observed that it was crystal clear that there was no residential house as there were no boundary wall and it was covered by barbed wire only. There was neither any kitchen nor any bathroom in the said property. He also observed that the tin shed was being used only for the purposes of storage of fruit, etc. The ITO, therefore, held that it could not be believed that the assessee or his parents had ever resided in the above tin shed where no living amenities were available.