The Tribunal Relied On The Judgment Of Thekerala High Court In The Case Of T.n.vasavan v. Cit >Reported In 197 Itr 163 To Substantiate Its Contentionsand Thus The Appeal Filed By The Assessee Came To Bedismissed. Aggrieved By The Said Order The Asses

1 IN THB HIGH COURT OF KARNATAKA AT BANGALOREDATEKD THIS THE 1[‘T]DAY OF OCTOBER 2014| PRESEHBN THR HON BLE MR. JUSTICE N. KUMAR. AND THR HON’BLE MR. JUSTICK B. MANOHAR| ITA No.1012 OF 2008 BETWEEN; Shri.C.N.Anantharam#17, 3)[!+]Malin|srirampuram Extn.seshadripuramBangalore — 560 O20 _ APPELLANT| (By Sri.A.Shankar and ori.M.Lava, Advocates) AND: The Asst. Commr. of Income Tax.Circle 6(1), R.P.Bhavan|Nrupathunga RoadOpp: RBI BankBangalore — 560 OO2— RBSPONDEBENT (By Sri.Jeevan.J. Neeralgi, Advocate) This appeal is filed under Section 260-A of I.T. Act, 1961 arising out of Order dated 04.07.2008 passed inM.P.No.88/Bang/1999 in ITA No.744/BNG/1998, forthe Assessment year 1996-1997, praying to tormulatethe substantial questions of law stated therein andallow the appeal and set aside the order passed by the P ITAT, Bangalore in MP NO.88&/Bang/1999 in ITANo.744/Bang/1998 dated 04.07.2008 in the interest ofjustice. N. KUMAR, J.delivered the following:- This appeal coming on for Hearing this day, JUDGMENT The assessee has preferred this appeal challengingthe finding recorded by the authorities below whereinthey have held that the assessee is not entitled tobenefit of Section 54(1) of the I.T.Act, 1961 in respect ofthe land sold by him. oD The Assessee obtained the site on settlement|and constructed a three storied building i.e., groundplus two floors. The first and second floors of thebuilding together with the proportionate share in theland on which the building stands is the subject matterof transaction in question. There is no dispute that the ©building as such was held by the assessee for a periodof less than 36 months prior to the date of transfer. —However the land was a long term capital asset. Thecomputation of capital gains as is attributable to the * building and the land as set out in the assessmentorder is not disputed. The land has been treated aslong term capital asset and the capital gains treatedaccordingly. There is no dispute about the cost ofconstruction of another residential house and such/residential house has been constructed within the'period stipulated under Section 54. The only disputerelates to the availability of Section 04. | 3.|The Income Tax Officer is of the view that thecapital gains as is attributable to long term capital assetviz land will not qualify for relief under section 54 eventhough it is a long term capital asset as the buildingwhich stood on the same and which was the subjectmatter of transfer was a short term capital asset. | 4Agegrieved by the order, the assessee initiallypreferred an appeal which came to be dismissed. Thesecond appeal preferred by the assessee also came to bedismissed by the tribunal holding that any usedbuildings or lands appurtenant thereto as mentioned in v section 954 is also appeared in Section 22 of the Act. Thus the meaning of the word building in Section 54has to be construed in the same way as to beconsidered in the way considered for the purpose ofSection 22. The rental income trom the land is not!taxable under Section 22. | 5The Tribunal held as follows:The word ‘or in law relating to _ statutoryinterpretation need not be disjunctive, thought it isnormally so. The word ‘and’ is normally used where theintention is not disjunctive but it is not unusual to usethe word ‘or’ to mean ‘and’ in a statute. ‘Or’ can be!disjunctive word. The clear intention elsewhere in theprovision requires to be so understood as “and” in thecontext of section 54, the reasoning is that section doesnot contemplate two separate sales of building andappurtenant land. If appurtenant land can be soldindependently, it ceases to be appurtenant which goeswith the building. Hence the deduction under Section04 will be admissible in case the capital asset is a 5The Tribunal held as follows:The word ‘or in law relating to _ statutoryinterpretation need not be disjunctive, thought it isnormally so. The word ‘and’ is normally used where theintention is not disjunctive but it is not unusual to usethe word ‘or’ to mean ‘and’ in a statute. ‘Or’ can be!disjunctive word. The clear intention elsewhere in theprovision requires to be so understood as “and” in thecontext of section 54, the reasoning is that section doesnot contemplate two separate sales of building andappurtenant land. If appurtenant land can be soldindependently, it ceases to be appurtenant which goeswith the building. Hence the deduction under Section04 will be admissible in case the capital asset is a residential house. Such capital asset must be a longterm capital asset. A house consists of building andland appurtenant thereto. Hence building as well asappurtenant land should be long term capital asset. Inthe instant case, land is long term capital asset whilethe building constructed on it is a short term capitalasset. Hence, the house, which was transferred, is not)a long term capital asset because part of it is shortterm. Section 54 does not provide bifurcation of capitalgain arising from the sale of land and _ buildinseparately and to allow deduction in case any one ofthem as long term capital asset. 6.|The tribunal relied on the judgment of theKerala High Court in the case of T.N.Vasavan Vs. CIT >reported in 197 ITR 163 to substantiate its contentionsand thus the appeal filed by the assessee came to bedismissed. Aggrieved by the said order the assessee isin appeal. TS|This appeal is admitted to consider the| following substantial questions of law: 1.Whether the Tribunal is justified in law underthe facts and circumstances of the case innegating the appellant claim under Section 54(1)of the Income Tax Act, 1961?the facts and circumstances of the case innegating the appellant claim under Section 54(1)of the Income Tax Act, 1961? 2.Whether the Tribunal is justified in law inholding that capital gains is chargeable underSection 45(1) on the facts and circumstances ofthe case2y?holding that capital gains is chargeable underSection 45(1) on the facts and circumstances ofthe case2y? 8.|Learned counsel for the Assessee assailingthe impugned order contends that it is clear fromSection 54(1) of the Act, the benefit under the saidprovision is available to a transfer of long term capitalasset being buildings or lands appurtenant thereto andbeing a residential house, the income of which ischargeable under the head ‘Income from the HouseProperty’. Therefore, the said section cannot beconfined only to a residential house and cannot beinterpreted to mean it has no application to the land ( appurtenantTO aresidentialbuildingwhenthelegislature has confirmed the said benefit of anindividual family or a Hindu Undivided Family inrespect of the buildings or lands appurtenant thereto. —The said provision being a beneficiary provision, shouldbe liberally and harmoniously interpreted so as to givethe benefit even in respect of land which is appurtenantto residential house. If a land appurtenant to aresidential land is entitled to the said benefit, the landon which the residential house is put up is also shouldbe gaining benefit. Otherwise section looks absurd. OQ Per contra, learned counsel appearing for theRevenue submitted the word “or” should be read as'“and” as held by the Tribunal. The benefit is notavailable to sale of lands independent of the buildings,and therefore, he submits no cause for interference with|the impugned orders is made out. 10.|In fact, it is useful to refer to a judgment ofthis court in the case of Smt. Azra Abdulla Vs. The!Commissioner of Income Tax in I.T.R.C.No. 146/1995_ 8 decided on 09.04.1997 where the questions which arosefor consideration was whether land appurtenant theretothe sale of land appurtenant is entitled to the benefit ofsection 54(1) of the Ac?. This court after referring toseveral judgments has held as under: OQ Per contra, learned counsel appearing for theRevenue submitted the word “or” should be read as'“and” as held by the Tribunal. The benefit is notavailable to sale of lands independent of the buildings,and therefore, he submits no cause for interference with|the impugned orders is made out. 10.|In fact, it is useful to refer to a judgment ofthis court in the case of Smt. Azra Abdulla Vs. The!Commissioner of Income Tax in I.T.R.C.No. 146/1995_ 8 decided on 09.04.1997 where the questions which arosefor consideration was whether land appurtenant theretothe sale of land appurtenant is entitled to the benefit ofsection 54(1) of the Ac?. This court after referring toseveral judgments has held as under: “ Section 54 of the Act deals with capitalgain arising from transfer of a long term.capitalassetbeingbuildingOrlandsappurtenant thereto and being a residential|house the income of which is_ chargeableunderthe head ‘*Income from HouseProperty’. in the present case, it is not indispute that entire property held by the|assessee prior to sale was subject matter of|assessment under the Head ‘Income from|House Property’. What was sold was a partof that property now which ts contiguous to|the same. The test whether the sale 1s in)!relation to a residential house is satisfied. |The sale is in relation to qa residential houseand what was sold was land contiguous|thereto. If land is contiguous to the house, It|cannot be taken to be separate and apartfrom the residential house. When land andhouse form one contiguous whole, the two|cannot be separated for purpose of taxation. If that is so, a part of such property which is|now sold, even though it may not be alresidential house still it must be held it was q'land appurtenant to a residential house. |Understood in that manner we think the|authorities below and the Tribunal were notjustified in the view taken by them. We are.fortified in our view by the decision of theAndhra Pradesh High Court in CIT Vs..Zaibunniasa Begum (151 ITR 320). The landappurtenant thereto has not been defined|under the Act and it is understood in popular|non-technical sense. The definition given to|the same either under the Wealth Tax Act or|Urban Land (Ceiling & Regulation) Act are not|relevant. In that decision, however, certain|tests were laid down to find out whether the|vast extent of land sold therein was part of|the residential unit so that it may be treated|as land appurtenant thereto. Indeed, it was|noticed there that in deciding as to whether|any land is appurtenant thereto a residential|house, the requirements of the persons|occupying the building, consistent with their|social standing etc., are relevant for thepurpose. Thereafter, certain other tests wereset out. In Bangalore City, years ago, the Style of life was such that persons wouldpurchase property with bungalows havingsprawling ground around it and the bungalowand grounds thereto formed one unit. The|land around it would not be put to any|separate use for that would invade theirprivacy. If these aspects are borne in mind,we do not think any point is made out in this|case to apply the tests laid down in the|decision in Zaibunnisa Begum’s case. In that|case, the Andhra Pradesh High Court was|dealing with a land spread over a vast area|of about 13,029 sq. yards; whereas in the|present case we are concerned with only56,000 sq. feet te. 200’ x 280’ in which there|is more than 56 squares house. AS statedearlier that house was situate in the centre of|the property. Thus, the intention of the owner|was to enjoy the entire land as appurtenant|thereto.” 11.)When the legislature has used the word ‘or’which means the word buildings or lands appurtenantthereto should be understood disjunctively havingregard to the context in which it is used. It cannot beread as ‘and’. If itis read as ‘and’, it amounts to court 1] 11.)When the legislature has used the word ‘or’which means the word buildings or lands appurtenantthereto should be understood disjunctively havingregard to the context in which it is used. It cannot beread as ‘and’. If itis read as ‘and’, it amounts to court 1] rewriting the section by substituting the word ‘and’ inplace of the word “or” which is not permissible in law. Aperson may be residing in a residential house and theland pertinent thereto. That house he may be using itfor his benefit. As long as the said land is not used forany commercial or non-residential purpose, the user ofthe land by the resident is for residential purpose only. —If such a person chooses to sell only the land which hewas using for residential purpose, the legislature hasconferred the benefit in respect of/to the capital gainsarising there from under Section 94(1) of the Act. Ii aland appurtenant to a residential house is entitled tothe said benefit, we find it difficult to accept that theland on which the residential building is constructed isnot entitled to the said benefit. | 12.When a property, residential house is sold,the sale consideration includes the value of the land|and the value of the construction. Though there is notwo sale transactions involved for the purpose of theAct, in order to calculate the capital gains as rightly done by the Assessing authority, he has treated the saleof land on which the residential house is constructed as a long term capital gain and he has treated the buildingas short term capital gain. If, for levying tax under theAct, such a distinction could be made, we fail tounderstand why that distinction should not be kept inmind in extending the benefit under Section 94(1) of theAct. If the land on which the building is constructed isa long term capital gain and the amount receivedtowards the sale of such land when it is assessed as @along term capital gain and taxed. In view of Sectiono04(1) if that consideration from the sale of the land isutilized in acquiring a residential house, the benefitfrom exemption is to be extended. Otherwise, thesection looks absurd. The land which is adjoining theresidential house is entitled to benefit under Section|04(1) of the Act but the land on which the residentialhouse would not be entitled to such benefit, we cannot,impute any such intention to the legislature. — 13 13.)On the contrary, the legislative intent ismanitest. The assessee is entitled to the benefit of |section 54(1) of the Act in respect of land and building. —That land may be the land on which the residentialhouse is constructed or the land appurtenant to theresidential house. | In that view of the matter, the impugned orderspassed by the authorities cannot be sustained.—Accordingly they are hereby set aside. The appeal isallowed. The substantial questions of law in this appealare answered in favour of the assessee and against theTEVENUE. BSV_ Sd/- | JUDGE| Sd/-. JUDGE