ORDER

Per D. Manmohan, Judicial Member. - This appeal by the revenue is directed against the order dated 22-3-2006, passed by the Commissioner of Income-tax (Appeals), Tirupati, and it pertains to the assessment year 2003-04. Exemption denied by the Assessing Officer, but allowed by the learned CIT(A) under section 54 of the Income-tax Act, 1961, is the subject-matter of dispute before us.

2. The facts necessary for disposal of this appeal are stated in brief. The assessee herein derived income from house property and agriculture. During the previous year, relevant to the assessment year under consideration, the assessee sold immovable property at Road No. 12, Banjara Hills, Hyderabad, and invested the sale proceeds towards purchase of another property at Road No. 33, Jubilee Hills, and, thus, claimed exemption from payment of tax under the head "Capital gains". In the annexure to the return of income, the assessee described the sold property as "plot" but new property as "house property" and claimed exemption under section 54F of the Act. It may be noticed that exemption under section 54F cannot be allowed to an assessee who owns more than one residential house before purchasing a new asset. Since the assessee owns residential houses, she changed the stand during the course of assessment proceedings and claimed exemption under section 54 of the Act contending, inter alia , that the property sold as well as purchased were residential units and, thus, upon investment of sale proceeds in purchase of new asset, she is entitled to the benefits provided under section 54 of the Act. The Assessing Officer personally inspected the impugned properties to find that the Banjara Hills property as well as Jubilee Hills property can properly be classified as 'plots of vacant land', but shown as houses to obtain municipal number, electricity connection etc. He also noticed that temporary sheds were erected in a corner of the respective plots in order to obtain municipal number, water connection, etc., and they are not meant for habitation of the assessee. In fact, there is nothing on record to suggest that assessee ever used it for self-occupation or let out to tenants. The Assessing Officer has captured the plots in photos to drive home the point that merely because of a temporary structure with asbestos roofing and four walls in a corner of a huge vacant plot admeasuring more than 1,000 Sq. yards, it cannot be treated as 'house' inasmuch as, such arrangements are only with a view to gain other benefits without any intention to either use the place as such as a residential unit - either for self-occupation or for letting out. He has also referred to the provisions of section 54 of the Act to highlight that the Legislature had intended to encourage/promote housing activity by providing certain deductions/exemption on transfer of capital asset and such benefit cannot be extended to persons who are merely trading in open plots. The narration of the property in the annexure as 'plot' was also highlighted to show the perception of the assessee of the property, which matches with the perception of the general public with regard to such 'open plots' with a temporary structure in a corner of the plot.

3. The Assessing Officer placed emphasis on the decision of the Hon'ble Andhra Pradesh High Court, in the case of Commissioner Of Income-Tax, A.P-Ii, Hyderabad v. Zaibunnisa Begum [1985] 151 ITR 320 , wherein the Court observed that the property sold should be a building or land appurtenant to building and if a land, which is not appurtenant to building, is sold, provisions of section 54 will have no application. In the case of the assessee, the size of temporary structure with reference to the size of the plot clearly suggests that the property sold and purchased were not residential houses. He, thus, concluded that the assessee is not entitled to the benefit under section 54 of the Act and, accordingly, computed the 'capital gains' assessable to tax.

4. Aggrieved, the assessee preferred an appeal before the CIT(A) contending, inter alia, that the property at Banjara Hills was held as residential property till the date of sale and another property bearing municipal number was purchased at Jubilee Hills which has 400 sq. feet of constructed area and, thus, the denial of exemption under section 54 of the Act is not correct.

5. Learned CIT(A) agreed with the contention of the assessee by observing that an asbestos house is also a residential accommodation and there is no prohibition in law with regard to grant of exemption under section 54 of the Act for sale and purchase of temporary structures. He further observed that there is no restriction about the size of the house and the land appurtenant thereto; the land appurtenant to the Jubilee Hills House cannot be bifurcated for construction without the approval of the Jubilee Hills Co-operative Housing Society. He has gone by the description in the sale deed wherein it is described as "House under municipal ward and block numbers. . . . . .", to conclude that the property that was sold as well as purchased were residential houses within the meaning of the Act. With regard to the decision of the Hon'ble Andhra Pradesh High Court in the case of Zaibunnisa Begum (supra), he observed that the Court has not laid down strict guidelines to determine the extent of land appurtenant to a building inasmuch as determination of the extent of the land appurtenant to a building takes into consideration variety of situations for which no infallible guidelines can be laid down. In the absence of any evidence that the appurtenant land can be put to any other independent use, the learned CIT(A) concluded that the assessee cannot be denied the benefit provided under section 54 of the Act.

6. Aggrieved, the revenue is in appeal before us. The learned DR strongly relied upon the order passed by the Assessing Officer to submit that the property purchased as well as the property sold do not fall within the description "residential house". The learned DR has adverted our attention to the photographs of the plots, the size of the temporary structures with reference to the extent of vacant land, the cost of the property, etc., to submit that it is only to get over the restrictions imposed under the bye-laws of the co-operative society and also to obtain municipal number, electricity connection, etc., temporary structures were erected, which are never meant to be used as residence of the assessee and they were also not fit for letting out to others. In fact, the assessee has neither let out the property nor resided in the said asbestos roofed structures and this is the practice followed by all the plot owners in that area. One has to go by the general practice followed in that area to appreciate as to whether such structures can really be considered as residential house in common parlance and one has to bear in mind the legislative intention in granting exemption under section 54; the intention of the Legislature was to boost the growth of residential houses whereas the temporary structures built by the plot owners were never intended for use as residential houses but only to get over the other impediments on the use of the said property by virtue of municipal laws, electricity laws and bye-laws of the co-operative society.

7. In the alternative, learned DR submitted that the assessee would be entitled to exemption on the purchase of one house and not on two houses. If the claim of the assessee that each of the Jubilee Hills plots have a constructed plinth area of about 200 Sq. ft. and registered by separate documents, going by the meaning assigned to the expression 'a house' in the case of ITO v. Ms. Sushila M. Jhaveri [2007] 107 ITD 327 (Mum.) (SB) , assessee can claim exemption only on the utilization of sale proceeds to the extent of purchase of one house and not on two adjacent 'houses'. It was further contended that the expression "building and land appurtenant to the building" has to be understood in a broad, popular and non-technical sense which best harmonizes with the context and promotes in the fullest manner the policy and object of the Legislature, as held by the Hon'ble Andhra Pradesh High Court in the case of Zaibunnisa Begum (supra). The learned DR adverted our attention to the relevant observations to submit that though no infallible test can be prescribed, the Court prescribed certain guidelines which help in ascertaining the purpose of use of the property; they should not be based on artificial consideration but from the point of view of the persons occupying the property. Learned DR submitted that the intention of the Legislature was to provide tax benefit to those persons who own and use the residential house for self-occupation and upon sale of the same, purchases another accommodation. Since some assessees experienced difficulties in fulfilling this condition of 'user' on account of transferable jobs, etc., the expression 'used' was omitted. Thus, the underlying object of granting exemption under section 54 of the Act was to encourage citizens to acquire residential houses mainly meant for their use. In the instant case, neither the property sold nor the property purchased was intended to be used as residential house as such, since only temporary structures were erected in a corner of each plot so as to obtain municipal number, etc., and it was never intended for self-occupation or for letting out and, thus, the benefit provided under section 54 of the Act should not be extended to the assessee. Learned DR has also relied upon the following decisions :

(i) Zaibunnisa Begum's case ( supra).
(ii) D.P Mehta v. Commissioner Of Income-Tax [2001] 251 ITR 529 (Delhi).

8. On the other hand, learned counsel appearing on behalf of the assessee submitted that the property sold was a residential house bearing municipal number and in fact the assessee's servant lived in the said house. There is no restriction about the size of the house and the land appurtenant thereto. In fact, asbestos roofed houses were constructed both on the property purchased as well as the property sold and in the absence of any definition with regard to the term "house", the Assessing Officer was not justified in holding that only a palatial house would satisfy the conditions prescribed in the Act. It was also contended that though the property purchased by the assessee was registered under two separate documents, both were adjacent properties purchased from the same owner under two documents and, thus, it has to be treated as one house. With regard to the decision of the Hon'ble Delhi High Court (supra), the learned counsel submitted that the decision was rendered with reference to the earlier provisions of section 54 of the Act wherein self-occupation is a condition precedent for claiming exemption and the assessee therein admitted that he had constructed a garage and a servant quarter. In fact, the Assessing Officer found that there was no occupation by any servant or tenant and, thus, concluded that it was not inhabitable whereas, in the instant case, asbestos roofed houses were in a habitable condition. As regards the decision of the A.P. High Court in the case of Zaibunnisa Begum (supra), the learned counsel submitted that in order to determine the extent of land appurtenant to a building transferred, variety of circumstances have to be taken into consideration and if those tests are applied to the instant case, it can safely be concluded that the property sold as well as the property purchased were residential houses and the entire open space can be treated as land appurtenant to the constructed area. The learned counsel submitted that the building together with the land was treated as single individual unit and it cannot be put to independent user from the point of view of the assessee and in fact there is no evidence to indicate that any portion of the land contiguous to the building was applied to the user other than the enjoyment of the building. Thus, even by applying tests laid down by the Hon'ble A.P. High Court, the impugned properties cannot be said to be having excess land, i.e., land not appurtenant to the building. He, thus, strongly supported the order passed by the first appellate authority.

9. We have carefully considered the rival submissions and per-used the record. Marginal heading of section 54 of the Act, which is relevant in this context, refers to "profit on sale of property used for residence". Main Section speaks of transfer of a capital asset — being building or lands appurtenant thereto and being a residential house — the income of which is chargeable under the head 'Income from house property'. It is not the case of the assessee that the roofed structure built on the Banjara Hills land was either self-occupied or let out and there is nothing on record to suggest that it was intended to be used as residence. Consi-dering the market value of the property, the so-called "house" constructed on the property cannot be said to be for use of the assessee or for letting out as a residential house. Similarly, the assessee purchased two plots for a total consideration of Rs. 68,27,300 which contain small temporary structures covered with asbestos roofing in a corner of the plots. These plots also cannot be said to have been purchased to use the temporary structures as residential houses. Since the expression 'residential house' is not defined under the Income-tax Act, a purposive meaning has to be adopted to such expression instead of going by the technical meaning assigned under various enactments or the dictionary meaning given in the dictionary. It is appropriate herein to reproduce the observations of the Supreme Court, as extracted by the Author — Justice G.P. Singh, in the book 'Principles of Statutory Interpretation,' Seventh Edition, at page 94.

"The words of a statute, when there is doubt about their meaning, are to be understood in the sense in which they best harmonise with the subject of the enactment and the object which the Legislature has in view. Their meaning is found not so much in a strict grammatical or etymological propriety of language, nor even in its popular use, as in the subject or in the occasion on which they are used, and the object to be attained."

As could be noticed from the marginal heading, the original intention in inserting the provisions of section 54 of the Act and the amendments made from time to time to mitigate the unintended hardship by originally using the expression used by the "assessee or parent of his . . ." without changing the expression "used for residence" in the marginal heading and also by specifying the nature of building by use of the expression "being a residential house", it has to be assumed that the intention of the Legislature was to extend the benefit of exemption under section 54 of the Act only when the property sold as well as the property purchased by the assessee were intended to be used as residential houses, whereas the totality of circumstances clearly indicate that they were never intended to be used as residential houses either for self-occupation or for letting of. We are, therefore, of the view that the assessee is not entitled to exemption under section 54 of the Act on the sale value of the impugned property.

10. Since we are of the view that the property purchased as well as the property sold would not fall within the description "residential house", the case-law with regard to the issue as to whether the properties purchased by two separate documents can be considered as one house or two houses and what is the extent of land appurtenant to the building, in the light of the guidelines prescribed by the Hon'ble A.P. High Court in the case of Zaibunnisa Begum ( supra) need not be gone into.

11. In the result, the appeal filed by the revenue is allowed.

58/504