Putting Together Structure Of Plywood Sheets Can't Be Construed As Constructing 'Residential House' For Claiming Capital Gain Exemption: Delhi HC

“Putting together a structure of plywood sheets cannot be construed as constructing a residential house,” the Delhi High Court has held. It thus upheld an ITAT order which disallowed capital gains exemption to the appellant-assessee under Section 54 of the Income Tax Act, 1961 on the ground that a mere 'makeshift' structure was raised in the name of residential house. Section 54 exempts tax on long term capital gains from the sale of residential property if the proceeds from such sale are reinvested in purchasing or constructing another residential property within a specified time frame. A division bench of Justices Vibhu Bakhru and Swarana Kanta Sharma was dealing with assessee's appeal seeking exemption from capital gains on the ground that he had constructed a residential house within a period of three years from sale. As per the AO, the Assessee had not constructed a residential house but purchased vacant agricultural land and the structure built on the said land was only a “makeshift” structure that had been raised with a view to evade the tax liability. The Revenue also cited the response to enquiries made from the Authorised Representative (AR) of the Assessee, indicating that the subject property was an agricultural land, with a boundary wall, 1 bedroom accommodation, toilet (attached), and 1 guard room. However, he was unaware of the situation regarding electricity and water connection. It also relied on a report furnished by the Inspector, who was deputed by the AO to verify the construction, as per which there was no electricity connection on the land and no water connection in the premises. The Inspector also reported that a guardroom and toilet made of plywood were found on the site in a corner of the land, and the remaining 1.75 acres was lying vacant. It was further reported that the land did not have a cemented boundary wall and it was only encircled by barbed wires and cemented pillars on three sides. Significantly, the ITAT had held that the residential house is required to have the “basic amenities such as a boundary wall, kitchen, washroom, bedroom, electricity connection and water connection” for habitation. Taking note of these factual aspects, the High Court said “It is obvious that the construction of a residential house would entail raising a construction for inhabitation as a residential dwelling unit… the exact location itself of the land was difficult to find as the area was vast and inhabited and comprised of hilly terrain.” Accordingly, the appeal was dismissed. Appearance: Sr. Advocate Abhimanyu Bhandari with Advocates Kunal Sharma, Shubhendu Bhattacharya, Adhirath Chaudhary and Yukti Aggarwal for Appellant; SSC Aseem Chawla with Advocate Pratishtha Chaudhary for Revenue Case title: Sandeep Hooda v. Pr. Commissioner Of Income Tax-7, Delhi & Anr.Citation: 2024 LiveLaw (Del) 1275 Case no.: ITA 450/2024Click Here To Read/Download The Order

Putting Together Structure Of Plywood Sheets Can't Be Construed As Constructing 'Residential House' For Claiming Capital Gain Exemption: Delhi HC

Kapil Dhyani

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