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 CIT v. Zaibunnisa Begum [1985] 151 ITR 320¹, 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 app