Tribunal grants benefits for acquisition and renovation costs, denies exemption for tenancy rights. Revenue appeal dismissed.

The tribunal granted the assessee benefits for the cost of acquisition under Section 55 and renovation expenses under Section 54, while denying exemption under Section 54 for tenancy rights. The Revenue's appeal was dismissed, upholding the exemption under Section 54F for the amount deposited in the capital gains account.

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Issues Involved:
1. Denial of exemption under Section 54 and granting exemption under Section 54F.
2. Determination of cost of acquisition under Section 55 of the Income-tax Act.
3. Expenditure incurred on improvement/renovation of the new residential house for the purpose of deduction under Section 54.
4. Allowance of exemption under Section 54F for the amount deposited in the Capital Gains Account Scheme.

Detailed Analysis:

1. Denial of Exemption Under Section 54 and Granting Exemption Under Section 54F:
The assessee surrendered tenancy rights which resulted in capital gains. The assessee claimed deductions under Section 54 for investment in a new residential house. The Assessing Officer (AO) denied the claim under Section 54, stating the assessee was not the owner but a tenant, hence allowed deduction under Section 54F instead. The Commissioner of Income-tax (Appeals) upheld this decision, stating the assessee held mere tenancy rights, not ownership. The tribunal agreed, emphasizing that the tenancy rights do not qualify as ownership of a residential house required for Section 54 benefits.

2. Determination of Cost of Acquisition Under Section 55 of the Income-tax Act:
The assessee claimed the cost of acquisition should be the fair market value as on April 1, 1981, with indexation benefits. The AO took the cost of acquisition as nil, rejecting the assessee's claim. The tribunal noted that tenancy rights, acquired by the grandfather in 1945 and inherited by the assessee, fall under Section 49(1). Therefore, the cost of acquisition should be the fair market value as on April 1, 1981, as per Section 55(2)(ii)(b). The tribunal ruled that the fair market value of the tenancy rights as on April 1, 1981, should be the cost of acquisition, allowing for indexation benefits.

3. Expenditure Incurred on Improvement/Renovation of the New Residential House for the Purpose of Deduction Under Section 54:
The assessee incurred expenses on renovating the new residential house to make it habitable and claimed these expenses under Section 54. The AO disallowed the claim, stating the renovations were not structural. The tribunal, however, noted that the objective of Sections 54 and 54F is to promote investment in habitable residential houses. It ruled that expenditures on making a house habitable should be considered as part of the investment in the new house, thus allowing the assessee's claim.

4. Allowance of Exemption Under Section 54F for the Amount Deposited in the Capital Gains Account Scheme:
The AO disallowed the claim without discussion. On appeal, the Commissioner of Income-tax (Appeals) allowed the claim, noting the assessee deposited Rs. 1.25 crore in the capital gains account within the prescribed period and used it to purchase another flat. The tribunal upheld this decision, referencing various High Court rulings that support the eligibility of Section 54F benefits for investments in more than one house.

Conclusion:
The tribunal partly allowed the assessee's appeal, granting the cost of acquisition benefits under Section 55 and the renovation expenses under Section 54, while denying the exemption under Section 54 for the tenancy rights. The Revenue's appeal was dismissed, upholding the exemption under Section 54F for the amount deposited in the capital gains account.

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