TaxTMI 
TaxTMI 
2016 (5) TMI 632
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..... 2. The learned CIT(A) erred in upholding the disallowance from the cost of acquisition of the new house property u/s 54/54F, of Rs. 14,26,705/- incurred in making the house property habitable within the time allowed under that section by wrongly relying on the provisions applicable to the same of the house property and thereby taxing the same as not exempt while calculating capital gains liable to tax on sale of house property." 3. The brief facts of the case are that the assessee is a contractor. 4. During the course of assessment proceedings u/s. 143(3) read with Section 143(2) of the Act, it was observed by the AO that the assessee has sold his tenancy right in a residential property for a total amount of Rs. 2,00,00,000/- . Against this capital receipt ,the assessee invested in another residential property in Pune and claimed deduction of Rs. 1,31,78,257/- u/s. 54 of the Act and offered the difference of Rs. 68,21,743/- as long term capital gains . The break-up of the investment in Residential property of Rs. 1,31,78,257/- was as follows:- 1. Long Term Capital Gain Rs.2,00,00,000/- Less: Capital Gain exempt u/s. 54 t....
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.... stated that all expenses incurred were only on repairs and restoration and painting and no asset was created. Therefore, these expenses of Rs. 14,26,705/- should be allowed in determining the cost of purchase of new residential house. The assessee furnished copies of plan of the house and garage, sanctioned layout plan and proposed layout plan and description of the property certificates were furnished before the CIT(A). The assessee also submitted that on west side of the house purchased, there is a nala near to the garden which required protection by fencing. The assessee relied upon the decision of ITAT Mumbai in case of Saleem Fazalbhoy v. DCIT (2007) 106 ITD 167(Mum.) and judgment of Hon'ble Calcutta High Court in the case of B B Sarkar v. CIT (1981)132 ITR 150 (Cal. HC). The CIT(A) called for remand report from AO. The AO submitted remand report stating that on perusal of the photographs of the property at the time of purchase , the property cannot be said to be completely inhabitable. However, it does seem to be in need of repairs, refurbishing and improvement. The exact amount of expenditure required to improve it to a state of habitability is a subjective matter, as it....
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.... the AO remand report is based on merely surmises. The CIT(A) held that the assessee was aware that the extensive civil, plumbing, electrical and painting work was required to be done in the house. With the said knowledge, the assessee bought the house for Rs. 1,10,00,000/- towards the cost of the asset. The assessee did not paid the amount towards plumbing, electrical works etc to the seller but to the third party and the cost was borne by the assessee himself after purchase of the house. This cost towards extensive repairs cannot be considered to be cost of house purchase by the assessee. The flooring, plumbing work and electrical work etc. was already there in the house. These were merely repaired and renovated to suit the requirements of the assessee. Thus, action of the AO was confirmed with respect of not considering the amount of expenditure incurred of Rs. 14,26,705/- for making improvements in the house for granting deduction u/s.54 of the Act, vide orders dated 19-03-2014. It was also held by the CIT(A) without prejudice that the assessee has incurred expenditure of Rs. 4,89,428/- on fixing marbonite flooring and marble skirting in the bedroom, dining rooms and sitt....
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..... Ashok Kumar Ralhan v. CIT 360 ITR 575 Del. HC 7. G Shiv Ram Krishna v. DCIT in ITA no. 755/Hyd/2013 dated 20-12- 2013 9 Ld. DR relied upon the orders of CIT(A) and drew our attention to the details of expenditure of Rs. 14.26 lacs incurred by the assessee to contend that these expenses are merely renovation expenses which cannot be allowed by way of benefit u/s. 54 of the Act. 10. We have considered the rival contentions and perused the material on record including case laws relied upon. We have observed that the assessee sold tenancy rights in a residential property for a total amount of Rs. 2.00 crores . The assessee invested in another residential house property in Pune and paid Rs. 1.10 crores for acquiring the said residential house in July 2008. The assessee further spent Rs. 14,26,705/-, purportedly towards making the new residential house purchased at Pune habitable , immediately after purchase of the said residential house at Pune in July 2008 which continued till January 2009, as it is stated by the assessee that the residential house so purchased in Pune in July 2008 was in dilapidated condition and was uninhabitable . The said amount was purportedly req....
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.... a period of [one year before or two years after the date on which the transfer took place purchased], or has within a period of three years after that date [constructed, one residential house in India], then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,- (i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new a....
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....ruction rather than in the manner which may frustrate the object . Reference can be drawn to the following observations of Hon'ble Supreme Court in the case of Bajaj Tempo Limited v. CIT (1992) 196 ITR 188(SC) : "The provision in a taxing statute granting incentives for promoting growth and development should be construed liberally; since the provision for promoting economic growth has to be interpreted liberally , restrictions on it too has to be construed so as to advance the objective of the provisions and not to frustrate it." The afore-said section 54 of the Act provides for the benefit/deduction from payment of taxes with respect to long term capital gains earned on sale or transfer of long term capital asset being residential house property, if the taxpayer purchases or construct a new residential house property within the stipulated period as prescribed u/s. 54 of the Act . The word 'house' has been defined in Blacks Law dictionary 7th edition, page 743 as 'a home, dwelling or residence' . The 'residential accommodation' is defined in Wharton's Concise Law dictionary 15th edition(concise),page 909 as 'residential accommodation, simply means that the accommoda....
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....es produced by the assessee. Thus in other words, it could be said that this expenditure of Rs. 14,26,705/- was part of a continuing transaction which started with purchase of the said new residential house property at Pune in dilapidated condition by the assessee in July 2008 and concluded with the extensive construction work carried out immediately post purchase of said new residential house in July 2008 and which concluded in January 2009 , comprising of civil, plumbing , electrical and painting works in the said new residential house property at Pune costing Rs. 14,26,705/- , to make the house in a habitable condition with amenities fit for living for residential purposes by the assessee. The assessee has also substantiated by way of photograph's apart from corroboration with clause 8(ix) in the sale deed that the said new residential house property in Pune acquired by the assessee was not in habitable condition and in-fact was in dilapidated condition when it was acquired by the assessee in July 2008. The AO in his remand report also stated that on perusal of the photographs of the property at the time of purchase, the property cannot be said to be completely inhabitable. H....
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....xtended simultaneously rather both purchase and construction of the same new residential house can co-exist , provided other conditions as stipulated u/s. 54 of the Act are complied with. For example, the tax-payer can purchase an residential house with one floor and later construct two more floor's on the same residential house and in this situation benefit u/s 54 of the Act cannot be denied to the tax-payer merely on the ground that the tax-payer has purchased the residential house and hence now benefits for construction of the same residential house property are ,therefore, denied . Our above view is fortified by the judgment of Hon'ble Calcutta High Court in the case of B.B.Sarkar v. CIT (1981) 132 ITR 150(Cal.HC) . Similarly, Section 54 of the Act does not impose any conditions or restrictions as to what constitute 'habitable' to get the benefit of deduction u/s 54 of the Act. The word 'habitable' is highly subjective and has to be understood and interpreted in the context of the socio-economic status and standing of the tax-payer in the society. Section 54 of the Act only provides that the taxpayer has to purchase or construct a new residential house . One tax-payer can pu....
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....e are items of comfort and are not part of the purchase or construction cost of new residential house property within the meaning of Section 54 of the Act and hence, benefits u/s 54 of the Act cannot be allowed for these items of comfort so purchased/installed by the tax-payer in the new residential house so purchased or constructed. If the tax-payer is allowed to purchase or construct the residential house without any ceilings as to the amount of investment u/s 54 of the Act , then merely because the tax-payer has purchased a residential house and thereafter followed it with alterations , additions and modifications carried out to construct the said purchased residential house to make it habitable for the tax-payer, benefits cannot be denied by the Revenue u/s 54 of the Act. It will be like treating equals as unequals and treating un-equals as equals which is not permissible. Our view is also supported and fortified by decision of Hon'ble Karnatka High Court in the case of Rahan Siraj v. CIT (2015) 58 taxmann.com 333(Kar. HC) whereby Hon'ble Karnatka High Court held as under: "6. In the light of the aforesaid rival contentions, the substantial questions of law that arise ....