TaxTMI 
TaxTMI 
2026 (8) TMI 1034
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....lief as deemed fit. 2. The learned CIT(A) erred in confirming the action of the Assessing Officer in restricting the exemption claimed under Section 54F in respect of investment made towards reconstruction of the residential house. 3. The learned CIT(A) failed to appreciate that: (a) The appellant had purchased a residential house which was in uninhabitable condition; (b) Substantial reconstruction was necessary to make the house fit for residence and the fact that the same forms integral part of making the residential house habitable (c) The reconstruction was completed within the statutory period of three years; (d) Section 54F permits investment in purchase or construction of a residential house, and reconstruction/renovation necessary to make the house habitable forms part of cost of construction. 4. The learned CIT(A) failed to appreciate that the provisions of Section 54F are beneficial in nature and are required to be construed liberally to promote investment in residential housing. 5. The learned CIT(A) erred in confirming proportionate restriction of exemption without properly appreciating the legislat....
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....ready habitable. Further, expenditure of INR.86,05,000/-, being 1.73 times of the purchase cost, incurred by the Assessee was in the nature of reconstruction/renovation expenses not eligible for exemption under Section 54F of the Act. 6. Being aggrieved by the above order passed by the Learned CIT(A), the Assessee has preferred the present appeal before this Tribunal on the grounds reproduced in paragraph 2 above. 7. We have heard the rival submissions and have perused the material available on record. 8. All the 6 grounds raised by the Assessee are interconnected and relate to Assessee's claim for exemption under Section 54F of the Act. Therefore, the same are taken up together for adjudication hereinafter. 9. The Learned Authorised Representative for the Assessee submitted that though the sale deed described the property as a residential house, in reality the property purchased by the Assessee was old and in an uninhabitable condition, and substantial expenditure had to be incurred on removal of old plaster, slab breaking, excavation, plumbing, electrical work, tiling, granite fitting, doors, windows, painting and other allied works in order to make the same habitable....
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....spect of (a) consideration for purchase of existing residential house as well as (b) cost of construction/reconstruction incurred by the Assessee (after the purchase of the aforesaid residential house) by taking the aggregate of the aforesaid purchase consideration and construction cost as 'cost of the new asset' for the purpose of computing the amount of capital gains not charged to tax under Section 45 of the Act in terms of Section 54F of the Act. 14. Section 54F was inserted in the Act by the Finance Act, 1982 (with effect from 01/04/1983) to encourage house construction and address the shortage of housing. Sections 54F of the Act provided that capital gains arising on transfer of a long-term capital asset (referred to as 'Old Asset'), not being building or land appurtenant thereto, shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house (referred to as 'New Asset'). Initially, in the case of purchase of a house, the benefit was available if the investment was made within a period of 1 year before or after the date of transfer of Old Asset whereas in case of construction of a house, the benefit was avai....
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....tum of deduction under section 54/54F, provided that the acquisition of plot and also the construction thereon, are completed within the period specified in these sections" (Emphasis Supplied). 17. Thus, it was clarified by the CBDT that the consideration for purchase of plot formed part of 'cost of new asset' for the purpose of computing quantum of deduction under Section 54F of the Act. However, it was specified that the acquisition of plot as well as the construction should take place within specified period. Therefore, it is clear that where a new residential house is constructed on a plot of land purchased by an assessee, the benefit of Section 54F Act is to be extended in respect of cost of purchase of plot as well as the construction cost. 18. We are of the view that by the same analogy the benefit of Section 54F should also be extended to an assessee who purchases plot of land with superstructure, demolishes the superstructure and thereafter, constructs a new residential house. However, the onus would be on the Assessee to establish a new residential house has come into existence after purchase and demolition of old superstructure; and the same would depend upon the f....
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....l house, the qualifying event is the purchase. Therefore, any expenditure incurred by the Assessee after the event of purchase would not be eligible for deduction under Section 54F of the Act. 22. In the case of Shrinivas R. Desai vs. Assistant Commissioner of Income-tax (OSD), Circle-10, Ahmedabad [2013] 35 taxmann.com 170/[2013] 145 ITD 12/[2013] 155 TTJ 743 (Ahmedabad - Trib.)[28-06-2013], the Ahmedabad Bench of the Tribunal had held: "5. We have noticed that .................................In our considered view, the cost of purchases does include any capital expenditure incurred on the assessee on such property to make it liveable. As long as the costs are of such a nature as would be includible in the cost of construction in the normal course, even if the assessee has bought a readymade unit and incurred those costs after so purchasing the readymade unit - as per his taste and requirements, the costs so incurred will form integral part of the qualifying amount of investment in the house property. The use of words 'purchased or construed' does not mean that the property can either be purchased or constructed and not a combination of both the actions. A pro....
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.... 'habitable' fit for living for their residential purposes, but both the tax-payer's will be entitled for deduction u/s 54 of the Act provided other conditions as stipulated u/s 54 of the Act are fulfilled as section 54 of the Act does not stipulate any such restrictive conditions as to the ceiling on amount per-se of investment in purchase and /or construction of new residential house property which is rather linked to long term capital gain earned by the assessee on sale or transfer of residential house property, or as to type of residential house properties or quality of construction or amenities required by the taxpayer to make the house 'habitable' which would entitled the tax-payer for claiming the benefit u/s. 54 of the Act. The tax-payer keeping in view his socio-economic position and status in the society has to define as to what is 'habitable' residential house required to make the house fit for living/abode for the tax-payer for his residential purposes. Revenue cannot deny the benefit u/s 54 of the Act on the ground that expensive marble floorings or tiles are used in place of ordinary flooring or tiles etc. or a high quality expensive constr....
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....ming the construction/renovation was carried out by the seller and the Assessee had purchased the residential house after the said renovation/construction for a higher purchase consideration (including the cost of such renovation/construction), the Revenue would have accepted the same as 'the cost of new asset' for the purpose of Section 54F of the Act. In addition, the seller would have claimed the cost of construction/renovation as cost of improvement while computing the capital gains and to that extent would have been at the same position. Now, since the construction/renovation has been carried out by the Assessee after the purchase of residential house, the Revenue has objected to the claim of deduction under Section 54F of the Act to the extent of cost of construction/renovation. As noted by the Co-ordinate Bench of the Tribunal in the case of Rustom Homi Vakil (supra) in case the contention of the Revenue is accepted it would amount to treating equals as un-equals, and more so when the stated object of introducing the provisions of Section 54F was to deal the issue of shortage of housing and giving impetus to construction activity. 26. In the case of Mrs. Rahana Siraj vs. ....