TaxTMI 
TaxTMI 
2006 (6) TMI 139
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....ssee had sold 89,998 shares of Koyal Finvest Pvt. Ltd. for a consideration of Rs. 4,85,98,920/- in the year under consideration. He also purchased a flat in a building, namely, Samudra Mahal, situated at Dr. Annie Besant Road, Mumbai, for a consideration of Rs. 3,46,95,443/-. According to the assessee, this flat was in an inhabitable condition and, therefore, he had to incur an expenditure of Rs. 28,66,675/- in order to make the flat habitable. In the return filed, the assessee claimed exemption under section 54F in respect of both the amounts mentioned above. In the course of assessment proceedings, the Assessing Officer asked the assessee to explain as to how the exemption could be allowed in respect of the sum of Rs. 28,66,675/-. I....
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....on 54F(1) is that the assessee should 'purchase' a residential house. The process of purchase involves execution of an agreement, payments pursuance of this agreement, payment of stamp duty, registration of the deed of transfer, payment of transfer fee to the society and getting the shares in the Co-operative Housing Society transferred to one's name. When all these actions are over, the process of purchase is complete. Therefore, when sections 54F(1) and 54F(1)(a) and (b) are read together, it is amply clear that 'cost of new asset' means "cost of purchase of new asset". It cannot include cost of improvements or cost of renovation as these activities are subsequent to the 'purchase'. b. The assessee has....
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.... purchase of inhabitable house, to make the house habitable. The contention of revenue is that, the moment the house is purchased, the requirement of section 54F stands complied with and, therefore, any amount spent thereafter in respect of such house would not qualify for exemption under section 54F. The stand of the assessee is that, incentive provisions should be construed liberally. According to him, an incomplete house which is inhabitable cannot be considered as purchase of residential house and, therefore, any sum incurred to make such house habitable would form part of cost of purchase. So, the entire dispute centers round the interpretation of the provisions of section 54F of the Act. Therefore, it would be appropriate to reproduce....
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.... liberally, restrictions on it too has to be construed so as to advance the objective of the provisions and not to frustrate it." 6. At this stage, it would also be useful to refer to the Board's Circular No. 471, dated 15-10-1986, which reads as under: "1. Capital gains tax.- Whether investment in a flat under the Self-financing Scheme of the Delhi Development Authority would be construction for purpose of sections 54 and 54F of the Income-tax Act, 1961. Sections 54 and 54F of the Income-tax Act, 1961, provide that capital gains arising on transfer of a long-term capital asset shall not be charged to tax to the extent specified therein, where the amount of capital gain is invested in a residential house. In the case of purc....
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....tive cost of construction is already determined and the D.D.A. facilitates the payment of the cost of construction in instalments subject to the condition that the allottee has to bear the increase, if any, in the cost of construction. Therefore, for the purpose of capital gains tax, the cost of the new asset is the tentative cost of construction and the fact that the amount was allowed to be paid in instalments does not affect the legal position stated above. In view of these facts, it has been decided that cases of allotment of flats under the Self-financing Scheme of the Delhi Development Authority shall be treated as cases of construction for the purpose of capital gains." The above Circular clearly shows that object of sections 54 a....
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....subject to the condition that payment was made during the period specified in section 54F. 8. Before parting with this issue, we would like to mention that there is distinction between expenditure incurred on making the house habitable and the expenditure on renovation. We may visualize a situation where assessee may buy a habitable house but the assessee may like to incur expenditure by way of renovation to make it more comfortable. He may not be happy with the quality of material used by the builder and, therefore, he may incur the expenditure on improvement of the house. Such expenditure cannot be equated with the expenditure on making the house habitable. Whether the house purchased by the assessee was in a habitable condition or not....