2013 (12) TMI 945 - AT - Income Tax

Exemption u/s 54 - determination of cost of acquisition of new house property - Legal fees toward purchase of the new asset Held that - The purpose for which the fees stands paid cannot be a matter of presumption - The seller-builder keep at hand all the approvals, clearances, title deeds, NOC, etc., toward execution of the sale agreement - In the absence of any evidence with regard to the actual work undertaken, this amount cannot be considered as forming part of the cost of purchase of the new asset - Decided against assessee. Civil work expenses Held that - Civil work comprising re-plastering, re-tiling, waterproofing, re-wiring and installation of full length grills for safety, was done which was for the interior work and renovation The assessee has much before the renovation work occupied the house property - The modifications being made did not impact inhabitable state of the residential property - The work done, as a perusal of the bill would show, is toward upgrading interiors, interior designing, extending to curtains. Decided against assessee. Transfer charges builder seller Held that - No material evidence was provided by the assessee to support the claim, so that the purpose for which the money is given is not known However the AFS contained a clause that legal charges and security to be deposited by the buyer with the owner-builder which would cover the cost for formation of the (housing) society and it registration, and for the preparation of the AFS and conveyance The details of the expenses were not given - Decided against assessee. Expenses on improvement Held that - Any house property would necessarily warrant being kept in a state of good repairs - Merely because repairs are not carried out for a number of years together, leading to incurring expenditure in lumpsum or in a huge sum, would not by itself make it capital expenditure - The same is only by way of substantial repairs, i.e., that had accumulated over the past decades - Some cost incurred toward improvement cannot be denied, the same is estimatedat Rs. 1.50 lacs, i.e., at around 20% of the expenditure claimed to have been incurred Partly allowed in favour of assessee.

Summary

Issues Involved:
1. Deductibility of legal fees under Section 54.
2. Deductibility of expenditure on civil work under Section 54.
3. Deductibility of transfer charges under Section 54.
4. Deductibility of improvement expenses on the sold property.

Issue-wise Detailed Analysis:

1. Deductibility of Legal Fees under Section 54:
The first deduction in question was Rs. 1,65,000/- paid as legal fees for the purchase of a new residential flat. The Assessing Officer (A.O.) denied this deduction due to lack of proper details regarding the purpose of the expenditure. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision, noting that the receipt only mentioned an agreement related to the purchase of a flat. The tribunal agreed with the CIT(A), emphasizing that the purpose of the fees must be established with evidence, not presumption. The tribunal concluded that, in the absence of evidence regarding the actual work undertaken, this amount could not be considered part of the cost of purchase of the new asset and thus was not deductible under Section 54. The assessee's ground for this deduction was dismissed.

2. Deductibility of Expenditure on Civil Work under Section 54:
The second ground involved a disallowance of Rs. 15,14,415/- claimed for civil work on the newly acquired house property. The Revenue argued that this amount was for interior designing and renovation, not for the purchase of the new asset. The tribunal reviewed the relevant law, stating that Section 54 allows deductions for the purchase of a house in a habitable state. Any expenditure incurred after acquiring the house in a habitable condition could not be considered part of the purchase cost. The tribunal found that the assessee had shifted to the new premises before the civil work began, indicating that the property was already habitable. The tribunal concluded that the expenditure was for interior designing and renovation, not for making the house habitable, and thus was not deductible under Section 54. The assessee's ground for this deduction was also dismissed.

3. Deductibility of Transfer Charges under Section 54:
The third ground involved a disallowance of Rs. 4,00,000/- claimed as transfer charges paid to the builder-seller. The assessee failed to provide material evidence to support this claim, and the tribunal noted that even a specific query during the hearing elicited no response. The tribunal found that the agreement for sale provided for legal charges and security deposits, but the assessee's claim for Rs. 4,00,000/- was unsubstantiated. Consequently, the tribunal upheld the Revenue's action in denying this claim.

4. Deductibility of Improvement Expenses on the Sold Property:
The final ground involved a disallowance of Rs. 7,00,000/- claimed for improvement expenses on the sold property, incurred in 1993. The Revenue rejected this claim due to lack of evidence, noting that the assessee provided only an affidavit and a letter from a contractor. The tribunal considered that while direct evidence was lacking, some cost for improvement could not be denied. The tribunal estimated the allowable cost at Rs. 1,50,000/-, considering the nature of the expenditure and the time elapsed. The tribunal also dismissed the Revenue's argument that the assessee's 24% share in the property limited the allowable expenditure, reasoning that the assessee would undertake work only on the property in his occupation. Thus, the assessee received partial relief on this ground.

Conclusion:
The assessee's appeal was partly allowed, with deductions for legal fees, civil work, and transfer charges being dismissed, while partial relief was granted for improvement expenses on the sold property.