2016 (11) TMI 1602 - HC - Income Tax

Exemption under Section 54F - expenditure purportedly incurred by the assessee on renovating the new asset, after its purchase by the assessee, to make it habitable - whether be included in the cost of the new asset? - Held that - Tribunal has allowed the respondentassessee s appeal by following the decisions of its Coordinate Benches at Mumbai in Saleem Fazuebhoi v/s. DCIT 2006 (6) TMI 139 - ITAT BOMBAY-G to hold that the expenditure incurred on making the house habitable should be considered as an investment in purchase of a house, subject to the condition that the payment was made during the specified period under Section 54F of the Act. The Revenue has accepted the above two decisions of the Tribunal. This for the reason that it has not been able to show that any appeal has been filed from the two aforesaid decisions of the Coordinate Benches of the Tribunal. The impugned order has merely been followed by the impugned order of the Tribunal. Improvement cost inclusion in the cost of the new asset while working out the exemption under Section 54F - Held that - The impugned order of the Tribunal records we have considered the rival submissions as well as the relevant material on record. There is no dispute that the assessee has incurred an expenditure of ₹ 58.26 lakhs on the improvement of the flat purchased by the assessee to make in a habitable condition. The aforesaid statement recorded by the Tribunal has to be accepted in the absence of the same being rectified by it. It therefore follows that before the Tribunal the Revenue did not urge that the expenditure of ₹ 58.26 lakhs had not been in fact incurred to improve the flat so as to make it in habitable condition. No substantial question of law. Appeal admitted on the substantial questions of law at question nos. (1) and (4).

Summary

Issues involved:
1. Interpretation of provisions under Section 55(2)(b)(ii) and Section 55(2)(a) of the Income Tax Act, 1961 for determining the fair market value and cost of acquisition of tenancy rights.
2. Allowability of expenditure incurred on renovating a new asset under Section 54F of the Act.
3. Inclusion of improvement cost in the cost of a new asset for exemption under Section 54F.
4. Deletion of addition made by the Assessing Officer in respect of a deposit in the Capital Gains Account Scheme for claiming deduction under Section 54F.

Analysis:
1. The first issue revolves around the Tribunal's decision to adopt the fair market value as of April 1, 1981, for determining the cost of acquisition of tenancy rights under Section 55(2)(b)(ii). The Tribunal justified its decision based on previous rulings and the respondent's expenditure on making the house habitable. The Revenue's argument against this decision was dismissed as it failed to show any change in facts or law. Consequently, the question was not entertained due to the absence of a substantial legal issue.
2. The second issue concerns the allowance of expenditure on renovating a new asset under Section 54F. The Tribunal upheld the respondent's claim that the renovation cost should be included in the cost of the new asset for exemption under Section 54F. The Revenue's contention that the expenditure was not incurred for this purpose was rejected as the Tribunal's order stated otherwise. Hence, this question was not considered as it did not arise from the Tribunal's decision.
3. The third issue addresses the inclusion of improvement cost in the cost of a new asset for exemption under Section 54F. The Tribunal's acceptance of the expenditure incurred by the respondent for making the purchased house habitable was based on factual findings. The Revenue's argument against this finding was dismissed as it was not raised before the Tribunal. Consequently, this question was not entertained due to its lack of relevance.
4. The final issue involves the deletion of an addition made by the Assessing Officer regarding a deposit in the Capital Gains Account Scheme for claiming a deduction under Section 54F. The Tribunal upheld the deletion, emphasizing that the amount was not subsequently utilized for the new asset. This issue was admitted for consideration based on substantial legal questions raised by the Revenue. The Registry was directed to notify the Tribunal to keep the relevant documents for future reference.