2017 (9) TMI 1949 - AT - Income Tax

Deduction u/s.54F - claim on purchase or construction of a residential house and not for purchase further construction/alteration of a residential house - whether alteration and additional construction of the residential house attracts deduction u/s 54F - as argued residential house purchased was not in a habitable condition - AO has noted that the assessee is not entitled to the deduction u/s.54F for the alteration / renovation carried out by him to the purchased unit as also to the construction of the third floor - HELD THAT - The word used purchased is required to be restricted only to actual purchase and if any addition alteration or demolition of the property is carried out by the assessee for the purposes of reconstruction after the demolition and for making it convenient for his use then the cost incurred by the assessee for that purpose would not be eligible for deduction u/s.54F is against the very purpose of providing this deduction in the statute book. Our reading of the provision makes it abundantly clear that the purchase do not include a purchase which is not a purchase of an asset which is not incapable of being used by the assessee. The assets for the purpose of Section of 54F should be an asset purchased by the assessee and if an assessee incurs a cost for making it useful and convenient after taking approval from the competent authority as in the present case then the assessee is entitled to deduction u/s.54F - there is no irregularity or illegality in the order passed by the CIT (A). - Decided in favour of assessee.

Summary

Issues:
1. Allowance of deduction u/s 54F for alteration and additional construction of residential house.
2. Interpretation of the term 'purchase' in relation to Section 54F.
3. Eligibility to claim deduction u/s 54F for renovation and expansion expenses post-purchase.
4. Applicability of judgments in similar cases to the present scenario.

Issue 1: Allowance of deduction u/s 54F for alteration and additional construction of residential house:
The appeal was filed by the Revenue against the order of the CIT (A) allowing the assessee's claim of deduction u/s 54F for expenses incurred towards alteration and additional construction of a residential house. The Revenue contended that the exemption under section 54F can only be claimed for 'purchase' or 'construction' of a residential house, not for 'purchase & further construction/alteration.' The CIT (A) relied on the decision in a specific case to support the allowance of the claim, emphasizing the habitable condition of the property purchased by the assessee. The Revenue argued against this interpretation, highlighting the distinction in the case law cited by the CIT (A) and the present scenario.

Issue 2: Interpretation of the term 'purchase' in relation to Section 54F:
The dispute centered around the term 'purchase' in Section 54F and whether it encompasses expenses incurred for alterations and improvements post-purchase. The AO disallowed the deduction for expenses related to alteration and renovation, considering them as additional construction beyond the scope of the provision. The Tribunal analyzed the provision of Section 54F, emphasizing the liberal application of the beneficial provision to promote residential house construction. The Tribunal referred to various judgments supporting a broad interpretation of such provisions, highlighting the legislative intent behind Section 54F.

Issue 3: Eligibility to claim deduction u/s 54F for renovation and expansion expenses post-purchase:
The Tribunal examined the eligibility of the assessee to claim deduction u/s 54F for expenses incurred after the purchase of the new asset for renovation and expansion. The AO contended that such expenses were not covered under the provision as they were not deposited in the Capital Gains Account. The Tribunal referred to the legislative framework of Section 54F and the requirement to deposit unutilized funds in a specified account. The Tribunal analyzed the facts of the case, including the amount spent on renovation and the total cost of the new asset, to determine the eligibility of the assessee for the deduction.

Issue 4: Applicability of judgments in similar cases to the present scenario:
The Tribunal considered the applicability of judgments cited by both parties to the present case. The Revenue challenged the reliance on specific judgments by the CIT (A) to support the allowance of the deduction. The Tribunal reviewed the judgments cited by the parties, including decisions from the High Court and other legal authorities, to determine their relevance to the issues raised in the appeal. The Tribunal evaluated the arguments presented by both sides in light of the legal precedents and statutory provisions governing deductions under Section 54F.

In conclusion, the Tribunal dismissed the appeal of the Revenue, upholding the decision of the CIT (A) to allow the deduction u/s 54F for the expenses incurred by the assessee towards alteration and construction of the residential house. The Tribunal emphasized the broad interpretation of the provision to achieve the legislative intent of promoting residential house construction, thereby providing relief to the assessee in line with the statutory framework and legal principles governing such deductions.