2018 (6) TMI 410 - AT - Income Tax

Entitlement to exemption u/s 54F - amount is not directly invested in purchasing of the villa, rather it is routed through mutual funds - Held that - The capital asset was sold on 26.02.2011. The capital asset was purchased on 31.03.2011 and before the purchase of the capital asset the amount was deposited in mutual funds. Therefore in the considered opinion of the bench, before the date of filing of the return, not only the capital asset was purchased by the assessee on 31.03.2011, but also the assessee had deposited and invested an amount of ₹ 15 lakhs with Canara Bank. Therefore the assessee has fulfilled all the conditions required u/s.54F for the purposes of claiming the exemption, in our view deposit of money by the assessee inter-alia in mutual fund prior to purchase of residential house albeit will not make any difference if the assessee had purchased the residential house within the time provided by the Act - Decided in favour of assessee. Proportional exemption - assessee had only invested the amount of ₹ 1,94,49,302/- in purchasing the villa and has also invested an amount of ₹ 15 lakhs in Canara Bank, a scheduled bank - Held that - the assessee is entitled to the exemption for the amount spent either for fixing the doors or amount paid to the architects or purchasing the installations which were necessary for making the house habitable to the maximum amount of ₹ 16,26,300/-. - As in terms of Section 54F the assessee is only entitled to proportionate exemption vis-a-vis, cost of the original asset and the cost of the new assets. In the light of the above, the AO is directed to recomputed the capital gains exemption.

Summary

Issues:
1. Eligibility of investment for exemption u/s 54F of the Act
2. Disallowance of deduction under section 54 for additional fixtures and furniture

Eligibility of investment for exemption u/s 54F of the Act:
The case involved cross-appeals by the Revenue and the assessee regarding the eligibility of an investment for exemption u/s 54F of the Act. The assessee had invested in mutual funds before purchasing a residential villa, leading to a dispute over the direct investment required for claiming the exemption. The Revenue contended that the investment in mutual funds before purchasing the property rendered the assessee ineligible for the exemption. However, the bench emphasized the conditions under u/s 54F, requiring the purchase or construction of a residential house within a specified period. The bench noted that the assessee had fulfilled all conditions by investing in the villa and depositing an amount with a bank before the filing of the return. The bench dismissed the Revenue's appeal, ruling that the assessee met the requirements for claiming the exemption.

Disallowance of deduction under section 54 for additional fixtures and furniture:
The assessee appealed against the disallowance of a deduction under section 54 for payments made towards additional fixtures, furniture, and construction-related expenses. The assessee argued that these expenses were necessary for making the house habitable. Citing a precedent from the Ahmedabad Tribunal, the bench upheld the assessee's grievance and directed the Assessing Officer to delete the disallowance of deduction to the extent of the additional expenses. The bench noted that the expenses were integral to the purchase of the house property and deserved to be considered for the deduction. The bench allowed the assessee's appeal, emphasizing that the assessee was entitled to the exemption for the additional expenses incurred. However, the bench highlighted that the assessee was only entitled to a proportionate exemption under Section 54F concerning the cost of the original and new assets.

In conclusion, the Revenue's appeal failed, and the assessee's appeal was allowed, with the bench directing the recomputation of the capital gains exemption in line with the decision.