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2015 (4) TMI 52 - AT - Income TaxBenefit of section 54 denied and granting exemption under section 54F - whether the provision of section 55(3) to be read with the section 49(1)(ii) were clearly attracted in the case and not the provision of section 55(2) of the Income-tax Act, 1961? - Held that - As the property in question was purchased by one Shri. B. E. Cassinath, the great-great-grandfather of the assessee around the year 1898. Mr. B. E. Cassinath died in the year 1912 and left behind him a will. By the said will and codicil, he created a settlement regarding the residential property in question and appointed his wife and sons as executrix and trusties of will. The testator gave a life interest to his children/ grand children in the property in question. The trusties of the will sold the property in question and thereafter the property changed hands various times however, the families of the heirs of the testator continued to reside in the property in question. The assessee is a descendant of B.E. Cassinath the testator. Appellant in the instant case is not the owner of the property and holds mere tenancy right with respect to the impugned property. In view of this and in view of the specific provisions of section 54, CIT(A) correctly held that the appellant is not entitled to claim deduction under section 54 of the Act. The Assessing Officer is, therefore, justified in rejecting the claim of the appellant and in denying the deduction under section 54 of the Act. As the tenancy right is a capital asset other than residential house, the Assessing Officer has rightly granted the deduction under section 54F of the Act. - Decided against assessee. Cost of acquisition under section 55 - Assessing Officer rejected the claim of the assessee for cost of acquisition being fair market value as on April 1, 1981 and index cost based on the value as on April 1, 1981 and held that there is no cost incurred for purchase/acquisition of the tenancy rights and accordingly took the cost of acquisition at nil also confirmed by CIT(A) - Held that - There is no dispute that the tenancy was acquired by the grandfather of the assessee in the year 1945 and capital asset in the shape of tenancy right became a property of the assessee by inheritance which clearly falls within the modes provided under section 49(1).The case of the assessee clearly falls under sub-clause (iii) of clause (a) of sub-section (1) of section 49. Once the capital asset in question became the property of the assessee as per section 49(1)(iii)(a) and the previous owner acquired the property prior to April 1, 1981, then the cost of acquisition of the capital asset for the purpose of sections 48 and 49 shall be the cost of acquisition of the asset to the previous owner or the fair market value (FMV) of the asset as on April 1, 1981 at the option of the assessee provided under the provisions of section 55(2)(ii)(b) of the Income-tax Act. As we have already discussed in the forgoing paragraphs that the case of the assessee falls under sub-clauses (i) to (iv) of section 49(1) therefore, the provisions of sub-clause (a) of clause (ii) of sub-section (2) of section 55 do not apply in the case of the assessee. Thus fair market value of the tenancy rights as on April 1, 1981, shall be the cost of acquisition as per the provisions of section 55(2)(ii)(b). The assessee filed the valuation report for valuing the fair market value of the asset in question as on April 1, 1981 and the authorities below have not questioned the correctness of the value as on April 1, 1981. We further take note that the Bombay Stamp Act recognises the value of surrender of tenancy rights exceeding 29 years as almost equivalent to the market value of the property therefore, it supports the claim of fair market value as on April 1, 1981. - Decided in favour of assessee. Expenditure incurred on improvement/ renovation of the new residential house for the purpose of deduction under section 54 disallowed - Held that - Case of D. P. Mehta v. CIT 2001 (1) TMI 29 - DELHI High Court clearly supports the claim of the assessee because the assessee made the investment for making the house habitable and the claim has been made only after the new asset was made habitable. In view of the above discussion and facts and circumstances of the case, we hold that the assessee is entitled to the exemption under section 54, in respect of the expenditure incurred on the renovation work to make the house habitable apart from cost of purchase. - Decided in favour of assessee. Exemption under section 54F - ₹ 1,25,00,000 deposited in capital gains account in the Central Bank of India on July 29, 2009 and the assessee has utilised the said amount for purchase of another flat - Held that - Deduction under section 54 is eligible even for purchase of more than one house. See Commissioner of Income-tax, Bangalore Versus Smt. Jyothi K. Mehta 2011 (1) TMI 551 - KARNATAKA HIGH COURT , CIT v. Mrs. K. G. Rukminiamma 2010 (8) TMI 482 - Karnataka High Court - CIT(A) correctly allowed the exemption - Decided in favour of assessee.
Issues Involved:
1. Denial of exemption under Section 54 and granting exemption under Section 54F. 2. Determination of cost of acquisition under Section 55 of the Income-tax Act. 3. Expenditure incurred on improvement/renovation of the new residential house for the purpose of deduction under Section 54. 4. Allowance of exemption under Section 54F for the amount deposited in the Capital Gains Account Scheme. Detailed Analysis: 1. Denial of Exemption Under Section 54 and Granting Exemption Under Section 54F: The assessee surrendered tenancy rights which resulted in capital gains. The assessee claimed deductions under Section 54 for investment in a new residential house. The Assessing Officer (AO) denied the claim under Section 54, stating the assessee was not the owner but a tenant, hence allowed deduction under Section 54F instead. The Commissioner of Income-tax (Appeals) upheld this decision, stating the assessee held mere tenancy rights, not ownership. The tribunal agreed, emphasizing that the tenancy rights do not qualify as ownership of a residential house required for Section 54 benefits. 2. Determination of Cost of Acquisition Under Section 55 of the Income-tax Act: The assessee claimed the cost of acquisition should be the fair market value as on April 1, 1981, with indexation benefits. The AO took the cost of acquisition as nil, rejecting the assessee's claim. The tribunal noted that tenancy rights, acquired by the grandfather in 1945 and inherited by the assessee, fall under Section 49(1). Therefore, the cost of acquisition should be the fair market value as on April 1, 1981, as per Section 55(2)(ii)(b). The tribunal ruled that the fair market value of the tenancy rights as on April 1, 1981, should be the cost of acquisition, allowing for indexation benefits. 3. Expenditure Incurred on Improvement/Renovation of the New Residential House for the Purpose of Deduction Under Section 54: The assessee incurred expenses on renovating the new residential house to make it habitable and claimed these expenses under Section 54. The AO disallowed the claim, stating the renovations were not structural. The tribunal, however, noted that the objective of Sections 54 and 54F is to promote investment in habitable residential houses. It ruled that expenditures on making a house habitable should be considered as part of the investment in the new house, thus allowing the assessee's claim. 4. Allowance of Exemption Under Section 54F for the Amount Deposited in the Capital Gains Account Scheme: The AO disallowed the claim without discussion. On appeal, the Commissioner of Income-tax (Appeals) allowed the claim, noting the assessee deposited Rs. 1.25 crore in the capital gains account within the prescribed period and used it to purchase another flat. The tribunal upheld this decision, referencing various High Court rulings that support the eligibility of Section 54F benefits for investments in more than one house. Conclusion: The tribunal partly allowed the assessee's appeal, granting the cost of acquisition benefits under Section 55 and the renovation expenses under Section 54, while denying the exemption under Section 54 for the tenancy rights. The Revenue's appeal was dismissed, upholding the exemption under Section 54F for the amount deposited in the capital gains account.
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