2020 (9) TMI 238 - AT - Income Tax

Exemption u/s.54F - Assessee purchased property was remodified and all the assessee have invested the balance of the capital gain in the re-modification of the house and have thus, claimed the said amounts as exempt u/s.54F - HELD THAT - Amount spent on renovation of such residential house by an assessee according to his requirements is also allowable as exempt u/s. 54F as it would amount to construction of a residential house. The only other requirement is that the construction should be completed within three years from the date of transfer of the original asset. CIT(A) also agrees that the issue is covered in favour of the assessee by the decisions of the Hon'ble Karnataka and Calcutta High Courts but chooses to follow the decisions against the assessee. In the case of CIT Vs. Godavari Devi Saraf 1977 (9) TMI 24 - BOMBAY HIGH COURT has held that - in the absence of a decision from the jurisdictional High Court, the decision of another High Court which is in favour of the assessee has to be followed. Hence, the order of the CIT(A) is not sustainable and the assessee s claim of exemption u/s.54F has to be examined in the light of the details submitted by the assessee and the report of the valuer submitted by the assessee in the absence of sufficient details as the construction was allegedly done in the year 2006. Therefore, we deem it fit and proper to remit the issue back to the file of AO with a direction to allow the exemption u/s.54F of the Act in respect of the cost of the house, which is already purchased by the assessee on 29-03-2006 and also the amount spent on renovation/re-modification of the house. - Grounds raised by the assessee are treated as allowed for statistical purposes.

Summary

Issues:
- Interpretation of provisions u/s.54F of the Income Tax Act for exemption on capital gains.
- Eligibility criteria for exemption under u/s.54F based on investment in residential house.
- Consideration of renovation expenses as part of exemption u/s.54F.
- Applicability of judicial precedents in determining exemption eligibility under u/s.54F.

Analysis:
The judgment by the Appellate Tribunal ITAT Hyderabad involved appeals by multiple assessees against the Commissioner of Income Tax (Appeals) orders regarding exemption of capital gains for the AY.2009-10 under sections 54 and 54F of the Income Tax Act. The assessees collectively sold a property and reinvested the proceeds in purchasing a residential house, with the remaining capital gain deposited in the Capital Gains Scheme Account. The dispute arose when the Assessing Officer disallowed the exemption claim, stating that renovation of the purchased house did not qualify as investment in a new residential asset as required by the Act.

The CIT(A) upheld the AO's decision, emphasizing that investment in extension or renovation of an existing house does not meet the criteria for exemption under sections 54 and 54F. The assessees challenged this decision before the Tribunal, arguing that the purchased property was modified to make it habitable, thus falling under the purview of the Act for exemption. They contended that the CIT(A) erred in dismissing their appeal based on precedents favoring the department and not considering the modifications made for their residential use.

During the hearing, the Tribunal analyzed the facts and submissions. It noted that the assessees had indeed purchased a residential unit and subsequently renovated it using the capital gains, which the AO failed to acknowledge. The Tribunal disagreed with the CIT(A)'s finding, stating that section 54F requires investment in a residential house, allowing expenses for renovation to be considered as part of the construction process. It highlighted that the CIT(A) acknowledged favorable decisions by other High Courts but chose to follow decisions against the assessees, contrary to legal principles.

Consequently, the Tribunal ruled in favor of the assessees, remitting the issue back to the AO to allow the exemption under section 54F for the purchased house and renovation expenses. It emphasized the importance of considering the details submitted by the assessees and the valuer's report to determine the eligibility for exemption. The Tribunal concluded by treating all appeals as allowed for statistical purposes, as the issues and findings were common across the cases.

In summary, the judgment clarified the interpretation of provisions under sections 54 and 54F of the Income Tax Act, affirming that renovation expenses on a purchased residential house can be considered for exemption if meeting the construction requirements. It underscored the significance of following precedents favoring the assessee in the absence of jurisdictional High Court decisions and directed a reassessment by the AO based on the details provided by the assessees.