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TMI Blog2008 (1) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... e sake of convenience. 2. The brief facts as brought on record are that Sri Vijayakumar and his spouse Smt. Vijayalakshmi have invested in shares and derived income from capital gain on sale of shares. During the financial year Sri Vijayakumar and Smt. Vijayalakshmi earned long-term capital gain of Rs. 21.52 lakhs and Rs. 21.62 lakhs and short-term capital gain of Rs. 9.18 lakhs and claimed expenses of Rs. 65,651 and Rs. 1.10 lakh respectively. Out of long-term capital gains of shares, they bought a property, land and building in joint names for Rs. 51.49 lakhs, Sri Vijayakumar contributed Rs. 17.75 lakhs and Smt. Vijayalakshmi Rs. 36.61 lakhs. They demolished the building and started constructing a new building investing Rs. 2.85 lakhs a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h each was claimed as expenses and interest on both long-term and short-term capital gains. As dividend income was exempt, AO disallowed Rs. 2.21 lakhs as not connected with transfer of capital asset. 4. Aggrieved the assessee appealed before the learned CIT(A) who confirmed the action of the AO on both the issues. 5. The learned counsel for the assessees submitted that the assessee was entitled to exemption under s. 54 (54F) in respect of the investment made in the purchase of 100 year old building but denied exemption on the investment made on demolition of the old building and construction of a new building. The assessee appealed to learned CIT(A) urging that the old building was not in a habitable condition and new building now buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase of shares in computing the capital gains on the ground that it was not an expenditure incurred in connection with transfer without assigning any reasons as to why the judicial decisions in CIT vs. Mithlesh Kumari (1973) 92 ITR 9 (Del), 113 ITR 372 (sic); CIT vs. A.R. Damodara Mudaliar Co. (1979) 12 CTR (Mad) 384 : (1979) 119 ITR 583 (Mad) and CIT vs. K. Raja Gopala Rao (2002) 172 CTR (Mad) 533 : (2001) 252 ITR 459 (Mad) holding that the same is allowable as cost of acquisition would not be followed. Thus the order of the lower authorities was erroneous on facts and law and not maintainable on the basis of judicial decision. 6. The learned Departmental Representative, on the other hand, supported the orders of authorities below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the restriction of cost of improvement as referred in s. 48(ii) were for the asset which has already under-gone computation of capital gains, therefore, could only be separated from the claim of deduction under s. 54F. 7. With respect to the second issue agitated by the assessees, he pointed out that both the authorities below clearly held that the assessee has claimed interest from the income earned from dividend as income from other sources and not cost of shares and also could not establish that the interest has been paid on borrowings which were utilized for the acquisition of shares which ultimately partook the sale so as to qualify for deduction being part of the cost of acquisition of shares. He pointed out that the AO had al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rselves to this proposition of the authorities below insofar as it was the case of the assessee to claim deduction under s. 54F by transferring shares held as long-term asset to purchase a residential house with the intention of residing in the premises which the authorities below appear to be guided by the proviso to the said section that the consideration is restricted to the assessee's claim of exemption on the purchase of land and building as per the purchase deed. The proviso provides restriction but cannot be construed so as to restrict the objective or incentive and not to obstruct or deed (sic) as has been held by the decision in the case of CIT vs. Rajesh Kumar Jalan (2006) 206 CTR (Gau) 361 : (2006) 286 ITR 274 (Gau). The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular No. 667 which clarifies that for exemption it was meant for construction of a residential house after demolishing the existing/old structure. Therefore, it cannot be said that the assessee after having purchased the site had absolved himself to having acquired a new asset when the time available for him to construct a residential house thereupon between two to three years was still available. He would not have constructed a house unless the old building was demolished. Therefore, keeping in view of all the facts and circumstances as has been brought out before us, we are of the considered view that the authorities below erred in denying the assessees the claim of deduction under s. 54F by restricting the exemption to the cost of land a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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