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TMI Blog2016 (5) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... is of our discussion and reasoning above , we hold that the assessee is entitled for claim of benefit u/s 54 of the Act of expenditure incurred by the assessee to make the said new residential house purchased by the assessee at Pune in July 2008 ‘habitable’ fit for living for residential purposes by the assessee. - Decided in favour of assessee. - I .T.A. No.4450/Mum/2014 - - - Dated:- 30-3-2016 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Mr. Mahesh C. Mathur For The Revenue : Mr. B S Bist, Sr. DR ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being ITA No. 4450/Mum/2014, is directed against the order dated 19-03-2014 passed by the learned Commissioner of Income Tax (Appeals)- 23, Mumbai (Hereinafter called the CIT(A) ), the appellate proceedings before the CIT(A) arose from the assessment order dated 21-11-2011 passed by the learned assessing officer (Hereinafter called the AO ) u/s. 143(3) of the Income Tax Act,1961(Hereinafter called the Act ), for the assessment year 2009-10. 2. The grounds raised by the assessee in the memo of appeal filed with the Tribunal read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.68,21,743/- Thus, it was observed by the AO that the assessee has claimed ₹ 14,26,705/- towards improvement of purchased property as a deduction u/s 54(1)(i) of the Act. The assessee was asked to explain why the improvement made to the purchased house and claimed as deduction should not be disallowed and added to income of the assessee. The assessee submitted that soon after purchasing , to make the new house property , habitable by incurring further expenditure in July, 2008 to January, 2009 by engaging the services of a interior decorator , plumber, electrician to the extent of ₹ 14,26,705/-. The assessee filed copies of bills for expenses made for improvement of the bought residential property. The AO rejected the contentions of the assessee and held that cost of improvement as provided under the Act will be taken into account at time of calculating capital gains when the property is sold. The assessee in the instant case is claiming cost of improvement of ₹ 14,26,705/- not at the time of selling his property but with respect of the property bought by the assessee against the receipt of selling the tenancy rights. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch appear more in the nature of making the house more comfortable than what is required to make it merely habitable. Further, as per sub-para (ix) of para 8 of the purchase agreement dated 23-07-2008 , the expenses of repairs and restoration are estimated at ₹ 7,00,000/- by mutual agreement of the seller of the property and the assessee while the expenditure incurred and claimed as cost u/s. 54 of the Act is ₹ 14,26,705/- . Thus, the AO stated in remand report that the excess expenses appears to be beyond mere repairs and restoration to a habitable condition, and rather make the house comfortable. Thus, the AO stated in remand report that out of the total expenditure of ₹ 14,26,705/- claimed by the assessee , ₹ 7,00,000/- (as per purchase agreement ) be treated as towards making the new house habitable , and the remaining ₹ 7,26,705/- be treated as making the new house comfortable. Thus as per AO the amount eligible for exemption as cost u/s.54 of the Act is only ₹ 7,00,000/- . A copy of remand report was forwarded to the assessee for his comments and the assessee submitted before the CIT (A) in response to remand report that the expenditure w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Ld. Counsel for the assessee reiterated its submissions before the Tribunal as were made before the authorities below which are not repeated for sake of brevity. The ld counsel for the assessee submitted that the assessee sold tenancy rights for ₹ 2.00 crores and purchased a residential house property in Pune which was in dilapidated condition for ₹ 1.10 crore. The assessee has spent ₹ 14.26 lacs for make the said new residential house property at Pune habitable and claimed benefit u/s. 54 of the Act which has been denied by Revenue because as per authorities below the same is cost of improvement which can be allowed as deduction u/s. 48 of the Act when the assessee will sell the new residential house but deduction u/s. 54 of the Act could not be allowed as per Revenue. Further, the Revenue is contending that the said expenditure has not been incurred to make the house habitable but renovation was carried out by the assessee which is to make house comfortable rather than habitable. The assessee s counsel submitted that expenditure of ₹ 14.26 lacs was incurred to make the house habitable. Section 54 of the Act is a beneficial provision and should be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable as deduction u/s. 48/49 of the Act when the new residential house property purchased by the assessee at Pune is sold by the assessee but no benefit u/s. 54 of the Act can be allowed to the assessee with respect to this expenditure incurred by the assessee which is post the purchase of the new residential house as according to the Revenue , only the cost paid for acquiring new residential house is to be taken for the purposes of granting benefit u/s. 54 of the Act. Secondly as per Revenue, these expenditure of ₹ 14,26,705/- was incurred to make the residential house comfortable and was not incurred to make the house in habitable state as when the house was purchased/acquired by the assessee , it was already in habitable state and the assessee chose to replace existing floorings , plumbing, electricity work etc. with another floorings, plumbing and electrical etc. which can be said to be incurred to make the house comfortable rather than making the house in habitable state. The assessee has thus undertaken repairs and renovation of the house as per needs of the assessee and is not cost of acquiring the new residential house property and hence as per Revenue, benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme9 which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of subsection (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,- (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties that sub-clause (ix) of clause 8 of the purchase deed dated 23-07-2008, through which the assessee purchased a new residential house property at Pune stipulate s that the said house required extensive civil, plumbing , electrical and painting works which is to be borne by the purchaser i.e. the assessee which was estimated to be ₹ 7,00,000/-, as under: (8)(ix) The Purchaser is aware that the flat requires extensive civil, plumbing , electrical , painting works that as regards the same, it is being sold on an as is where is basis. The Purchaser is aware that expenses of repairs and restoration is estimated at ₹ 7,00,000/- . Whatever may be the cost, the responsibility of the same is taken over by the purchaser and he will carry out the same at his own cost and Vendors will not be liable for the same at all. Thus, the new residential house property acquired/purchased by the assessee at Pune in July 2008 as contended by the assessee was in dilapidated condition which required extensive construction work to make it in a habitable state. As per assessee, he got the work done through contractors and incurred expenditure of ₹ 14,26,705/- for maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existing structures , flooring, tiles etc. and laying new better quality items in place of them. The AO in remand report has also admitted that ₹ 7,00,000/- be considered towards making the house habitable and the balance be treated as towards making the house comfortable. In the instant case, the assessee has purchased the new residential house at Pune in July 2008 in dilapidated condition and immediately there-after undertaken extensive civil, plumbing , electrical painting works to make it habitable , which tantamount to construction within the meaning of Section 54 of the Act , hence , the assessee cannot be denied the benefit u/s. 54 of the Act merely on the ground that the assessee has purchased the new residential house and there-fore benefit as available to construction of the new residential house cannot be extended to the assessee simultaneously . Perusal of Section 54 of the Act will reveal that no such restrictions are placed in the provisions of Section 54 of the Act that purchase of new residential house is mutually exclusive to the construction of new residential house , provided other conditions as stipulated u/s. 54 of the Act are fulfilled. Rather, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouse habitable fit for living for their residential purposes, but both the tax-payer s will be entitled for deduction u/s 54 of the Act provided other conditions as stipulated u/s 54 of the Act are fulfilled as section 54 of the Act does not stipulate any such restrictive conditions as to the ceiling on amount per-se of investment in purchase and /or construction of new residential house property which is rather linked to long term capital gain earned by the assessee on sale or transfer of residential house property , or as to type of residential house properties or quality of construction or amenities required by the tax-payer to make the house habitable which would entitled the taxpayer for claiming the benefit u/s. 54 of the Act . The tax-payer keeping in view his socio-economic position and status in the society has to define as to what is habitable residential house required to make the house fit for living/abode for the tax-payer for his residential purposes. Revenue cannot deny the benefit u/s 54 of the Act on the ground that expensive marble floorings or tiles are used in place of ordinary flooring or tiles etc. or a high quality expensive construction material is use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Insofar as the second substantial question of law is concerned, it is not in dispute that the property purchased by the assessee was habitable but had lacked certain amenities. The assessee has spent nearly about ₹ 18 lakhs towards removal of mosaic flooring and laying of marble flooring, alteration of the kitchen, putting up compound wall, protecting the property with grill work and attending to other repairs. Section 54F of the Act provides that if the cost of the new asset, which is to be taken into consideration while determining the capital gain, the words used is cost of new asset and not the consideration for acquisition of the new asset . In law, it is permissible for an assessee to acquire a vacant site and put up a construction thereon and the cost of the new asset would be cost of land plus (+) cost of construction On the same analogy, even though he purchased a new asset, which is habitable but which requires additions, alterations, modifications and improvements and if money is spent on those aspects, it becomes the cost of the new asset and therefore, he would be entitled to the benefit of deduction in determining the capital gains. The approach of the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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