ITA-655/2014

Shri Sachinder Mohan Mehta
versus
Assistant Commissioner of Income Tax

Recently, on 03/12/2014, the Delhi High Court has delivered a judgment on the deductibility of fixture and fittings as cost of acquisition/improvement of property.

The Question for consideration in the above case was whether amount paid by the assessee for fixture and fittings to the seller at the time of purchase of the property can be construed as a cost of acquisition of the asset to be deducted from the full value of consideration received by the appellant assessee at the time when he had sold and transferred the property in question.

Brief Facts of the Case:

The assessee (Architect by profession) in the year 1997 purchased a floor of property in terms of an unregistered agreement of sale for Rs. 18 lakhs. However the assessee paid Rs. 30 lakhs to the seller including Rs. 12 lakhs for fixtures and fittings. However, no sale deed was registered for the fixtures and fittings.

In 2008, the assessee sold the property in question and in computing the Long Term Capital Gains, deducted full Rs. 30 lakhs including an amount of Rs.12 lakhs spent on fixtures and fittings from the consideration received, as cost of acquisition/improvement.

During the assessment proceedings, the assessee took the stand of having entered into two agreements, one for purchase of bare shell floor for Rs.18 lakhs and for purchase of fixtures and fittings for Rs.12 lakhs respectively. It was also stated that a house cannot be habitable without windows, wardrobes, geysers, electricity fans, lights etc. and all these items are necessary to make a house habitable.

However, the Assessing Officer did not allow the deduction at Rs.12 lakhs from the sale consideration holding such items as “furniture‟ covered under the definition of “personal asset‟ which are not covered under section 2(14) related to “capital assets”. In the sale deeds, there was no mention to the fact of a separate agreement for furniture and fixture as claimed by the assessee. All that assessee could produce was a paper bill for sale of said fixtures and fittings.

Both, CIT (appeals) and the Income Tax Appellate Tribunal rejected the contentions of the assessee. On appeal, the Delhi High Court also upheld the disallowance for the deduction of amount paid for furniture and fixture as cost of acquisition/improvement.

The important excerpts of the judgment of the Delhi High Court are as under:

The issue would be, whether the display windows, partition of drawing room, wooden grills, wooden temples, wardrobes, cupboards, crockery, windows, fans, geysers, light fittings, rugs, furniture, fixtures, can be said to be capital asset, which were acquired by the assessee.

As noted by the Assessing Officer, there was no agreement, nor any registered deed in that regard. The Assessing officer was right in noting that there was no mention in the sale deeds of Rs. 18 lakhs about purchase of the furniture and fixtures by way of a separate agreement for Rs. 12 lakhs. The purported purchase was only effected by way of a bill. Even the perusal of the bill would not reveal the details of show case, windows, grills, wardrobes, crockery, fans, fittings, furniture etc. It is also not known whether the seller of the property to the appellant assessee had, in fact, sought the benefit of the capital gain……. Similarly, the deed of 2008 also does not give the inventory of the furniture and fixtures as sold in the year 2008, which aspect has been conceded by the learned counsel for the appellant assessee at the time of the arguments. These findings are primarily findings of fact.

Further, the issue can be looked from another perspective, which is, most of the items which are said to have been acquired, are primarily „personal effects‟ which are excluded from the definition of capital asset under Section 2(14) of the Act if they are meant for personal use. It is not the case of the appellant-assessee that the items like wooden temple, crockery, fans, geysers, light fittings etc. were not for personal use, nor such a case was put forth before the Authorities below. In fact, Rs. 12 lakhs was for all the fixtures and fittings including furniture. It is noted, the break up of Rs. 12 lakhs was not given. In any case, as noticed above it is a pure question of fact.

In view of the aforesaid position, we find that the Authorities below were right in disallowing Rs. 12 lakhs for the purpose of computation of the capital gain.

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