Renovation of residential house is allowable exemption u/s 54F

Renovation of residential house allowable exemption u/s 54F as it amounts to construction of a residential house.

ABCAUS Case Law Citation
ABCAUS 3393 (2020) (09) ITAT

Important case law relied upon by the parties:
CIT Vs.  Godavari Devi Saraf (1978) 113 ITR 589 (Bom)

In the instant case, the assessee had challenged the order passed by the CIT(A) in disallowing exemption u/s 54F of the Income Tax Act, 1961 (the Act) with respect to renovation expenses.

The assessee sold a plot of land and claimed exemption of capital gains on purchase of a residential house to the extent it was incurred for purchase and the balance of the amount was deposited in the Capital Gains Scheme Account.

The Assessing Officer (AO) observed that the assessee had claimed to have utilised the amount deposited in Capital Gain Scheme Account to renovate the existing residential unit.

The AO, however, observed that the extension of the existing residential unit may not amount to investment (purchase /construction) of a new residential house. Therefore, he disallowed the claim of exemption u/s 54F of the Act.

On appeal, the CIT(A) confirmed the order of the AO by holding that any investment made towards extension or modification or renovation of an existing house would not come under the purview of purchase/construction of new asset as envisaged u/s 54 or 54F of the Act.

Renovation of residential house allowable exemption u/s 54F

The Tribunal observed that it was undisputed that a house was purchased by the assessee and that it was already a self-contained residential unit. Thus, assessee had invested capital gains for purchase of a residential unit and thereafter, he had renovated/re-modified the said unit.

The Tribunal noted that CIT(A) had not considered the details of the modification / renovation submitted and had confirmed the disallowance only on the ground that the amount spent on renovation is not eligible for exemption u/s 54F of the Act.

The Tribunal pointed out that Section 54F of the Act only mandates that the capital gain should be invested in ‘a residential house’ within the stipulated time by way of purchase or construction. Thus, the amount spent on renovation of such residential house by an assessee according to his requirements is also allowable as exemption u/s 54F of the Act as it would amount to construction of a residential house

The Tribunal further stated 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.

The Tribunal held that the order of the CIT(A) was not sustainable  and  the  assessee’s  claim  of  exemption u/s 54F  of  the  Act  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 way back.

Accordingly, the Tribunal remitted the issue back to the file of AO with a direction to allow the exemption u/s 54F of the Act also in respect of the amount spent on renovation/re-modification of the house. 

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