Section 54F exemption is for cost of new asset, not consideration paid for acquisition

Section 54F exemption is for cost of new asset, not consideration paid for acquisition. AO was held wrong in holding that expenses were made to make house luxurious and comfortable

ABCAUS Case Law Citation:
ABCAUS 2625 (2018) (11) ITAT

The instant judgment was delivered in a batch of two appeals filed by two different assesses against the denial of section 54F deduction by the Assessing Officer (AO) of cost incurred on making the house habitable holding that it was incurred on Luxury/Comfortable items.

In the lead case, the assessee submitted that the assessee had maintained regular books of accounts which were produced and verified by the Assessing Officer during the assessment proceedings.

The house for which exemption u/s 54F was claimed was constructed by State Housing Board with total serviceable life of 40 years and with efflux of time and for want of maintenance it got dilapidated.

It was submitted that doors, windows, cupboards, floor tiles, electric fittings, sanitary fittings, plastering, etc. were eroded and the structure required substantial capital expenditure to make it habitable at that particular time.

It was further submitted that separate account was opened and all expenses were paid partly through cheques and partly through cash and the assessment order did not give any finding that the assessee did not incur these expenses.

The Tribunal observed that the Karnataka High Court had dealt with an identical case where the assessee had claimed section 54F exemption 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.

The Hon’ble High Court had observed that 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.”

The Hon’ble High Court opined that 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 the assessee who purchased a new asset, which is habitable but which requires additions, alternations, 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 Hon’ble High Court held that the approach of the authorities that once a habitable asset is acquired, any additions or improvements made on that habitable asset is not eligible for deduction, is contrary to the statutory provisions.

The Tribunal, in the light of the judgment of the Hon’ble High Court, held that the the claim of the assessee under Section 54F of the Act was just and proper.

Accordingly, ITAT set aside the order of the CIT(A) and allowed the appeal of the assessee(s).

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