SECTION 54 OF THE INCOME TAX ACT, 1961- CAPITAL GAINS EXEMPTION-PROPERTY PURCHASED AS READYMADE UNIT DOES NOT RESTRICT THE BUYER FROM INCURRING ANY BONAFIDE EXPENDITURE ON THE IMPROVISATION AND SUPPLEMENTARY WORK AND THE COST SO INCURRED WILL FORM AN INTEGRAL PART OF THE QUALIFYING INVESTMENT UNDER SECTION 54-SHRINIVAS R. DESAI v. ASSISTANT COMMISSIONER OF INCOME TAX[2013] 155 TTJ (Ahmedabad) 743
FACTS: Assessee is salaried employee and sold his house property and earned a capital gain. Thereafter assessee purchased another property in a cooperative housing society and claimed to have spent another Rs. 15,48/,773 on its improvement. During the assessment proceedings, A.O. noted that assessee has purchased a readymade property and since the assessee has sold his house in August, 2006 whereas the new property was purchased in May, 2006, these facts do not indicate that the house was not in a livable condition at the point of time of purchase. A.O. further noted that the expenses claimed to have been incurred by the assessee till 31st March, 2007 i.e., much after the purchasing the house. Based on these observations A.O. rejected the assessee’s claim for the cost of improvement in the new house property being taken into account for computation of section 54 benefit. Being aggrieved, assessee went on appeal before CIT(A). CIT(A) upheld the action of A.O. and declined to interfere in the matter. Being aggrieved, assessee went on appeal before Tribunal.
Held that, the new house property was not in livable condition because assessee during the period of August 2006 to June 2007 lived in a residential unit on rent. All the lease rental payments were made by cheque and a copy of the lease agreement evidencing the same is also present which supports that house was not habitable. Based on this fact the very assumption of authorities that new house was habitable was unsustainable. In respect of inclusion of costs for qualifying the exemption u/s 54 it was held that as long as the costs are of such nature as would be includible in the cost of construction in the normal course, even if the assessee has bought a readymade unit and incurred those costs after so purchasing the readymade unit as per his taste and requirements, the costs so incurred will form integral part of the qualifying limit of investment in the house property. A property may have been purchased as readymade unit but that does not restrict the buyer from incurring any bonafide construction expenditure on improvisation or supplementary work, the additional expenditure so incurred would be eligible for qualifying investment u/s 54. However as the relevant factual verifications have not been carried out by the any of the authorities below, the matter was restored back to the file of A.O. for fresh adjudication in the light of above observations in accordance with law and after giving an opportunity of being heard to the assessee. In the result, matter was remanded to A.O. and appeal was allowed for statistical purposes.
ITAT AHMEDABAD BENCH 'B'
IT Appeal Nos. 1245 and 2432 (Ahd.) of 2010
[ASSESSMENT YEAR 2007-08]
Shrinivas R. Desai...........................................................................................Appellant.
v.
Assistant Commissioner of Income-tax
...........................................................Respondent
PRAMOD KUMAR, ACCOUNTANT MEMBER
AND KUL BHARAT, JUDICIAL MEMBER
Date : JUNE 28, 2013
Appearances
S.N. Divetia for the Appellant.
Y.P. Verma for the Respondent.
ORDER
Pramod Kumar, Accountant Member - It is a recalled matter. Originally, both of these appeals were disposed of vide consolidated order dated 7th September, 2002, but, pursuant to a rectification petition filed by the assessee, the said order was recalled While so recalling the matter, the Tribunal, vide order 4th January, 2013, inter alia, observed that "we find that there is a mistake apparent from the record in not referring to various evidence relied upon by the assessee in support of the case that the house was made inhabitable from September, 2007", and, accordingly, the order, so far as it pertained to the quantum addition, was recalled. It is in this backdrop that we have come to be in sesin of the matter.
2. The quantum appeal, i.e. recalled appeal, is directed against the order dated 26th February, 2010, passed by the learned CIT(A), in the matter of assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 207-08. The short issue that we are required to adjudicate in this appeal is whether or not the learned CIT(A) was justified in upholding in denial of exemption under section 54 in respect of the cost of improvement, in the new house property, aggregating to Rs 15,48,773.
3. The relevant material facts are like this. The assessee before us is a retired salaried employee. During the relevant previous year, the assessee sold his house property at "5, Government Servants' Society, Ahmedabad" for a consideration of Rs 1,50,86,452, and, after deducting indexed cost of acquisition which worked out to Rs 52,09,597 from sale proceeds, the assessee earned capital gains of Rs 98,76,855. Thereafter the assessee purchased another property at "20, Golden Tulip Co-operative Housing Society, Ahmedabad" for Rs 71,94,570, and claimed to have spent on another Rs 15,48,773 on its improvement. However, in the course of the assessment proceedings, the Assessing Officer took the stand that the cost of improvement' is to be allowed as a deduction in the hands of the transferor and not in the hands of the transferee. Accordingly, the Assessing Officer required the assessee to show cause as to why deduction claimed for cost of improvement not be disallowed. It was submitted by the assessee that "the cost of improvement, as per section 55(1)(b), in any other case, means all the expenditure of capital nature incurred in making any addition or alteration to the capital asset by the assessee, after it becomes his property". This submission, as also other elaborate arguments made by the assessee, did not impress the Assessing Officer. He noted that the assessee has purchased a ready made property, that since the assessee had sold his house in August, 2006, whereas the new property was purchased in May, 2006, these facts do not indicate that the house was not in a livable condition at the point of time of purchase. The Assessing Officer further noted that the expenses were claimed to have been incurred by the assessee till 31st March, 2007, i.e. much after purchasing the house. On the strength of these observations, the Assessing Officer rejected assessee's claim for the cost of improvement in the new house property being taken into account for computation of Section 54 benefit. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) noted that the assessee had sold his house in August, 2006 and since the assessee had incurred expenses of only Rs 25,315 till August, 2006, it could not be believed that the entire expenditure of Rs 15,48,773 was made to make the new house property inhabitable. Learned CIT(A) thus upheld the action of the Assessing Officer and declined to interfere in the matter. The assessee is not satisfied and is in further appeal before us.
4. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case in the light of applicable legal position.
5. We have noticed that while the authorities below have laid lot of emphasis on the fact that as the original house property was sold by the assessee in August, 2006, it cannot be believed that new house property was not habitable till September, 2007. This observations proceeds on the assumption that on sale of old house property, assessee had to essentially shift in the new house. However, this overlooks the uncontroverted fact that the assessee had, during the period August, 2006 to June, 2007, lived in a residential unit leased from one Shri Atul Verma. All the lease rental payments were made by cheque and a copy of the lease agreement, evidencing this arrangement, was also placed before us in the paperbook at pages 26 to 33. A copy of the brokerage note, in connection with the said lease agreement, was also placed on record before us. Learned Departmental Representative could not point out any errors or inconsistencies in this material. In this view of the matter, the very foundation of assumption by the authorities below to the effect that the new house property was habitable, at the point of time when it was purchased, is unsustainable. It is also important to bear in mind the fact that merely because a person has moved into the new property does not mean that the construction work is complete. One can, after all, move in a new property even when work is partly complete, and it does happen in the real life. We also find that Section 54(1) of the Act, provides that, "subject to the provisions of sub-section (2), where in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, - (i) If the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) If the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain." In our considered view, the cost of purchases does include any capital expenditure incurred on the assessee on such property to make it liveable. As long as the costs are of such a nature as would be includible in the cost of construction in the normal course, even if the assessee has bought a readymade unit and incurred those costs after so purchasing the readymade unit - as per his taste and requirements, the costs so incurred will form integral part of the qualifying amount of investment in the house property. The use of words 'purchased or construed' does not mean that the property can either be purchased or constructed and not a combination of both the actions. A property may have been purchased as a readymade unit but that does not restricts the buyer from incurring any bonafide construction expenditure on improvisation or supplementary work. Accordingly, in our considered view, as long as the assessee has incurred the bonafide construction expenditure, even after purchasing the unit, the additional expenses so incurred would be eligible for qualifying investment under Section 54. However, as the relevant factual verifications have not been carried out by any of the authorities below, we deem it fit and proper to restore the matter to the file of the Assessing Officer for fresh adjudication in the light of our above observations, in accordance with the law and by way of a speaking order, after giving yet another opportunity of hearing to the assessee. We order so.
6. For the reasons set out above, the matter stands restored to the file of the Assessing Officer, and, to that extent, quantum appeal is allowed for statistical purposes in the terms indicated above.
7. To the above extent, the order dated 7th October 2012 stands modified.
[2013] 155 TTJ 743 (AHD) |