a) Assessee earned capital gain on sale of his tenancy rights in a residential house property. He invested the sale proceeds to purchase another house property which was in a dilapidated condition.
b) In order to make the said house fit for residential purpose, assessee incurred certain expenses on repairs and painting work etc. Assessee claimed deduction under section 54 in respect of expenses so incurred to make the new house property habitable.
c) Assessing Officer (AO) contended that only the cost paid for acquiring new residential house is to be taken for the purposes of granting benefit under section 54 and not cost incurred towards the improvement of the same. Thus, the claim of the assessee towards cost of making a new house property habitable was disallowed.
d) The CIT(A) confirmed the order of the AO. Aggrieved by the order of the AO, assessee filed the instant appeal before the tribunal.
The tribunal held in favour of assessee as under-
1) Section 54 provides exemption with respect to long term capital gains earned on transfer of residential house property, if the taxpayer purchases or constructs a new residential house property within the prescribed time-limit.
2) The word 'house' has been defined in Blacks Law dictionary as 'a home, dwelling or residence'. Thus, the property should be capable of being 'habitable'.
3) Section 54 does not stipulate any condition that if the new residential house is purchased by the taxpayer, then benefit associated with construction of the said new residential house cannot be extended simultaneously rather both purchase and construction of the same new residential house can co-exist.
4) In the instant case, it was undisputed that the assessee had purchased the new residential house in dilapidated condition and immediately thereafter he undertook extensive civil, plumbing, electrical & painting works to make it habitable, which tantamount to construction within the meaning of section 54.
5) Hence, exemption under section 54 couldn’t be denied merely on the ground that the assessee had purchased the new residential house and, therefore, benefit as available to construction of the new residential house cannot be extended to the assessee simultaneously-  69 taxmann.com 42 (Mumbai - Trib.)