Thursday, July 2, 2015

Cost of additions or improvements on habitable house is also eligible for sec. 54F relief

Where asset acquired by assessee is habitable, cost of any addition or improvements made on that asset would also be eligible for exemption under section 54F
a)  Assessee earned capital gain on sale of a residential house property. She invested the sale proceed to purchase a habitable house property and also spent some amount to make addition or improvement to said property. Accordingly, she claimed exemption under section 54F.
b)  The exemption so claimed by assessee was disallowed to the extent amount was spent towards making addition or improvement to habitable house property. The contention of the revenue was that no exemption under section 54F could be available in respect of the amount invested by way of improvement to a habitable house property.
c)  Aggrieved by the order of appellate authorities, assessee filed the instant appeal before the High Court
The High Court held in favour of assessee as under-
1)  As per section 54F, it is the ‘cost of the new asset’ which is to be taken into consideration while determining the capital gain exemption and not the "consideration for acquisition of the new asset".
2)  In law, it is permissible for an assessee to acquire a vacant site and carry out construction thereon; the cost of the new asset would be cost of land plus (+) cost of construction.
3)  On the same analogy, even though assessee purchased a new asset, which was habitable but required additions, alternations, modifications and improvements and if money was spent on those aspects, it would be included in the cost of the new asset.
4)  The approach of the authorities that once a habitable asset is acquired, any additions or improvements made on that habitable asset are not eligible for deduction, is contrary to the statutory provisions.

5)  Hence, amount spent towards making addition or improvement in habitable house property would also be eligible for Section 54F exemption- Mrs. Rahana Siraj v. CIT [2015] 58 333 (Karnataka)