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
Facts
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 taxmann.com 333 (Karnataka)
