Short Overview : The assessee had purchased another house for a sum of Rs. 40 lakhs and have invested the balance consideration also in renovation of the said house and have claimed expenditure for such renovation also as ‘exempt’ under section 54F of the Act. Section 54F of the Act only mandates that the capital gain should be invested in ‘a residential house’ within the stipulated time by way of purchase or construction. Thus, the amount spent on renovation of such residential house by an assessee according to his requirements is also allowable as exempt under section 54F of the Act as it would amount to construction of a residential house. The only other requirement is that the construction should be completed within three years from the date of transfer of the original asset.

Asses see’s being family members and co-owners of a plot of land had sold the same and sale consideration was shared by co-owners in proportion to their land holding. The respective asses see’s claimed exemption of capital gains on purchase of a residential house collectively in the year 2006 itself to extent it was incurred for purchase and the balance of amount was deposited in Capital Gains Scheme Account. The period of three years in asses see’s case expired in the assessment year 2009-10, AO observed that assessee had claimed to have utilized the amount deposited in Capital Gains Scheme Account to renovate the existing residential unit. AO, however, observed that extension of the existing residential unit might not amount to investment of a new residential house. Therefore, AO disallowed the claim of exemption under section 54F. CIT(A) held that any investment made towards extension or modification or renovation of an existing house would not come under the purview of purchase/construction of new asset as envisaged under section 54 or 54F.

It is held that : The assessee had purchased another house for a sum of Rs. 40 lakhs and have invested the balance consideration also in renovation of the said house and have claimed expenditure for such renovation also as ‘exempt’ under section 54F of the Act. Thus, the assessee had invested their capital gains for purchase of a residential unit and thereafter, they have renovated/re-modified the said unit. Section 54F only mandates that capital gain should be invested in ‘a residential house’ within the stipulated time by way of purchase or construction. Amount spent on renovation of residential house by an assessee according to his requirements was also allowable as exempt under section 54F as it would amount to construction of a residential house. Only other requirement was that construction should be completed within three years from the date of transfer of original asset.

Decision : Matter remanded.

Followed : CIT v. Godavaridevi Sara (1978) 113 ITR 589 (Bom) : 1978 Tax Pub(DT) 0643 (Bom-HC).

 

IN THE ITAT, HYDERABAD BENCH

P. MADHAVI DEVI, J.M. & D.S. SUNDER SINGH, A.M.

Juvenal Begum v. ITO

ITA Nos. 2224/Hyd/18 and 297, 298 & 340/Hyd/19

4 September, 2020

Assessee by: Muddu Vi jay, AR

Revenue by: N. Swapna, DR

P. Madhavi Devi, J.M.

All these four appeals are filed by the respective assesses for the assessment year 2009-10, against the separate orders of the Commissioner (Appeals)-6, Hyderabad, dated 29-8-2018 & 29-10-2018 (for ITA Nos.297, 298 & 340/H/19).

2. Since the facts and issues involved in all these appeals are common and identical, except for the amounts mentioned therein, all these appeals were heard together and are being disposed-of by way of this common and consolidated order.

For the sake of convenience, appeal in ITA No.297/H yd/2019 is discussed hereunder in detail :–

Brief facts of the case are that, all the assesses being family members and co-owners of a plot of land ad measuring 1885 Sq. Yds., with an AC shed of 2100 sft., located on Road No.3, Banjara Hills, Hyderabad sold the same for a sum of Rs. 3,54,40,000 video Sale Deed dt. 6-3-2006. The sale consideration was shared by the co-owners in proportion to their land holding (Rs. 75,20,500 for his share of 400 Sq. Yds. of land held by the present assessee). The respective asses see’s claimed exemption of capital gains on purchase of a residential house collectively in the year 2006 itself to the extent it was incurred for purchase and the balance of the amount was deposited in the Capital Gains Scheme Account.

The period of three years in the asses see’s case expired in the assessment year 2009-10 and as per the information available on record for the assessment year 2006-07, the assessing officer (AO) observed that the assessee has claimed to have utilized the amount deposited in Capital Gain Scheme Account to renovate the existing residential unit. The assessing officer, however, observed that the extension of the existing residential unit may not amount to investment (purchase/construction) of a new residential house. Therefore, the assessing officer disallowed the claim of exemption under section 54F of the Income Tax Act.

3. Aggrieved, the assessee preferred an appeal before the Commissioner (Appeals), who confirmed the order of assessing officer by holding that – any investment made towards extension or modification or renovation of an existing house would not come under the purview of purchase/construction of new asset as envisaged under section 54 or 54F of the Act.

4. Aggrieved by this order of the Commissioner (Appeals), the assessee is in appeal before the Tribunal by raising the following Grounds (which are common for all the assesses, herein) :–

“1. The order of the Commissioner (Appeals) is erroneous and contrary to the Judicial Precedents holding the field and binding on all the tribunals and Honorable Courts in the country. The impugned order is contrary to the law of precedents.

2. The Commissioner (Appeals) findings at Para 8.9 of the impugned order is a gross impropriety and a classic example of impropriety and violation of application of Judicial precedents referred by the Commissioner (Appeals) himself. It is a total misdirection and a perverse order by the Commissioner (Appeals). Having observed in Para 8.9 that the Hon’ble Karnataka High Court and others are in favor of the Appellant, should not have dismissed the appeal. Wrongly observed that I would like rely upon the decisions which are in the favor of the department.

3. The decisions relayed upon by the Commissioner (Appeals) pertains to investment made towards extension, modification or renovation for the existing old building but appellant purchased building and made modification and renovation for his use.

4. The Commissioner (Appeals) wrongly came to conclusion that the appellant made investment towards extension or modification or renovation of existing house, whereas, in fact, the appellant purchased the house and modified the house to make it habitable as per requirement, which clearly comes under 54 or 54F of the Act.

5. The finding of the Commissioner (Appeals) on the aspect of limitation is patently erroneous and contrary to the law.

6. Such other grounds that may be urged at the time of hearing”.

5. All these appeals are taken up for hearing on 02-09-2020 through video conferencing and both the parties were heard.

6. Learned Counsel for the assessee, while reiterating the submissions made before the authorities below, submitted that all the assesses together had sold the plot of land on 06-03-2006, and thereafter, purchased a residential house on 29-3-2006 for Rs. 40 Lakhs and the balance of the capital gain was deposited individually in the Capital Gain Scheme Account. He submitted that the purchased property was re modified and all the assesses have invested the balance of the capital gain in the re-modification of the house and have thus, claimed the said amounts as ‘exempt’ under section 54F of the Act. He further submitted that all the details were submitted before the Commissioner (Appeals) but the Commissioner (Appeals) without verifying the same, has confirmed the disallowance only on the ground that the re modification or renovation of the house is not covered under section 54F of the Act. Learned Counsel therefore prayed that the exemption under section 54F of the Act be granted to the assessee.

7. Learned DR, on the other hand, supported the orders of the authorities below and submitted that the assesses have to invest the capital gain in a new asset to be eligible for exemption under section 54F of the Act and since the asses sees are seeking the money spent on renovation of the house which is already existing, they are not entitled for exemption under section 54F of the Act.

8. Having regard to the rival contentions and material on record, we find that the assesses have sold an open plot of land with an AC shed thereon on 6-3-2006 and therefore Long Term Capital Gain has arisen therefrom. The Learned Counsel for the assessee has submitted before us that the assessee have purchased another house for a sum of Rs. 40 Lakhs on 29-3-2006 and have invested the balance consideration also in renovation of the said house and have claimed expenditure for such renovation also as ‘exempt’ under section 54F of the Act. We find that in para 3 of the assessment order, the assessing officer has brought out that during the course of first appellate proceedings of the Commissioner (Appeals)’s Order, dt. 22-10-2014 for the assessment year 2006-07, there is a clear finding that the house was purchased by the assessee and that it is already a self contained residential unit. Thus, it is seen that the asses see’s have invested their capital gains for purchase of a residential unit and thereafter, they have renovated/re-modified the said unit. The assessing officer has disallowed the claim mainly on the ground that the house which is purchased itself is a self-contained unit and that the assessee has not given the details of the modifications made by the assesses before us. The assessee has submitted before us that he has submitted the details before the Commissioner (Appeals) but the same has not been considered by the Commissioner (Appeals) and he has confirmed the disallowance only on the ground that the amount spent on renovation is not eligible for exemption under section 54F of the Act.

However, we do not agree with this finding of the Commissioner (Appeals).

Section 54F of the Act only mandates that the capital gain should be invested in ‘a residential house’ within the stipulated time by way of purchase or construction. Thus, the amount spent on renovation of such residential house by an assessee according to his requirements is also allowable as exempt under section 54F of the Act as it would amount to construction of a residential house. The only other requirement is that the construction should be completed within three years from the date of transfer of the original asset. Further, the Commissioner (Appeals) also agrees that the issue is covered in favour of the assessee by the decisions of the Hon’ble Karnataka and Calcutta High Courts but chooses to follow the decisions against the assessee. The Hon’ble Bombay High Court in the case of CIT v. Godavari Devi Saraf (1978) 113 ITR 589 (Bom) : 1978 Tax Pub(DT) 0643 (Bom-HC) has held that – in the absence of a decision from the jurisdictional High Court, the decision of another High Court which is in favor of the assessee has to be followed. Hence, the order of the Commissioner (Appeals) is not sustainable and the asses see’s claim of exemption under section 54F of the Act has to be examined in the light of the details submitted by the assessee and the report of the valuer submitted by the assessee in the absence of sufficient details as the construction was allegedly done in the year 2006.

Therefore, we deem it fit and proper to remit the issue back to the file of assessing officer with a direction to allow the exemption under section 54F of the Act in respect of the cost of the house, which is already purchased by the assessee on 29-3-2006 and also the amount spent on renovation/re-modification of the house.

Accordingly, the Grounds raised by the assessee are treated as allowed for statistical purposes. Thus, this appeal of the assessee is treated as allowed for statistical purposes.

ITA Nos.2224/Hyd/18, 298/Hyd/19 & 340/Hyd/19:

9. Since the facts of the present appeals are identical to facts of the case in ITA No.297/Hyd/2019 (supra), our findings in the above appeal, mutates mutandis, would apply to all these appeals as well. Accordingly, all these appeals are also treated as allowed for statistical purposes.

10. In the result, all the appeals are treated as allowed for statistical purposes.