RUSTOM HOMI VAKIL, MUMBAI V. ACIT CIR 12(3), MUMBAI

ITA 4450/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3374 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 26-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: MAHESH C MATHUR
• Keywords: Capital asset; Question of law; Cost of acquisition; Capital receipt
• Section: 143(3); 54F; 139; 54

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.4450 /MUM/2014 ( / ASSESSMENT YEAR : 2009-10) RUSTOM HOMI VAKIL FLAT NO 27, 107,MAISON BELVEDRE MAHARSHI KARVE ROAD MUMBAI-400 020 / V. ACIT 12(3) AAYKAR BHAWAN NEW MARINE LINES MUMBAI-400 020 ./ PAN :AABPV1053F ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : MR. MAHESH C. MATHUR REVENUE BY : MR. B S BIST, SR. DR / DATE OF HEARING : 02-02-2016 / DATE OF PRONOUNCEMENT : 30-03-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 4 450/MUM/2014, IS DIRECTED AGAINST THE ORDER DATED 19-03-2014 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 23, MUMBAI (H EREINAFTER CALLED THE CIT(A)), THE APPELLATE PROCEEDINGS BEFORE THE CIT( A) AROSE FROM THE ASSESSMENT ORDER DATED 21-11-2011 PASSED BY THE LEA RNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S. 143(3) OF THE IN COME TAX ACT,1961(HEREINAFTER CALLED THE ACT), FOR THE AS SESSMENT YEAR 2009-10. 2. THE GROUNDS RAISED BY THE ASSESSEE IN THE MEMO O F APPEAL FILED WITH THE TRIBUNAL READ AS UNDER:- ITA 4450/MUM/2014 2 1. THE ORDER U/S 250 DATED 19 TH MARCH 2014, OF THE COMMISSIONER OF INCOME TAX(APPEALS)-23 ,MUMBAI , IS BAD IN LAW, CON TRARY TO THE FACTS OF THE CASE AND EVIDENCE OF RECORD. 2. THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALL OWANCE FROM THE COST OF ACQUISITION OF THE NEW HOUSE PROPERTY U/S 54/54F, OF RS. 14,26,705/- INCURRED IN MAKING THE HOUSE PROPERTY H ABITABLE WITHIN THE TIME ALLOWED UNDER THAT SECTION BY WRONGLY RELYING O N THE PROVISIONS APPLICABLE TO THE SAME OF THE HOUSE PROPER TY AND THEREBY TAXING THE SAME AS NOT EXEMPT WHILE CALCULATING CAPITAL G AINS LIABLE TO TAX ON SALE OF HOUSE PROPERTY. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A CONTRACTOR. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S . 143(3) READ WITH SECTION 143(2) OF THE ACT, IT WAS OBSERVED BY THE A O THAT THE ASSESSEE HAS SOLD HIS TENANCY RIGHT IN A RESIDENTIAL PROPERTY FO R A TOTAL AMOUNT OF RS.2,00,00,000/- . AGAINST THIS CAPITAL RECEIPT ,TH E ASSESSEE INVESTED IN ANOTHER RESIDENTIAL PROPERTY IN PUNE AND CLAIMED DE DUCTION OF RS.1,31,78,257/- U/S. 54 OF THE ACT AND OFFERED THE DIFFERENCE OF RS.68,21,743/- AS LONG TERM CAPITAL GAINS . THE BRE AK-UP OF THE INVESTMENT IN RESIDENTIAL PROPERTY OF RS.1,31,78,257/- WAS AS FOL LOWS:- 1. LONG TERM CAPITAL GAIN RS.2,00,00,000/- LESS: CAPITAL GAIN EXEMPT U/S. 54 TO THE EXTENT INVESTED IN RESIDENTIAL HOUSE SITUATED IN PUNE RS.1,10,00,000/- ADD: REGISTRATION CHARGES RS.30,380/- STAMP DUTY RS.5,32,700/- TRANSFER CHARGES RS.33,640/- BROKERAGE PAID RS.1,23,596/- LEGAL CHARGES RS.20,000/- ADD: LEGAL CHARGES RS.11,236/- RS.7,51,552/- ITA 4450/MUM/2014 3 ADD: IMPROVEMENT TO PROPERTY PURCHASED(AS PER BILLS) RS.14,26,705/- RS.1,31,7 8,257/- ---------------------- ------------------- TAXABLE LONG TERM CAPITAL GAINS RS.68,21, 743/- ------------------ THUS, IT WAS OBSERVED BY THE AO THAT THE ASSESSEE H AS CLAIMED RS.14,26,705/- TOWARDS IMPROVEMENT OF PURCHASED PRO PERTY AS A DEDUCTION U/S 54(1)(I) OF THE ACT. THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE IMPROVEMENT MADE TO THE PURCHASED HOUSE AND CLAIMED AS DEDUCTION SHOULD NOT BE DISALLOWED AND ADDED TO INCOME OF THE ASSESS EE. THE ASSESSEE SUBMITTED THAT SOON AFTER PURCHASING , TO MAKE THE NEW HOUSE PROPERTY , HABITABLE BY INCURRING FURTHER EXPENDITU RE IN JULY, 2008 TO JANUARY, 2009 BY ENGAGING THE SERVICES OF A INTERIO R DECORATOR , PLUMBER, ELECTRICIAN TO THE EXTENT OF RS.14,26,705/-. THE AS SESSEE FILED COPIES OF BILLS FOR EXPENSES MADE FOR IMPROVEMENT OF THE BOUGHT RES IDENTIAL PROPERTY. THE AO REJECTED THE CONTENTIONS OF THE ASSESSEE AND HELD THAT COST OF IMPROVEMENT AS PROVIDED UNDER THE ACT WILL BE TAKE N INTO ACCOUNT AT TIME OF CALCULATING CAPITAL GAINS WHEN THE PROPERTY IS SOL D. THE ASSESSEE IN THE INSTANT CASE IS CLAIMING COST OF IMPROVEMENT OF R S.14,26,705/- NOT AT THE TIME OF SELLING HIS PROPERTY BUT WITH RESPECT OF TH E PROPERTY BOUGHT BY THE ASSESSEE AGAINST THE RECEIPT OF SELLING THE TENANCY RIGHTS. THUS, THE CLAIM OF THE ASSESSEE TOWARDS COST OF MAKING A NEW HOUSE PRO PERTY HABITABLE AMOUNTING TO RS.14,26,705/- WAS DISALLOWED AND ADDE D TO THE LONG TERM CAPITAL GAINS OF THE ASSESSEE, VIDE ASSESSMENT ORDE RS DATED 21-11-2011 PASSED BY THE AO U/S.143(3) OF THE ACT. 5. AGGRIEVED BY THE ASSESSMENT ORDERS DATED 21.11.2 011 PASSED BY THE AO U/S 143(3) OF THE ACT, THE ASSESSEE FILED FIRST APP EAL WITH THE CIT(A). ITA 4450/MUM/2014 4 6. THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT TH E ASSESSEE WAS A STATUTORY TENANT OF A RESIDENTIAL HOUSE BEING A COTTAGE AT PU NE AND SURRENDERED THE TENANCY RIGHT THEREIN FOR CONSIDERATION OF RS.2.00 CRORES. THE ASSESSEE FILED BILLS / INVOICES FROM CONTRACTOR OF RS.14,26,705/- AND STATED THAT ALL EXPENSES INCURRED WERE ONLY ON REPAIRS AND RESTORATION AND P AINTING AND NO ASSET WAS CREATED. THEREFORE, THESE EXPENSES OF RS.14,26,705/ - SHOULD BE ALLOWED IN DETERMINING THE COST OF PURCHASE OF NEW RESIDENTIAL HOUSE. THE ASSESSEE FURNISHED COPIES OF PLAN OF THE HOUSE AND GARAGE, S ANCTIONED LAYOUT PLAN AND PROPOSED LAYOUT PLAN AND DESCRIPTION OF THE PROPERT Y CERTIFICATES WERE FURNISHED BEFORE THE CIT(A). THE ASSESSEE ALSO SUBM ITTED THAT ON WEST SIDE OF THE HOUSE PURCHASED, THERE IS A NALA NEAR TO THE GA RDEN WHICH REQUIRED PROTECTION BY FENCING. THE ASSESSEE RELIED UPON THE DECISION OF ITAT MUMBAI IN CASE OF SALEEM FAZALBHOY V. DCIT (2007) 106 ITD 167(MUM.) AND JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF B B S ARKAR V. CIT (1981)132 ITR 150 (CAL. HC). THE CIT(A) CALLED FOR REMAND REPORT FROM AO. THE AO SUBMITTED REMAND REPORT STATING THAT ON PERUSAL OF THE PHOTOGRAPHS O F THE PROPERTY AT THE TIME OF PURCHASE , THE PROPERTY CANNOT BE SAID TO BE COM PLETELY INHABITABLE. HOWEVER, IT DOES SEEM TO BE IN NEED OF REPAIRS, REF URBISHING AND IMPROVEMENT. THE EXACT AMOUNT OF EXPENDITURE REQUIRED TO IMPROVE IT TO A STATE OF HABITABILITY IS A SUBJECTIVE MATTER, AS IT DEPENDS ON THE QUALITY OF MATERIAL PREFERRED AND OTHER SUCH MATTERS. THE AO FURTHER RE PORTED IN REMAND REPORT THAT UPON PERUSAL OF LIST OF WORKS DONE BY THE CONT RACTORS, IT WAS SEEN THAT SOME ITEMS INVOLVE DISMANTLING AND DEMOLITION OF TH E EXISTING STRUCTURES, FLOORING, TILES ETC. AND LAYING NEW BETTER QUALITY ITEMS IN PLACE OF THEM. SIMILARLY , SOME ITEMS INVOLVE PAINTING OF FURNITUR ES, ENAMELING OF BAMBOO FENCING, REMOVAL AND RE-FITTING OF FRAMES, MAKING O F NEW CABINETS ETC WHICH APPEAR MORE IN THE NATURE OF MAKING THE HOUSE MORE COMFORTABLE THAN WHAT ITA 4450/MUM/2014 5 IS REQUIRED TO MAKE IT MERELY HABITABLE. FURTHER, A S PER SUB-PARA (IX) OF PARA 8 OF THE PURCHASE AGREEMENT DATED 23-07-2008 , THE EX PENSES OF REPAIRS AND RESTORATION ARE ESTIMATED AT RS.7,00,000/- BY MUTUA L AGREEMENT OF THE SELLER OF THE PROPERTY AND THE ASSESSEE WHILE THE EXPENDIT URE INCURRED AND CLAIMED AS COST U/S. 54 OF THE ACT IS RS.14,26,705/- . THUS , THE AO STATED IN REMAND REPORT THAT THE EXCESS EXPENSES APPEARS TO BE BEYON D MERE REPAIRS AND RESTORATION TO A HABITABLE CONDITION, AND RATHER MA KE THE HOUSE COMFORTABLE. THUS, THE AO STATED IN REMAND REPORT THAT OUT OF TH E TOTAL EXPENDITURE OF RS.14,26,705/- CLAIMED BY THE ASSESSEE , RS.7,00,00 0/- (AS PER PURCHASE AGREEMENT ) BE TREATED AS TOWARDS MAKING THE NEW HO USE HABITABLE , AND THE REMAINING RS.7,26,705/- BE TREATED AS MAKING THE NE W HOUSE COMFORTABLE. THUS AS PER AO THE AMOUNT ELIGIBLE FOR EXEMPTION AS COST U/S.54 OF THE ACT IS ONLY RS.7,00,000/- . A COPY OF REMAND REPORT WAS FORWARDED TO THE ASSESS EE FOR HIS COMMENTS AND THE ASSESSEE SUBMITTED BEFORE THE CIT (A) IN RESPON SE TO REMAND REPORT THAT THE EXPENDITURE WAS INCURRED TO MAKE NEW HOUSE HABI TABLE AND NOT COMFORTABLE THAN WHAT WAS REQUIRED TO MAKE IT HABIT ABLE. IT WAS SUBMITTED THAT REMAND REPORT OF THE AO DID NOT SPELL OUT THE EXPENDITURE WHICH COULD BE CONSIDERED AS ABNORMAL OR EXPENDITURE AND DID NOT R EQUIRED TO BE INCURRED IN MAKING THE HOUSE HABITABLE. IT WAS SUBMITTED THAT C OMFORT IN THE HOUSE CAN COME BY COMFORTABLE BEDDING, AIR CONDITIONING, FURN ITURE ETC. AND NOT BY PAINTED WALLS IN A HOUSE WILL A PROPER FLOORING, B ATHROOM AND KITCHEN. THE ASSESSEE SUBMITTED THAT HOUSE WAS BOUGHT IN A DILAP IDATED CONDITION AND TO MAKE IT HABITABLE , THE ASSESSEE SPENT RS.14,26,705 /- WHICH IS ACTUALLY SPENT BY THE ASSESSEE AND THE EXPENDITURE IS SUPPORTED BY BILLS OF THE CONTRACTORS , WHILE THE AO REMAND REPORT IS BASED ON MERELY SURMI SES. THE CIT(A) HELD THAT THE ASSESSEE WAS AWARE THAT TH E EXTENSIVE CIVIL, PLUMBING, ELECTRICAL AND PAINTING WORK WAS REQUIRED TO BE DONE IN THE HOUSE. ITA 4450/MUM/2014 6 WITH THE SAID KNOWLEDGE, THE ASSESSEE BOUGHT THE HO USE FOR RS.1,10,00,000/- TOWARDS THE COST OF THE ASSET. THE ASSESSEE DID NOT PAID THE AMOUNT TOWARDS PLUMBING, ELECTRICAL WORKS ETC TO THE SELLER BUT TO THE THIRD PARTY AND THE COST WAS BORNE BY THE ASSESSEE HIMSELF AFTER PURCHASE OF THE HOUSE. THIS COST TOWARDS EXTENSIVE REPAIRS CANNOT BE CONSIDERED TO B E COST OF HOUSE PURCHASE BY THE ASSESSEE. THE FLOORING, PLUMBING WORK AND EL ECTRICAL WORK ETC. WAS ALREADY THERE IN THE HOUSE. THESE WERE MERELY REPAI RED AND RENOVATED TO SUIT THE REQUIREMENTS OF THE ASSESSEE. THUS, ACTION OF T HE AO WAS CONFIRMED WITH RESPECT OF NOT CONSIDERING THE AMOUNT OF EXPENDITUR E INCURRED OF RS.14,26,705/- FOR MAKING IMPROVEMENTS IN THE HOUSE FOR GRANTING DEDUCTION U/S.54 OF THE ACT, VIDE ORDERS DATED 19-03-2014. IT WAS ALSO HELD BY THE CIT(A) WITHOUT PREJUDICE TH AT THE ASSESSEE HAS INCURRED EXPENDITURE OF RS.4,89,428/- ON FIXING MAR BONITE FLOORING AND MARBLE SKIRTING IN THE BEDROOM, DINING ROOMS AND SI TTING ROOMS . THE EXPENSES ARE TOWARDS REPAIRS AND RENOVATION AND NOT TO MAKE HOUSE HABITABLE. NO EVIDENCE IS SUBMITTED THAT THE FLOORI NG DID NOT EXIST AT THE TIME OF PURCHASE OF HOUSE. THUS, THE ENTIRE EXPENDITURE OF RS.14,26,705/- WAS CONSIDERED NOT ALLOWABLE FOR DEDUCTION U/S.54 OF TH E ACT , VIDE ORDERS DATED 19-03-2014. 7. AGGRIEVED BY THE ORDERS DATED 19-03-2014 PASSED BY THE CIT(A), THE ASSESSEE FILED AN APPEAL WITH THE TRIBUNAL. 8. LD. COUNSEL FOR THE ASSESSEE REITERATED ITS SUBM ISSIONS BEFORE THE TRIBUNAL AS WERE MADE BEFORE THE AUTHORITIES BELOW WHICH ARE NOT REPEATED FOR SAKE OF BREVITY. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE SOLD TENANCY RIGHTS FOR RS.2.00 CRORES AND PURCHASED A R ESIDENTIAL HOUSE PROPERTY IN PUNE WHICH WAS IN DILAPIDATED CONDITION FOR RS.1 .10 CRORE. THE ASSESSEE HAS SPENT RS.14.26 LACS FOR MAKE THE SAID NEW RESID ENTIAL HOUSE PROPERTY AT ITA 4450/MUM/2014 7 PUNE HABITABLE AND CLAIMED BENEFIT U/S. 54 OF THE A CT WHICH HAS BEEN DENIED BY REVENUE BECAUSE AS PER AUTHORITIES BELOW THE SAM E IS COST OF IMPROVEMENT WHICH CAN BE ALLOWED AS DEDUCTION U/S. 48 OF THE ACT WHEN THE ASSESSEE WILL SELL THE NEW RESIDENTIAL HOUSE BUT DE DUCTION U/S. 54 OF THE ACT COULD NOT BE ALLOWED AS PER REVENUE. FURTHER, THE R EVENUE IS CONTENDING THAT THE SAID EXPENDITURE HAS NOT BEEN INCURRED TO MAKE THE HOUSE HABITABLE BUT RENOVATION WAS CARRIED OUT BY THE ASSESSEE WHICH IS TO MAKE HOUSE COMFORTABLE RATHER THAN HABITABLE. THE ASSESSEES C OUNSEL SUBMITTED THAT EXPENDITURE OF RS.14.26 LACS WAS INCURRED TO MAKE T HE HOUSE HABITABLE. SECTION 54 OF THE ACT IS A BENEFICIAL PROVISION AND SHOULD BE CONSTRUED LIBERALLY. THE EXPENDITURE WAS INCURRED TO MAKE THE HOUSE HABITABLE FROM JULY 2008 TO JANUARY 2009 , IMMEDIATELY AFTER ACQUI RING THE HOUSE IN JULY 2008. ALL THE INVOICES FOR EXPENDITURE FOR MAKING T HE HOUSE HABITABLE WERE SUBMITTED BEFORE THE AUTHORITIES BELOW AND WERE ALS O SUBMITTED BEFORE THE TRIBUNAL IN PAPER BOOK FILED. THE ASSESSEE RELIED U PON THE FOLLOWING CASE LAW TO SUPPORT ITS CONTENTIONS : 1. RAHANA SIRAJ V. CIT (2015) 58 TAXMANN.COM 333(KAR. HC.) 2. SALEEM FAZALBHOY V. DCIT (2007) 106 ITD 167(MUM.TRI B.) 3. B B SARKAR V. CIT (1981)132 ITR 150 (CAL. HC). 4. MRS SONIA GULATI V. ITO (2001) 115 TAXMAN 232 (MUM) (MAG.)(TRIB.) 5. MRS. GULSHANBANOO R MUKHI V. JCIT (2002) 83 ITD 649 (MUM. TRIB.) 6. SH. ASHOK KUMAR RALHAN V. CIT 360 ITR 575 DEL. HC 7. G SHIV RAM KRISHNA V. DCIT IN ITA NO. 755/HYD/2013 DATED 20-12- 2013 9 LD. DR RELIED UPON THE ORDERS OF CIT(A) AND DREW OUR ATTENTION TO THE DETAILS OF EXPENDITURE OF RS.14.26 LACS INCURRED BY THE ASS ESSEE TO CONTEND THAT THESE EXPENSES ARE MERELY RENOVATION EXPENSES WHICH CANNO T BE ALLOWED BY WAY OF BENEFIT U/S. 54 OF THE ACT. ITA 4450/MUM/2014 8 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE MATERIAL ON RECORD INCLUDING CASE LAWS RELIED UPON. WE HAVE OBS ERVED THAT THE ASSESSEE SOLD TENANCY RIGHTS IN A RESIDENTIAL PROPERTY FOR A TOTAL AMOUNT OF RS.2.00 CRORES . THE ASSESSEE INVESTED IN ANOTHER RESIDENTI AL HOUSE PROPERTY IN PUNE AND PAID RS.1.10 CRORES FOR ACQUIRING THE SAID RESI DENTIAL HOUSE IN JULY 2008. THE ASSESSEE FURTHER SPENT RS.14,26,705/-, PURPORTE DLY TOWARDS MAKING THE NEW RESIDENTIAL HOUSE PURCHASED AT PUNE HABITABLE , IMMEDIATELY AFTER PURCHASE OF THE SAID RESIDENTIAL HOUSE AT PUNE IN J ULY 2008 WHICH CONTINUED TILL JANUARY 2009, AS IT IS STATED BY THE ASSESSEE THAT THE RESIDENTIAL HOUSE SO PURCHASED IN PUNE IN JULY 2008 WAS IN DILAPIDATED C ONDITION AND WAS UN- INHABITABLE . THE SAID AMOUNT WAS PURPORTEDLY REQUI RED TO BE SPENT FOR MAKING THE NEW RESIDENTIAL HOUSE IN HABITABLE CONDI TION. THE ASSESSEE, INTER- ALIA, CLAIMED BENEFIT U/S. 54 OF THE ACT ALSO WITH RESPECT TO THIS EXPENDITURE OF RS.14,26,705/- TO MAKE THE SAID HOUSE IN HABITABLE STATE , WHICH BENEFIT WAS DENIED BY THE REVENUE AS THE SAME IS NOT ALLOWABLE BECAUSE THE AMOUNT WAS INCURRED AFTER ACQUISITION/PURCHASE OF THE RESIDENT IAL HOUSE PROPERTY AND IS THUS COST OF IMPROVEMENT AND SHALL BE ALLOWABLE A S DEDUCTION U/S. 48/49 OF THE ACT WHEN THE NEW RESIDENTIAL HOUSE PROPERTY PUR CHASED BY THE ASSESSEE AT PUNE IS SOLD BY THE ASSESSEE BUT NO BENEFIT U/S. 54 OF THE ACT CAN BE ALLOWED TO THE ASSESSEE WITH RESPECT TO THIS EXPEND ITURE INCURRED BY THE ASSESSEE WHICH IS POST THE PURCHASE OF THE NEW RESI DENTIAL HOUSE AS ACCORDING TO THE REVENUE , ONLY THE COST PAID FOR ACQUIRING N EW RESIDENTIAL HOUSE IS TO BE TAKEN FOR THE PURPOSES OF GRANTING BENEFIT U/S. 54 OF THE ACT. SECONDLY AS PER REVENUE, THESE EXPENDITURE OF RS.14,26,705/- WA S INCURRED TO MAKE THE RESIDENTIAL HOUSE COMFORTABLE AND WAS NOT INCURRED TO MAKE THE HOUSE IN HABITABLE STATE AS WHEN THE HOUSE WAS PURCHASED/ACQ UIRED BY THE ASSESSEE , IT WAS ALREADY IN HABITABLE STATE AND THE ASSESSEE CHOSE TO REPLACE EXISTING FLOORINGS , PLUMBING, ELECTRICITY WORK ETC. WITH AN OTHER FLOORINGS, PLUMBING AND ELECTRICAL ETC. WHICH CAN BE SAID TO BE INCURRE D TO MAKE THE HOUSE ITA 4450/MUM/2014 9 COMFORTABLE RATHER THAN MAKING THE HOUSE IN HABITAB LE STATE. THE ASSESSEE HAS THUS UNDERTAKEN REPAIRS AND RENOVATION OF THE H OUSE AS PER NEEDS OF THE ASSESSEE AND IS NOT COST OF ACQUIRING THE NEW RESID ENTIAL HOUSE PROPERTY AND HENCE AS PER REVENUE, BENEFIT U/S. 54 OF THE ACT CA NNOT BE ALLOWED TO THE ASSESSEE. THE DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE IS, THUS, WITHIN THIS NARROW COMPASS. IT WILL BE PROFITABLE AT THIS STAGE TO REPRODUCE SE CTION 54 OF THE ACT , AS UNDER: PROFIT ON SALE OF PROPERTY USED FOR RESIDENCE. 54. [(1)] [ [SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), WHERE, IN THE CASE OF AN ASSESSEE BEING AN INDIVIDUAL OR A HINDU UNDIV IDED FAMILY], THE CAPITAL GAIN ARISES FROM THE TRANSFER OF A LONG-TER M CAPITAL ASSET [***], BEING BUILDINGS OR LANDS APPURTENANT THERETO, AND B EING 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 [O NE YEAR BEFORE OR TWO YEARS AFTER THE DATE ON WHICH THE TRANSFER TOOK PLA CE PURCHASED], OR HAS WITHIN A PERIOD OF THREE YEARS AFTER THAT DATE [CO NSTRUCTED, ONE RESIDENTIAL HOUSE IN INDIA], THEN], INSTEAD OF THE CAPITAL GAIN BEING CHARGED TO INCOME-TAX AS INCOME OF THE PREVIOUS YEA R IN WHICH THE TRANSFER TOOK PLACE, IT SHALL BE DEALT WITH IN ACCO RDANCE WITH THE FOLLOWING PROVISIONS OF THIS SECTION, THAT IS TO SA Y, (I) IF THE AMOUNT OF THE CAPITAL GAIN [IS GREATER THAN THE COST OF [THE RESIDENTIAL HOUSE] SO PURCHASED OR CONSTRUCTED (HER EAFTER IN THIS SECTION REFERRED TO AS THE NEW ASSET)], TH E 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 ITA 4450/MUM/2014 10 PURPOSE OF COMPUTING IN RESPECT OF THE NEW ASSET A NY CAPITAL GAIN ARISING FROM ITS TRANSFER WITHIN A PERIOD OF THREE YEARS OF ITS PURCHASE OR CONSTRUCTION, AS THE CASE MAY BE, THE COST SHAL L BE NIL; OR (II) IF THE AMOUNT OF THE CAPITAL GAIN IS EQUAL TO OR LE SS THAN THE COST OF THE NEW ASSET, THE CAPITAL GAIN SHALL NOT BE CHARGED UN DER SECTION 45 ; AND FOR THE PURPOSE OF COMPUTING IN RESPECT OF THE NEW ASSET ANY CAPITAL GAIN ARISING FROM ITS TRANSFER WITHIN A PER IOD OF THREE YEARS OF ITS PURCHASE OR CONSTRUCTION, AS THE CASE MAY B E, THE COST SHALL BE REDUCED BY THE AMOUNT OF THE CAPITAL GAIN . [(2) THE AMOUNT OF THE CAPITAL GAIN WHICH IS NOT A PPROPRIATED BY THE ASSESSEE TOWARDS THE PURCHASE OF THE NEW ASSET MADE WITHIN ONE YEAR BEFORE THE DATE ON WHICH THE TRANSFER OF THE ORIGIN AL ASSET TOOK PLACE, OR WHICH IS NOT UTILISED BY HIM FOR THE PURCHASE OR CO NSTRUCTION OF THE NEW ASSET BEFORE THE DATE OF FURNISHING THE RETURN OF I NCOME UNDER SECTION 139 , SHALL BE DEPOSITED BY HIM BEFORE FURNISHING SUCH RETURN [SUCH DEPOSIT BEING MADE IN ANY CASE NOT LAT ER THAN THE DUE DATE APPLICABLE IN THE CASE OF THE ASSESSEE FOR FURNISHI NG THE RETURN OF INCOME UNDER SUB-SECTION (1) OF SECTION 139 ] IN AN ACCOUNT IN ANY SUCH BANK OR INSTITUTION AS MAY BE SPECIFIED IN, AND UTILISED IN ACCORDANCE WITH, ANY SCHEME 9 WHICH THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, FRAME IN THIS BEHALF AND SUCH RET URN SHALL BE ACCOMPANIED BY PROOF OF SUCH DEPOSIT; AND, FOR THE PURPOSES OF SUB- SECTION (1), THE AMOUNT, IF ANY, ALREADY UTILISED B Y THE ASSESSEE FOR THE PURCHASE OR CONSTRUCTION OF THE NEW ASSET TOGETHER WITH THE AMOUNT SO DEPOSITED SHALL BE DEEMED TO BE THE COST OF THE NEW ASSET : ITA 4450/MUM/2014 11 PROVIDED THAT IF THE AMOUNT DEPOSITED UNDER THIS SUB-SECTIO N IS NOT UTILISED WHOLLY OR PARTLY FOR THE PURCHASE OR CONST RUCTION OF THE NEW ASSET WITHIN THE PERIOD SPECIFIED IN SUB-SECTION (1), THE N, (I) THE AMOUNT NOT SO UTILISED SHALL BE CHARGED UNDER SECTION 45 AS THE INCOME OF THE PREVIOUS YEAR IN WHICH THE PERIOD OF THREE Y EARS FROM THE DATE OF THE TRANSFER OF THE ORIGINAL ASSET EXPIRES; AND (II) THE ASSESSEE SHALL BE ENTITLED TO WITHDRAW SUCH AMO UNT IN ACCORDANCE WITH THE SCHEME AFORESAID. PROVISIONS OF SECTION 54 OF THE ACT ARE A PIECE OF BENEFICIAL LEGISLATION BEING INCENTIVE PROVISION WHICH NEED TO BE STRICTLY CONST RUED FOR BRINGING WITHIN ITS FOLD THE ENTITLEMENT OF THE TAX-PAYER TO THE SAID B ENEFIT, BUT ONCE THE TAX- PAYER ESTABLISHES HIS/HER ENTITLEMENT TO THE BENEFI T U/S 54 OF THE ACT, THEN SECTION 54 OF THE ACT WHICH IS A PIECE OF BENEFICI AL LEGISLATION BEING INCENTIVE PROVISION IS TO BE LIBERALLY CONSTRUED TO GRANT TH E BENEFIT TO THE TAX-PAYER TO FULFILL THE MANDATE OF LEGISLATION WHICH IS TO PROM OTE INVESTMENT IN RESIDENTIAL HOUSING CONSTRUCTION RATHER THAN IN THE MANNER WHIC H MAY FRUSTRATE THE OBJECT . REFERENCE CAN BE DRAWN TO THE FOLLOWING OB SERVATIONS OF HONBLE SUPREME COURT IN THE CASE OF BAJAJ TEMPO LIMITED V. CIT (1992) 196 ITR 188(SC) : THE PROVISION IN A TAXING STATUTE GRANTING INCENTI VES FOR PROMOTING GROWTH AND DEVELOPMENT SHOULD BE CONSTRUED LIBERALL Y; SINCE THE PROVISION FOR PROMOTING ECONOMIC GROWTH HAS TO BE I NTERPRETED LIBERALLY , RESTRICTIONS ON IT TOO HAS TO BE CONSTRUED SO AS T O ADVANCE THE OBJECTIVE OF THE PROVISIONS AND NOT TO FRUSTRATE IT. ITA 4450/MUM/2014 12 THE AFORE-SAID SECTION 54 OF THE ACT PROVIDES FOR T HE BENEFIT/DEDUCTION FROM PAYMENT OF TAXES WITH RESPECT TO LONG TERM CAPITAL GAINS EARNED ON SALE OR TRANSFER OF LONG TERM CAPITAL ASSET BEING RESIDENTI AL HOUSE PROPERTY, IF THE TAX- PAYER PURCHASES OR CONSTRUCT A NEW RESIDENTIAL HOUS E PROPERTY WITHIN THE STIPULATED PERIOD AS PRESCRIBED U/S. 54 OF THE ACT . THE WORD HOUSE HAS BEEN DEFINED IN BLACKS LAW DIC TIONARY 7 TH EDITION, PAGE 743 AS A HOME, DWELLING OR RESIDENCE . THE RESI DENTIAL ACCOMMODATION IS DEFINED IN WHARTONS CONCISE LAW DICTIONARY 15 TH EDITION(CONCISE),PAGE 909 AS RESIDENTIAL ACCOMMODATION, SIMPLY MEANS THAT TH E ACCOMMODATION SHOULD BE CAPABLE OF BEING USED AS RESIDENCE OR SHOULD HAV E BEEN BUILT AS A RESIDENCE. THUS, IN OTHER WORDS THE PROPERTY SHOUL D BE CAPABLE OF BEING HABITABLE . THIS WORD HABITABLE IS HIGHLY SUB JECTIVE WORDS AND VARY FROM PERSON TO PERSON AND TIME TO TIME DEPENDING UPON TH E SOCIO-ECONOMIC STATUS AND STANDING OF THE TAX-PAYER IN THE SOCIETY . WE HAVE OBSERVED THAT IT IS AN ADMITTED POSITION BE TWEEN THE PARTIES AND WHICH IS NOT DISPUTED BY THE BOTH THE PARTIES THAT SUB-CLAUSE (IX) OF CLAUSE 8 OF THE PURCHASE DEED DATED 23-07-2008, THROUGH WHIC H THE ASSESSEE PURCHASED A NEW RESIDENTIAL HOUSE PROPERTY AT PUNE STIPULATES THAT THE SAID HOUSE REQUIRED EXTENSIVE CIVIL, PLUMBING , ELECTRIC AL AND PAINTING WORKS WHICH IS TO BE BORNE BY THE PURCHASER I.E. THE ASSESSEE W HICH WAS ESTIMATED TO BE RS.7,00,000/-, AS UNDER: (8)(IX) THE PURCHASER IS AWARE THAT THE FLAT REQU IRES EXTENSIVE CIVIL, PLUMBING , & ELECTRICAL , PAINTING WORKS & THAT AS REGARDS THE SAME, IT IS BEING SOLD ON AN AS IS WHERE IS BASIS. THE PURCHASE R IS AWARE THAT EXPENSES OF REPAIRS AND RESTORATION IS ESTIMATED AT RS.7,00,000/- . WHATEVER MAY BE THE COST, THE RESPONSIBILITY OF THE SAME IS TAKEN OVER BY ITA 4450/MUM/2014 13 THE PURCHASER AND HE WILL CARRY OUT THE SAME AT HIS OWN COST AND VENDORS WILL NOT BE LIABLE FOR THE SAME AT ALL. THUS, THE NEW RESIDENTIAL HOUSE PROPERTY ACQUIRED/P URCHASED BY THE ASSESSEE AT PUNE IN JULY 2008 AS CONTENDED BY THE A SSESSEE WAS IN DILAPIDATED CONDITION WHICH REQUIRED EXTENSIVE CONS TRUCTION WORK TO MAKE IT IN A HABITABLE STATE. AS PER ASSESSEE, HE GOT THE WORK DONE THROUGH CONTRACTORS AND INCURRED EXPENDITURE OF RS.14,26,7 05/- FOR MAKING IT HABITABLE , FOR WHICH NECESSARY INVOICES WERE ALSO PRODUCED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW AND ALSO BEFORE US WHI CH ARE PLACED IN PAPER BOOK FILED WITH THE TRIBUNAL. THUS, THERE IS NO DIS PUTE BETWEEN ASSESSEE AND REVENUE AS TO INCURRING OF THIS EXPENDITURE OF RS.1 4,26,705/- TOWARDS WORK DONE IN THE NEW RESIDENTIAL HOUSE PURCHASED BY THE ASSESSEE AT PUNE, WHICH WORK IS DONE POST PURCHASE OF THE SAID RESIDENTIAL HOUSE , STARTING FROM THE PERIOD IMMEDIATELY AFTER PURCHASING THE NEW RESIDE NTIAL HOUSE IN JULY 2008 AND CONCLUDING IN JANUARY 2009. THE NEW RESIDENTIAL HOUSE AT PUNE WAS PURCHASED IN JULY 2008 AND THE WORK WAS STARTED IMM EDIATELY THERE-AFTER AND COMPLETED IN JANUARY 2009 , WHICH IS EVIDENCED FROM THE INVOICES PRODUCED BY THE ASSESSEE. THUS IN OTHER WORDS, IT C OULD BE SAID THAT THIS EXPENDITURE OF RS.14,26,705/- WAS PART OF A CONTINU ING TRANSACTION WHICH STARTED WITH PURCHASE OF THE SAID NEW RESIDENTIAL H OUSE PROPERTY AT PUNE IN DILAPIDATED CONDITION BY THE ASSESSEE IN JULY 2008 AND CONCLUDED WITH THE EXTENSIVE CONSTRUCTION WORK CARRIED OUT IMMEDIATELY POST PURCHASE OF SAID NEW RESIDENTIAL HOUSE IN JULY 2008 AND WHICH CONCL UDED IN JANUARY 2009 , COMPRISING OF CIVIL, PLUMBING , ELECTRICAL AND PA INTING WORKS IN THE SAID NEW RESIDENTIAL HOUSE PROPERTY AT PUNE COSTING RS.14,26 ,705/- , TO MAKE THE HOUSE IN A HABITABLE CONDITION WITH AMENITIES FIT F OR LIVING FOR RESIDENTIAL PURPOSES BY THE ASSESSEE. THE ASSESSEE HAS ALSO SU BSTANTIATED BY WAY OF PHOTOGRAPHS APART FROM CORROBORATION WITH CLAUSE 8 (IX) IN THE SALE DEED THAT THE SAID NEW RESIDENTIAL HOUSE PROPERTY IN PUNE ACQ UIRED BY THE ASSESSEE WAS ITA 4450/MUM/2014 14 NOT IN HABITABLE CONDITION AND IN-FACT WAS IN DILAP IDATED CONDITION WHEN IT WAS ACQUIRED BY THE ASSESSEE IN JULY 2008. THE AO IN HIS REMAND REPORT ALSO STATED THAT ON PER USAL OF THE PHOTOGRAPHS OF THE PROPERTY AT THE TIME OF PURCHASE, THE PROPERTY CANNOT BE SAID TO BE COMPLETELY INHABITABLE. HOWEVER AS PER AO , IT DOES SEEM TO BE IN NEED OF REPAIRS, REFURBISHING AND IMPROVEMENT. THE EXACT AM OUNT OF EXPENDITURE REQUIRED TO IMPROVE IT TO A STATE OF HABITABILITY I S A SUBJECTIVE MATTER, AS IT DEPENDS ON THE QUALITY OF MATERIAL PREFERRED AND OT HER SUCH MATTERS. THE AO FURTHER REPORTED IN THE REMAND REPORT THAT UPON PER USAL OF LIST OF WORKS DONE BY THE CONTRACTORS, IT WAS SEEN THAT SOME ITEMS INV OLVE DISMANTLING AND DEMOLITION OF THE EXISTING STRUCTURES , FLOORING, T ILES ETC. AND LAYING NEW BETTER QUALITY ITEMS IN PLACE OF THEM. THE AO IN REMAND RE PORT HAS ALSO ADMITTED THAT RS.7,00,000/- BE CONSIDERED TOWARDS MAKING THE HOUSE HABITABLE AND THE BALANCE BE TREATED AS TOWARDS MAKING THE HOUSE COMFORTABLE. IN THE INSTANT CASE, THE ASSESSEE HAS PURCHASED THE NEW RESIDENTIAL HOUSE AT PUNE IN JULY 2008 IN DILAPIDATED CONDITION AND IMME DIATELY THERE-AFTER UNDERTAKEN EXTENSIVE CIVIL, PLUMBING , ELECTRICAL & PAINTING WORKS TO MAKE IT HABITABLE , WHICH TANTAMOUNT TO CONSTRUCTION WITHIN THE MEANING OF SECTION 54 OF THE ACT , HENCE , THE ASSESSEE CANNOT BE DENI ED THE BENEFIT U/S. 54 OF THE ACT MERELY ON THE GROUND THAT THE ASSESSEE HAS PURCHASED THE NEW RESIDENTIAL HOUSE AND THERE-FORE BENEFIT AS AVAILAB LE TO CONSTRUCTION OF THE NEW RESIDENTIAL HOUSE CANNOT BE EXTENDED TO THE ASS ESSEE SIMULTANEOUSLY . PERUSAL OF SECTION 54 OF THE ACT WILL REVEAL THAT N O SUCH RESTRICTIONS ARE PLACED IN THE PROVISIONS OF SECTION 54 OF THE ACT THAT PUR CHASE OF NEW RESIDENTIAL HOUSE IS MUTUALLY EXCLUSIVE TO THE CONSTRUCTION OF NEW RESIDENTIAL HOUSE , PROVIDED OTHER CONDITIONS AS STIPULATED U/S. 54 OF THE ACT ARE FULFILLED. RATHER, IN THE INSTANT CASE STARTING FROM THE PURCHASE OF N EW RESIDENTIAL HOUSE AT PUNE IN JULY 2008 IN DILAPIDATED CONDITION BY THE ASSESSEE WAS IMMEDIATELY ITA 4450/MUM/2014 15 FOLLOWED BY EXTENSIVE CIVIL, PLUMBING , ELECTRICAL AND PAINTING WORKS UNDERTAKEN BY THE ASSESSEE WHICH STARTED IMMEDIATEL Y AFTER PURCHASE OF THE HOUSE IN JULY 2008 AND CONTINUED TILL JANUARY 2009 WHICH TANTAMOUNT TO CONSTRUCTION OF THE SAID RESIDENTIAL HOUSE BY SPEND ING RS.14.26 LACS , TO MAKE THE SAID NEW RESIDENTIAL HOUSE HABITABLE WITH AMENITIES FIT FOR LIVING OF THE ASSESSEE FOR RESIDENTIAL PURPOSES . SECTION 54 OF THE ACT DOES NOT STIPULATE ANY CONDITION THAT IF THE NEW RESIDENTIAL HOUSE IS PURCHASED BY THE TAX-PAYER, THEN BENEFIT ASSOCIATED WITH CONSTRUCTION OF THE SA ID NEW RESIDENTIAL HOUSE CANNOT BE EXTENDED SIMULTANEOUSLY RATHER BOTH PURCH ASE AND CONSTRUCTION OF THE SAME NEW RESIDENTIAL HOUSE CAN CO-EXIST , PROVI DED OTHER CONDITIONS AS STIPULATED U/S. 54 OF THE ACT ARE COMPLIED WITH. FO R EXAMPLE, THE TAX-PAYER CAN PURCHASE AN RESIDENTIAL HOUSE WITH ONE FLOOR AN D LATER CONSTRUCT TWO MORE FLOORS ON THE SAME RESIDENTIAL HOUSE AND IN T HIS SITUATION BENEFIT U/S 54 OF THE ACT CANNOT BE DENIED TO THE TAX-PAYER MER ELY ON THE GROUND THAT THE TAX-PAYER HAS PURCHASED THE RESIDENTIAL HOUSE AND HENCE NOW BENEFITS FOR CONSTRUCTION OF THE SAME RESIDENTIAL HOUSE PROPERTY ARE ,THEREFORE, DENIED . OUR ABOVE VIEW IS FORTIFIED BY THE JUDGMENT OF HON BLE CALCUTTA HIGH COURT IN THE CASE OF B.B.SARKAR V. CIT (1981) 132 ITR 150(CA L.HC) . SIMILARLY, SECTION 54 OF THE ACT DOES NOT IMPOSE AN Y CONDITIONS OR RESTRICTIONS AS TO WHAT CONSTITUTE HABITABLE TO GET THE BENEFI T OF DEDUCTION U/S 54 OF THE ACT. THE WORD HABITABLE IS HIGHLY SUBJECTIVE AND HAS TO BE UNDERSTOOD AND INTERPRETED IN THE CONTEXT OF THE SOCIO-ECONOMIC S TATUS AND STANDING OF THE TAX-PAYER IN THE SOCIETY. SECTION 54 OF THE ACT ON LY PROVIDES THAT THE TAX- PAYER HAS TO PURCHASE OR CONSTRUCT A NEW RESIDENTIA L HOUSE . ONE TAX-PAYER CAN PURCHASE OR CONSTRUCT NEW RESIDENTIAL HOUSE PR OPERTY FOR SAY EVEN RS 10 LACS AND ANOTHER TAX-PAYER CAN PURCHASE OR CONSTRUC T NEW RESIDENTIAL HOUSE PROPERTY FOR SAY RS 500 LACS, DEPENDING UPON THEIR SOCIO-ECONOMIC STATUS AND STANDING IN THE SOCIETY . IN THE ABOVE CASES, THERE WILL BE SUBSTANTIAL AND SIGNIFICANT DIFFERENCE IN THE QUALITY OF CONSTRUCTI ON MATERIAL USED AND ITA 4450/MUM/2014 16 AMENITIES REQUIRED BY BOTH THE TAX-PAYERS TO MAKE THE HOUSE HABITABLE FIT FOR LIVING FOR THEIR RESIDENTIAL PURPOSES, BUT BOTH THE TAX-PAYERS WILL BE ENTITLED FOR DEDUCTION U/S 54 OF THE ACT PROVIDED O THER CONDITIONS AS STIPULATED U/S 54 OF THE ACT ARE FULFILLED AS SECTI ON 54 OF THE ACT DOES NOT STIPULATE ANY SUCH RESTRICTIVE CONDITIONS AS TO THE CEILING ON AMOUNT PER-SE OF INVESTMENT IN PURCHASE AND /OR CONSTRUCTION OF NEW RESIDENTIAL HOUSE PROPERTY WHICH IS RATHER LINKED TO LONG TERM CAPITA L GAIN EARNED BY THE ASSESSEE ON SALE OR TRANSFER OF RESIDENTIAL HOUSE P ROPERTY , OR AS TO TYPE OF RESIDENTIAL HOUSE PROPERTIES OR QUALITY OF CONSTRUC TION OR AMENITIES REQUIRED BY THE TAX-PAYER TO MAKE THE HOUSE HABITABLE WHIC H WOULD ENTITLED THE TAX- PAYER FOR CLAIMING THE BENEFIT U/S. 54 OF THE ACT . THE TAX-PAYER KEEPING IN VIEW HIS SOCIO-ECONOMIC POSITION AND STATUS IN THE SOCIETY HAS TO DEFINE AS TO WHAT IS HABITABLE RESIDENTIAL HOUSE REQUIRED TO M AKE THE HOUSE FIT FOR LIVING/ABODE FOR THE TAX-PAYER FOR HIS RESIDENTIAL PURPOSES. REVENUE CANNOT DENY THE BENEFIT U/S 54 OF THE ACT ON THE GROUND TH AT EXPENSIVE MARBLE FLOORINGS OR TILES ARE USED IN PLACE OF ORDINARY FL OORING OR TILES ETC. OR A HIGH QUALITY EXPENSIVE CONSTRUCTION MATERIAL IS USED BY THE TAX-PAYER OR MORE AMENITIES ARE REQUIRED BY THE TAX-PAYER TO MAKE THE HOUSE HABITABLE AND MORE SO WHEN SECTION 54 OF THE ACT ITSELF DOES NOT STIPULATE ANY SUCH RESTRICTIVE CONDITIONS, THUS, BENEFIT U/S 54 OF TH E ACT CANNOT BE DENIED TO THE TAX-PAYER ON THESE GROUNDS AS STATUTE DOES NOT PROV IDE FOR SUCH CONDITIONS/RESTRICTIONS. OF COURSE, THE ITEMS OF CO MFORT PURCHASED OR INSTALLED IN THE NEW RESIDENTIAL HOUSE SO PURCHASED OR CONSTR UCTED BY THE TAX-PAYER SUCH AS CONSUMER ELECTRONIC AND ENTERTAINMENT EQUIP MENTS, AIR-CONDITIONING EQUIPMENTS, FURNITURE , BEDDINGS, ELECTRICAL AND OT HER EQUIPMENTS ETC. PER-SE DOES NOT FIT INTO THE DEFINITION OF PURCHASE OR CON STRUCTION OF THE RESIDENTIAL HOUSE ENTITLING THESE ITEMS TO THE BENEFITS U/S. 54 OF THE ACT AS THESE ARE ITEMS OF COMFORT AND ARE NOT PART OF THE PURCHASE O R CONSTRUCTION COST OF NEW RESIDENTIAL HOUSE PROPERTY WITHIN THE MEANING OF SE CTION 54 OF THE ACT AND HENCE, BENEFITS U/S 54 OF THE ACT CANNOT BE ALLOWED FOR THESE ITEMS OF COMFORT ITA 4450/MUM/2014 17 SO PURCHASED/INSTALLED BY THE TAX-PAYER IN THE NEW RESIDENTIAL HOUSE SO PURCHASED OR CONSTRUCTED. IF THE TAX-PAYER IS ALLOW ED TO PURCHASE OR CONSTRUCT THE RESIDENTIAL HOUSE WITHOUT ANY CEILING S AS TO THE AMOUNT OF INVESTMENT U/S 54 OF THE ACT , THEN MERELY BECAUSE THE TAX-PAYER HAS PURCHASED A RESIDENTIAL HOUSE AND THEREAFTER FOLLOW ED IT WITH ALTERATIONS , ADDITIONS AND MODIFICATIONS CARRIED OUT TO CONSTRUC T THE SAID PURCHASED RESIDENTIAL HOUSE TO MAKE IT HABITABLE FOR THE TAX- PAYER, BENEFITS CANNOT BE DENIED BY THE REVENUE U/S 54 OF THE ACT. IT WILL BE LIKE TREATING EQUALS AS UN- EQUALS AND TREATING UN-EQUALS AS EQUALS WHICH IS NO T PERMISSIBLE. OUR VIEW IS ALSO SUPPORTED AND FORTIFIED BY DECISION OF HONBL E KARNATKA HIGH COURT IN THE CASE OF RAHAN SIRAJ V. CIT (2015) 58 TAXMANN.CO M 333(KAR. HC) WHEREBY HONBLE KARNATKA HIGH COURT HELD AS UNDER: 6. IN THE LIGHT OF THE AFORESAID RIVAL CONTENTIONS, T HE SUBSTANTIAL QUESTIONS OF LAW THAT ARISE FOR OUR CONSIDERATION I N THIS APPEAL ARE AS UNDER: '(I) ***** (II) WHETHER THE TRIBUNAL IS RIGHT IN HOLDING THAT THE A PPELLANT IS NOT ENTITLED TO MAKE A DEDUCTION IN RESPECT OF ADDITIONS/ALTERATION S MADE TO THE PROPERTY AFTER PURCHASE IN ORDER TO HAVE A NORMAL LIVING IN COMPUTING THE DEDUCTION UNDER SECTION 54F OF THE ACT, WHEN NO SUCH RESTRICT ION HAS BEEN PROVIDED UNDER SECTION 54F OF THE ACT?' 7. ***** 8. INSOFAR AS THE SECOND SUBSTANTIAL QUESTION OF LAW IS CONCERNED, IT IS NOT IN DISPUTE THAT THE PROPERTY PURCHASED BY THE A SSESSEE WAS HABITABLE BUT HAD LACKED CERTAIN AMENITIES. THE ASS ESSEE HAS SPENT NEARLY ABOUT RS. 18 LAKHS TOWARDS REMOVAL OF MOSAIC FLOORING AND LAYING OF MARBLE FLOORING, ALTERATION OF THE KITCHEN, PUTT ING UP COMPOUND WALL, ITA 4450/MUM/2014 18 PROTECTING THE PROPERTY WITH GRILL WORK AND ATTENDI NG TO OTHER REPAIRS. SECTION 54F OF THE ACT PROVIDES THAT IF THE COST OF THE NEW ASSET, WHICH IS TO BE TAKEN INTO CONSIDERATION WHILE DETERMINING TH E CAPITAL GAIN, THE WORDS USED IS 'COST OF NEW ASSET' AND NOT 'THE CONS IDERATION FOR ACQUISITION OF THE NEW ASSET'. IN LAW, IT IS PERMIS SIBLE FOR AN ASSESSEE TO ACQUIRE A VACANT SITE AND PUT UP A CONSTRUCTION THE REON AND THE COST OF THE NEW ASSET WOULD BE COST OF LAND PLUS (+) COST O F CONSTRUCTION ON THE SAME ANALOGY, EVEN THOUGH HE PURCHASED A NEW ASSET, WHICH IS HABITABLE BUT WHICH REQUIRES ADDITIONS, ALTERATIONS , MODIFICATIONS AND IMPROVEMENTS AND IF MONEY IS SPENT ON THOSE ASPECTS , IT BECOMES THE COST OF THE NEW ASSET AND THEREFORE, HE WOULD BE ENTITLE D TO THE BENEFIT OF DEDUCTION IN DETERMINING THE CAPITAL GAINS. THE APP ROACH OF THE AUTHORITIES THAT ONCE A HABITABLE ASSET IS ACQUIRED , ANY ADDITIONS OR IMPROVEMENTS MADE ON THAT HABITABLE ASSET IS NOT EL IGIBLE FOR DEDUCTION, IS CONTRARY TO THE STATUTORY PROVISIONS. THE SAID R EASONING IS UNSUSTAINABLE. TO THAT EXTENT, THE IMPUGNED ORDER P ASSED BY THE TRIBUNAL AS WELL AS THE LOWER AUTHORITIES REQUIRE T O BE SET-ASIDE AND IT IS TO BE HELD THAT IN ARRIVING AT COST OF THE NEW ASSE T, RS. 18 LAKHS SPENT BY THE ASSESSEE FOR MODIFICATION, ALTERATIONS AND IMPR OVEMENTS OF THE ASSET ACQUIRED IS TO BE TAKEN NOTE OF. THUS, THE SECOND S UBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAIN ST THE REVENUE. HENCE, WE PASS THE FOLLOWING ORDER: APPEAL IS ALLOWED IN PART WE HAVE ALSO CAREFULLY PERUSED THE INVOICES OF CONT RACTORS SUBMITTED BY THE ASSESSEE IN PAPER BOOK FILED WITH THE TRIBUNAL AND WE HAVE FOUND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ARE TOWARDS TH E EXTENSIVE CIVIL, PLUMBING , ELECTRICAL AND PAINTING WORKS INCLUDING NEW FLOORING , TILES , FITTINGS IN THE NEW RESIDENTIAL HOUSE PROPERTY PURC HASED BY THE ASSESSEE IN ITA 4450/MUM/2014 19 PUNE IN JULY 2008 AND ARE NOT TOWARDS PURCHASE OR I NSTALLATION OF ITEMS OF COMFORT SUCH AS AIR-CONDITIONERS, CONSUMER ELECTRON ICS AND ENTERTAINMENT EQUIPMENTS, ELECTRICAL AND OTHER EQUIPMENTS, FURNIT URE ETC. WE HAVE ALSO SEEN THE PHOTOGRAPHS OF THE NEW RESIDENTIAL HOUSE AT PUN E WHEN IT WAS PURCHASED BY THE ASSESSEE IN JULY 2008 WHICH IS ALSO PLACED I N PAPER BOOK WHICH CLEARLY REFLECTS THAT THE SAID HOUSE WAS NOT IN THE HABITAB LE CONDITIONS AND WAS IN DILAPIDATED CONDITION WHEN IT WAS PURCHASED BY THE ASSESSEE IN JULY 2008, WHICH IS ALSO CORROBORATED BY THE CLAUSE 8(IX) IN T HE PURCHASE AGREEMENT DATED 23-07-2008 ENTERED INTO BY THE ASSESSEE FOR A CQUIRING THE NEW RESIDENTIAL HOUSE PROPERTY AT PUNE IN JULY 2008. TH US BASED ON THE PECULIAR FACTS AND CIRCUMSTANCES OF THIS CASE AND ON THE BAS IS OF OUR DISCUSSION AND REASONING ABOVE , WE HOLD THAT THE ASSESSEE IS ENTI TLED FOR CLAIM OF BENEFIT U/S 54 OF THE ACT OF EXPENDITURE OF RS.14,26,705/- INCU RRED BY THE ASSESSEE TO MAKE THE SAID NEW RESIDENTIAL HOUSE PURCHASED BY TH E ASSESSEE AT PUNE IN JULY 2008 HABITABLE FIT FOR LIVING FOR RESIDENTIA L PURPOSES BY THE ASSESSE. WE ORDER ACCORDINGLY. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IN ITA N0. 4450/MUM/2014 FOR THE ASSESSMENT YEAR 2009-10 IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MARCH, 2016. # $% &' 30-03-2016 ( ) SD/- SD/- (AMIT SHUKLA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 30-06-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS ITA 4450/MUM/2014 20 !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI F BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI