Section 54F – Expenditure incurred by the assessee on remodelling, painting of the flat so that the same could be made habitable according to the standard of living of the assessee, forms part of cost of purchase and is admissible u/s 54F

Section 54F –
Expenditure incurred by the assessee on remodelling, painting of the flat so
that the same could be made habitable according to the standard of living of
the assessee, forms part of cost of purchase and is admissible u/s 54F

FACTS

In the course
of assessment proceedings, the AO observed that the assessee had shown
long-term capital gain of Rs. 1,25,10,645 after claiming deduction of Rs.
1,54,50,250 u/s 54F of the Act. The assessee was asked to substantiate its
claim for deduction u/s 54F. The assessee submitted that she had acquired a new
residential property for Rs. 2,25,00,000 vide agreement dated 18^th
March, 2009 jointly with her husband and incurred incidental expenditure of Rs.
15,00,500 thereon. Thus, the aggregate cost worked out to Rs. 2,40,00,500 of
which the assessee’s share was one–half, i.e., Rs. 1,20,00,250. The assessee
had also incurred an expenditure of Rs. 34,50,000 on the same flat to make it
habitable as per her standard of living and claimed deduction thereof u/s 54F
of the Act.

According to
the assessee, this sum of Rs. 34,50,000 formed part of the cost of the house as
it was incurred on electrification of the house, civil work, design planning,
plumbing, flooring, etc. According to the AO, the said expenditure was not
incurred on construction / improvement of the flat but on furniture,
fabrication and painting, etc. The AO held that the expenditure of Rs. 34,50,000
falls under the category of expenditure by way of renovation to make the flat
more comfortable and therefore is not liable to be allowable as part of the
cost of the flat. The AO denied benefit of section 54F to the extent of this
sum of Rs. 34,50,000.

Aggrieved, the
assessee preferred an appeal to the CIT(A) who held that u/s 54F only amount
relating to agreement value, stamp duty, registration charges and professional
charges related to the purchase of the new flat could be claimed. The cost of
improvement and renovation are subsequent to the purchase and therefore cannot
be allowed as deduction u/s 54F of the Act. He upheld
the order of the AO on the ground that the expenditure of Rs. 34,50,000 has
been incurred to make the house more lavish.

HELD

The Tribunal
observed that the assessee incurred expenditure of Rs. 34,50,000 for
remodelling the flat, its painting and so on so that the same could be made
habitable according to her standard of living. The Tribunal held that the said
cost forms part of the cost of purchase and is admissible expenditure u/s 54F
of the Act. It noted that the case of the assessee is supported by various
judicial pronouncements and in particular the case of G. Siva Rama
Krishna, Hyderabad vs. ITO (ITA No. 755/Hyd./2013) A.Y. 2007-08; Ruskom Home
Vakil vs. ITO (ITA No. 4450/M/2014); and Mrs. Gulshabanoo R.
Mukhi vs. JCIT (2002) 83 ITR 649 (Mum.). The Hyderabad Bench in the
case of G. Siva Rama Krishna (Supra) has held that expenditure
incurred on remodelling the flat in the normal course after purchasing the
readymade flat is allowable u/s 54F of the Act. The Tribunal, following the decisions of the Co-ordinate Benches, set
aside the order of the CIT(A) and directed the AO to allow deduction of Rs.
34,50,000, being expenditure incurred by the assessee, also u/s 54F of the Act.

The appeal
filed by the assessee was allowed.