THE issue before the Bench is - Whether any addition or improvements made on a habitable asset acquired by the assessee is eligible for the benefit u/s 54F. YES is the answer.
Facts of the case
The assessee an individual, was owner of an immovable property in Bangalore. Upon sale of the property, the assessee received a sum towards her share as a co-owner. The assessee declared a capital gain of Rs 34,31,912/-. She claimed exemption u/s 54F as she had invested the said amount in purchase of another property. The assessment was processed, but later on a notice u/s 148 was issued on 24.11.2006 calling upon her to show-cause as to why the return of Income should be revised, as the income declared under the head capital gains was not correct. The assessee had claimed the fair market value as on 01.04.1981 at Rs.280/- per sq. ft. According to the assessee as per the Government notification, it was only Rs.45/- per sq.ft. Aggrieved by the same, the assessee preferred an appeal to the CIT (A), who assessed the fair market value at Rs.175/- per sq. ft. Both the assessee and the Revenue preferred an appeal to the Tribunal. The Tribunal remanded the matter to the AO. Regarding the determination of the market value of the property, the assessee had claimed benefit of the amounts invested by way of improvements. This was disallowed by the Tribunal on the ground that any amounts invested by way of improvement was not liable for benefit u/s 54F. Aggrieved the assessee has filed this appeal.
Having heard the parties, the High Court held that,
++ insofar as the extracts made in the order of the Tribunal is concerned, it discloses that the assessing authority, before issuing notice under Section 148 of the Act was satisfied that the assessee, while computing indexed cost of acquisition has taken the value as on 01.04.1981 as Rs.280/- per sq.ft., but as per the Government notification, the value is at Rs.45 per sq. ft. Therefore, he came to the conclusion that the assessee has taken higher value while working out indexation and therefore, he recorded an opinion that the income chargeable to tax has escaped assessment under Section 147 of the Act. Merely because, he addressed a letter to the Sub-Registrar asking him to furnish the particulars would not lead to the conclusion that on the day he issued notice, he had no material to show that the assessee has over valued the asset. Rightly, the authorities have rejected the said contention and the proceedings initiated is valid and legal and do not suffer from any legal infirmity. Therefore, the first substantial question of law is answered in favour of the revenue and against the assessee;
++ insofar as the second substantial question of law is concerned, it is not in dispute that the property purchased by the assessee was habitable but had lacked certain amenities. The assessee has spent nearly about Rs.18 lakhs towards removal of mosaic flooring and laying of marble flooring, alteration of the kitchen, putting up compound wall, protecting the property with grill work and attending to other repairs. The approach of the authorities that once a habitable asset is acquired, any additions or improvements made on that habitable asset is not eligible for deduction, is contrary to the statutory provisions. The said reasoning is unsustainable. To that extent, the impugned order passed by the Tribunal as well as the Lower authorities require to be set-aside and it is to be held that in arriving at cost of the new asset, Rs.18 lakhs spent by the assessee for modification, alterations and improvements of the asset acquired is to be taken note of. Thus, the second substantial question of law is answered in favour of the assessee and against the Revenue.
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