The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) comprising N K Billaiya (Accountant Member) and Astha Chandra (Judicial Member), upholding an order of the CIT(A), held in favor of the Assessee that, the exemption under section 54 & 54 F of the Income Tax Act,1961 is allowable in respect of the amount invested in the construction of a residential house.
The Deputy Commissioner of Income Tax (DCIT), filed an appeal challenging the order of the CIT(A) in which the disallowance, made on account of indexed cost of house property pertaining to interest expenses was deleted and a deduction on account of the acquisition of a new residential unit was allowed.
It was also held in the impugned order that, if the property was purchased from borrowed funds, the amount of interest constitutes the actual cost to that property. To exclude the interest amount from the actual cost of the assets/property would lead to an anomalous result.
The assessee sold his residential house and computed long-term capital gain out of which he claimed deduction under section 54 of the Income Tax Act, 1961. The assessee submitted that interest incurred for the acquisition of capital asset forms part of the cost of the asset on claiming deduction of interest as the indexed cost of acquisition under Section 48 of the IT Act.
The Assessing Officer did not allow the interest to be considered as the indexed cost of acquisition and disallowed the deduction under Section 54 of the Act stating that the land in question was agricultural land in the records. The CIT (A) allowed both the exemptions against which the present appeal is filed by the Revenue.
Analyzing the differences between deduction under Section 24(b) and computation of capital gains under Section 48 of the IT Act, the tribunal clarified that both provisions related to different heads of income. As the exemption was rightly claimed by the assessee, the tribunal upheld the order of CIT (A) in this regard.
The tribunal held in favor of the respondent that the farmhouse was also a residential house and that there was no limit on the size of the land in this regard.
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