In Rajat B Mehta v. ITO, the Ahmedabad bench of Income Tax Appellate Tribunal (ITAT) held that the exemption under section 54F of the Income Tax Act 1961 can be extended to furniture and fixtures purchased along with the new house if the same is an integral part of the purchase.
Assessee in the instant case assessee is a non-resident who is maintaining his connections with his motherland. He had a spacious house which he sold for a consideration of Rs. 2,46,00,000 and earned long-term capital gain of Rs 1,89,77,426. Thereafter, he invested the same in a new residential property and he claimed deduction under section 54 of the Act on account of expenses incurred to make the new house habitable.
During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee had entered into two separate contracts, though on the same date, for the purchase of house property and the furniture and fixtures therein. The payment of Rs 60,00,000 was under contract for the purchase of house property and the remaining payment of Rs 18,00,000 was made under contract for the purchase of furniture and fixtures in the said property. Further, he observed that expenses incurred for making the house habitable and accordingly he denied the claim of the Assessee under the said section.
On appeal, the CIT(A) also upheld the order of the AO. Aggrieved by the order of the authority assessee approached the Tribunal on further appeal.
After considering the facts and circumstances, the Tribunal bench including Judicial Member S S Godara and Accountant Member Pramod Kumar observed that the sale of furniture and fixtures was an integral part of the deal of buying the house property.
It was further observed that the cost of the residential house is Rs 78,00,000 as the assessee did not have any choice about buying or not buying the furniture at the assigned values, as irrespective of the purchases of the furniture also, the assessee was under an obligation to pay the same amount of Rs 78,00,000.
The bench said that “If at all there was any beneficiary of this splitting up arrangements, the beneficiary was the seller of this property inasmuch as the personal effects in question, which were assigned the value of Rs 18,00,000, were not covered by the definition of capital asset under section 2(14), and, accordingly, gains on sale of these personal effects were outside the ambit of taxable capital gains. Only if the Assessing Officer had read the agreement to sell carefully and considered the same in the light of actual sale deeds, he could have easily identified the manner in which the revenue authorities were possibly taken for a ride, and he could have initiated suitable remedial action. That, however, was not done. Instead, the Assessing Officer proceeded to decline benefit of Section 54 to the assessee to the extent of consideration assigned to these personal effects. Even if Rs 18,00,000 was indeed to be assigned to the personal effects that the assessee had to, perforce, buy at the time of buying the residential house- as apparently was the case, the cost of the new asset in the house was to be taken as the composite cost i.e. Rs 78,00,000. Whether the assessee was to buy these furniture and fixtures or not, the sale consideration was the same. The assignment of value to the personal effects at Rs 18,00,000 thus could not be considered in isolation with the purchase of the house.”
“It could not have been open to the authorities below to treat the payment of Rs 18,00,000 on account of furniture and fixtures on the standalone basis, and thus exclude it as a separate item rather than as a ‘cost of the residential house so purchased’. In our considered view, therefore, the assessee is entitled to the deduction under section 54F by treating entire amount of Rs 78,00,000 as the “cost of the residential house” purchased within the specified time limit under section 54 of the Act,” the bench said.
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