Section 54F also allowed for additional construction

If a deduction provision under the Income Tax Act, 1961 ('the Act') provides for 2 different alternatives to claim the deduction and a taxpayer fulfills both these alternatives at the same time, will such an act also make the taxpayer eligible to claim the said deduction? Let's find out.

A taxpayer sold his industrial shed on 27-08-14 and earned long-term capital gains of Rs 97.62 lakh. In his return of income filed for AY 2015-16, he claimed deduction u/s 54F of the Act on the entire amount of capital gains. The deduction claimed included two things. First part of the claim of Rs 69.33 lakh was towards the amounts invested by the taxpayer in the purchase of a new residential house (including stamp duty and registration charges). The second part of the claim included the amount spent by the taxpayer for the construction of a 2nd and 3rd floor on the same property as the property purchased consisted only of ground and first floor. The amount invested for such construction was Rs 30.62 lakh. In addition to this, the taxpayer also claimed that Rs 17.63 lakh was incurred on account of renovation and civil works of the new house.

During the course of assessment, the tax officer examined the claim and accepted that the amount spent as per the first claim by the taxpayer qualifies as per the provisions of section 54F and hence, allowed a proportionate deduction to the extent of Rs 56.01 lakh. However, the tax officer disallowed the claim for amounts spent on the construction of new floors and the renovation work of the house. Unhappy with the disallowance, the taxpayer filed the first appeal.

The first appellate authority accepted the claim regarding the investment of Rs 17.63 but rejected the claim on account of investment made towards the cost of construction of the additional floors. The appellate authority was of the view that the additional floors constitute separate residences. Although the entire house is under one survey number but the authority opined that the taxpayer has not provided any conclusive proof that these additional floors were part of the same house that was originally purchased. Further, the authority also objected to the fact that the construction of the 2nd and 3rd floor is seen to have commenced only in March 2017, a full year after the new residential house was purchased. The principal objection here is that if the two floors were part of the same unit, the construction work should have been carried on at the same time as the renovation work of the existing floors was undertaken. The taxpayer filed a second appeal before the Delhi tax Tribunal.

Before the Tribunal, the taxpayer relied on a previous decision by the Calcutta High Court wherein it was held that where a taxpayer is entitled to relief on fulfillment of either of the two conditions, i.e. to say either purchasing a house property within one year or constructing a new property within two years, and he fulfills both conditions, he should be entitled to relief. The taxpayer further argued that if a floor is added to the new house or renovated, it remains the same house and cannot be regarded as two houses. The taxpayer also submitted that the delay in construction beyond a year was on account of medical reasons within the family for which supporting evidence was available.

Based on facts of the case and relying on the preceding High Court decision, the Tribunal allowed the taxpayer's claim for deduction u/s 54F in respect of amount invested for construction of 2nd and 3rd floor.

The writer is a Sebi-registered investment advisor