Ita/232/2013 Of Mrs Rahana Siraj v. The Commissioner Of Income Tax - I

IN THB HIGH COURT OF KARNATAKA AT BENGALURU DATEBD THIS THE [th]DAY OF JANUARY 2015) PRESENT THER HON’BLE MR. JUSTICE N.KUMARAN 1 THER HON’BLE MR. JUSTICE B.VBEBRAPP I.T.A. NO.232/2013 BETWEEN: Mrs.Rahana Siraj,Since deceased, Represented by L.Rs. 1.|syed Siraj Ahmed, Aged 609 years, 2 |syed Salman | Aged 35 years, 3.|syed Jibran Ahmed, Aged 32 years, 32,5[th]Cross, Jai BharathNagar,Banaswadi Main road,Banaswadi Main road, Bangalore — 560 033. ...APPELLANTS (By Sri.R.Chandrashekar R. & sri.Kashinath Kalmath, Advs. for sri.R.Rama Murthy, Adv.) -9O-. AND :. 1.|The Commissioner of Income Tax-l, C.R.Building, Queen Road, Bangalore — 560 OO1. 2.|The Income Tax Officer,Ward — 1(2),|Ward — 1(2),| Bangalore — 560 027. ...RESPONDENTS (By Sri.K.V.Aravind, Adv.) . . . . This I.T.A. is filed under Section ZJO0OA of thIncome Tax Act, 1961, arising out of order dated18.01.2013 passed in I.T.A. No.635/Bang/2010, for theAssessment Year 2005-06 praying to : 6$<formulate the substantial questions of lawstated therein, ©stated therein, © 6$$<Allow the appeal and set-aside the orderpassed by the Income Tax Appellate Tribunal,Bangalore in I.T.A. No.639/Bang/2010 dated18.01.2013.passed by the Income Tax Appellate Tribunal,Bangalore in I.T.A. No.639/Bang/2010 dated18.01.2013. This I.T.A. coming on foradmission,this day,N.Kumar J., delivered the following: JUDGMENT The assessee has preferred this appeal against the order passed by the Tribunal holding that only the expenses incurred to make the residential househabitable is entitled to benefit under Section 54F of theIncome-tax Act, 1961, but not any additions made tothe newly acquired building. | 2. The assessee 1s an individual. Assessee was theowner of immovable property bearing No.96, BrigadeRoad, Civil Station, Bangalore. When the said propertywas sold, she received a sum of Rs.92,80,350/- towardsher share as a co-owner. She declared a capital gain ofRs.34,31,912/-. She claimed exemption under Section54F oft the Act as she invested the said amount inpurchase of another property. Return was processedunder Section 143(1)(a) of the Act. Later on, a noticeunder Section 148 of the Act was issued on 24.11.2006calling upon her to show-cause as to why the return ofIncome should be revised, as the income declared under.the head capital gains as Rs.44,04,743/- is not correct. ohe filed a reply. The assessee had claimed the fairmarket value as on 01.04.1981 at Rs.280/- per sq. ft. |According to the assessee as per the Governmentnotification, it was only Rs.45/- per sq.ft. Aggrieved bythe same, the assessee preferred an appeal to theCommissioner of Income-tax (Appeals), who assessedthe fair market value at Rs.175/- per sq. ft. Both theassessee and the Revenue preferred an appeal to theTribunal. | 3. The Tribunal, by the impugned order remandedthe matter to the Assessing authority to consider thecase in the light of the judgment of the Tribunal inrespect of another co-owner in I.T.A. Nos. 425 &4602/2010. Insofar as the determination of the marketvalue of the property is concerned, the assessee alsohad claimed benefit of the amounts, which she invested|by way of laying marble flooring and re-painting of the house and improving kitchen, constructing compoundwall and other additions. The said claim was rejectedby the Tribunal on the ground that when admittedly,the property, which was purchased by the assessee washabitable, any amounts invested by way of improvementis not liable for the benefit under Section 54F of the Act. |Aggrieved by the said order of the Tribunal, the assesseeis before this Court. 3. The Tribunal, by the impugned order remandedthe matter to the Assessing authority to consider thecase in the light of the judgment of the Tribunal inrespect of another co-owner in I.T.A. Nos. 425 &4602/2010. Insofar as the determination of the marketvalue of the property is concerned, the assessee alsohad claimed benefit of the amounts, which she invested|by way of laying marble flooring and re-painting of the house and improving kitchen, constructing compoundwall and other additions. The said claim was rejectedby the Tribunal on the ground that when admittedly,the property, which was purchased by the assessee washabitable, any amounts invested by way of improvementis not liable for the benefit under Section 54F of the Act. |Aggrieved by the said order of the Tribunal, the assesseeis before this Court. 4. The learned counsel for the assessee, assailingthe impugned order contended that the records disclosethat after issue of notice under Section 148 of the Act|and after receiving the reply from the assessee, theassessing authority addressed a letter to the Sub-Registrar to furnish the market value of the property ason 01.04.1981. It shows that without any materialbefore him, he had initiated proceedings for re-openingand therefore, the very initiation of proceedings in re- opening was one without jurisdiction and it is set-aside. —Alternatively, he has contended that though theproperty purchased was habitable, the assessee spentMoneyOTltheproperty|purchased|by|oT improvements to make the premises convenient for herliving which also should be taken into consideration incalculating the cost of investment, which has not beendone by the authorities. Therefore, he submits that theimpugned order requires to be set-aside. © 5. The learned counsel for the Revenue submittedthat on the day the notice under the Act was issued, theAssessingAuthorityhad1n itspossession, the.Government notification showing the market rate of theproperty at Rs.45/- per sq. ft. It is on the basis of that.material, as the assessment order was under Section| 143(1) of the Act, proceedings were initiated for re-opening. Merely because he wrote a letter subsequently to the Sub-Registrar calling upon him to furnish theparticulars regarding the market value, that would in noway vitiate the initiation of proceedings and therefore,the authorities were justified in rejecting the saidcontentions. Insofar as the improvements carried outby the assessee aiter acquiring the property isconcerned, as the same was not required for making thepremises habitable, the authorities were justified inrefusing to take into consideration the amount soinvested for acquisition of new asset. 6. In the light of the aforesaid rival contentions,| the substantial questions of law that arise for ourconsideration in this appeal are as under: (1)Whether, the order of the Appellate Tribunalin arriving at the finding that there was|sufficient reasons and material to re-open the|assessment, by issue of notice under Section|148 of the Act is sustainable in law?| -8-. (it)Whether the Tribunal is right in holding thatthe appellant is not entitled to make adeduction in respect of additions/ alterationsmade to the property after purchase in order|to have a normal living in computing the|deduction under Section 54F of the Act, when|no such restriction has been provided under|section 54F of the Act?| 7. Insotar as the extracts made in the order oft theTribunal is concerned, it discloses that the assessingauthority, before issuing notice under Section 148 of theAct was satisfied that the assessee, while computingindexed cost of acquisition has taken the value as on01.04.1981 as Rs.280/- per sq.it., but as per theGovernment notification, the value is at Rs.409 per sq. ft. Therefore, he came to the conclusion that the assesseehas taken higher value while working out indexationand therefore, he recorded an opinion that the incomechargeable to tax has escaped assessment under 7. Insotar as the extracts made in the order oft theTribunal is concerned, it discloses that the assessingauthority, before issuing notice under Section 148 of theAct was satisfied that the assessee, while computingindexed cost of acquisition has taken the value as on01.04.1981 as Rs.280/- per sq.it., but as per theGovernment notification, the value is at Rs.409 per sq. ft. Therefore, he came to the conclusion that the assesseehas taken higher value while working out indexationand therefore, he recorded an opinion that the incomechargeable to tax has escaped assessment under section 147 of the Act. Merely because, he addressed aletter to the Sub-Registrar asking him to furnish theparticulars would not lead to the conclusion that on theday he issued notice, he had no material to show thatthe assessee has over valued the asset. Rightly, theauthorities have rejected the said contention and theproceedings initiated is valid and legal and do not sufferfrom any legal infirmity. Therefore, the first substantialquestion of law is answered in favour of the revenue andagainst the assessee. 8. Insofar as the second substantial question oflaw is concerned, it is not in dispute that the propertypurchased by the assessee was habitable but hadlacked certain amenities. The assessee has spent nearlyabout Rs.18 lakhs towards removal of mosaic flooringand laying of marble flooring, alteration of the kitchen,putting up compound wall, protecting the property with -10-. erill work and attending to other repairs. Section o4F ofthe Act provides that if the cost of the new asset, whichis to be taken into consideration while determining thecapital gain, the words used is “cost of new asset” andnot “the consideration for acquisition of the new asset”. ©In law, it is permissible for an assessee to acquire avacant site and put up a construction thereon and thecost of the new asset would be cost of land plus (+) costof construction. On the same analogy, even though hepurchased a new asset, which is habitable but whichrequiresadditions,alterations, modificationsandimprovements and if money is spent on those aspects, itbecomes the cost of the new asset and therefore, he)would be entitled to the benefit oft deduction indetermining the capital gains. The approach of theauthorities that once a habitable asset is acquired, anyadditions or improvements made on that habitable assetis not eligible for deduction, is contrary to the statutory provisions. The said reasoning is unsustainable. Tothat extent, the impugned order passed by the Tribunalas well as the Lower authorities require to be set-asideand it is to be held that in arriving at cost of the newasset,Rs.18|lakhsspentby the.aAsSSsSE€formodification, alterations and improvements of the assetacquired is to be taken note of. Thus, the secondsubstantial question of law is answered in favour of theassessee and against the Revenue. Hence, we pass thefollowing order: Appeal is_allowed in part Sd/-.JUDGE. SPS Sd/-.JUDGE|