WHETHER INVESTMENT IN MODIFICATION OF AN EXISTING HOUSE IS ELIGIBLE FOR CAPITAL GAIN EXEMPTION?

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WHETHER INVESTMENT IN MODIFICATION OF AN EXISTING HOUSE IS ELIGIBLE FOR CAPITAL GAIN EXEMPTION?

24/11/2020

WHETHER INVESTMENT IN MODIFICATION OF AN EXISTING HOUSE IS ELIGIBLE FOR CAPITAL GAIN EXEMPTION?

SectIon 54 & 54F offers exemption against long term capital gain. Both the section offers exemption, subject to stipulated terms and conditions, from capital gain if the amount is invested for purchase or construction of house property.

It must be noted that Section clearly provide that exemption is available only when the investment is in the purchase or construction of a house. Nothing is mentioned in said sections about investment in modification or renovation.

This need to understand with reference to court opinion

The issue was examined in the case of Mrs. Meera Jacob vs ITO 313 ITR 411 (Kerala)

Court observed that Section 54F does not provide for exemption on investment in renovation or modification of an existing house. On the other hand, construction of a house only qualifies for exemption on the investment. Even addition of a floor of a self contained type to the existing house would have qualified for exemption. However, since the assessee has only made addition to the plinth area, which is in the form of modification of an existing house, she is not entitled to deduction claimed u/s 54F of the Act.

The court order is reproduced here.

HIGH COURT OF KERALA

HON'BLE C. N. RAMACHANDRAN NAIR & HON'BLE V. K. MOHANAN, JJ.

MRS. MEERA JACOB. V/s. ITO

09.06.2008

JUDGMENT

The judgment of the court was delivered by

C.N. RAMACHANDRAN NAIR J.-Heard senior counsel Sri Joseph Markose appearing for the appellant and standing counsel appearing for the respondent.

The question involved is whether the assessee, in the computation of long-term capital gains, is entitled to deduction under section 54F of the Income tax Act in respect of investment in modification/expansion of an existing residential house. The Tribunal took the stand that exemption is available only when the investment is in the construction of a house and not for investment in modification or renovation. Admitted facts are that the assessee had a fairly big house to which the assessee made addition of 140 sq. metres of plinth area.

However, it is the conceded position that the assessee has not constructed any separate apartment or house. Section 54F does not provide for exemption on investment in renovation or modification of an existing house. On the other hand, construction of a house only qualifies for exemption on the investment. Even addition of a floor of a self-contained type to the existing house would have qualified for exemption. However, since the assessee has only made addition to the plinth area, which is in the form of modification of an existing house, she is not entitled to deduction claimed under section 54F of the Act.

We, therefore, uphold the order of the Tribunal and dismiss the appeal.