Thursday 4 April 2013


SECTION 54F EXEMPTION NOT AVAILABLE FOR ADDITION / MODIFICATION / EXTENSION MADE TO EXISTING HOUSE

In its judgment dated 22nd August, 2012, HIGH COURT OF KERALA in the case of Pushpa vs. Income tax Officer held that exemption under section 54F in respect of Capital Gains will not be available for addition or modification or extension made to the existing house.

Facts of the Case
In the present case assessee i.e. pushpa was taking exemption U/S 54F in respect of capital gains for additions or modification in the existing house.
This is objected by ITO and now case is before High Court of Kerala.

Issue for Consideration
The issue raised in the present case is as to whether the exemption will be available to the assessee in respect of additions or modification made in the existing house under section 54F of the IT Act. 

Judgment
ü  Sec. 54F provides that capital gains on transfer of capital assets shall not be charged in cases of investment in new residential house. 

ü  The section pointedly says that such eligibility would be available if the assessee has, within the period prescribed, constructed or purchase, a residential house.

ü  For the purpose of that section, the residential house so constructed is referred to as new asset.

ü  The object sought to be achieved by that provision is to exclude capital gains on transfers of certain capital assets from being charged provided the new asset is a residential house.

ü  Obviously, a new house is not something which is either an extension or addition made to an existing structure.

ü  As noted by this Court in Mrs. Meera Jacob(supra), the exemption is available only when the investment is in the construction of a house and not for investment in modification or renovation.

ü  Sec. 54F does not provide for exemption on investment in renovation or modification of an existing house and what gains exemption is only construction of a house.

ü  Reverting to the case in hand, the Tribunal adverted to the entire materials and has categorically found that there is nothing on record to show that the capital gains was actually utilized for the construction of  a new house. 

ü  Therefore no exemption shall be given U/S 54F for any addition, modification or extension of existing house.

Regards

CA. Mona Singhal

Partner



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