Sec. 54 Cost of residential house includes cost of furniture if it forms part of house Purchase

Rajat B Mehta Vs. ITO (ITAT Ahmedabad)

Quite clearly, for the detailed reasons set out earlier in this order, the two separate agreements for sale of house property and the furniture and fixtures cannot be considered in isolation of each other on standalone basis, and have to considered essentially as a composite contract- particularly in the light of the undisputed contents of the agreement to sell dated 19^th January 2011. Given these facts, the cost of the new asset has to be treated as Rs 78,00,000. 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. 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, per force, buy at the time of buying the residential house- as apparently was the case, the cost of the new asset in 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 was not, as the circumstances would suggest, an option open to the assessee to buy or not to buy the furniture and fixtures at this price. The arrangements for separate purchase of furniture and fixtures were indeed artificial, but the remedy did not lie in declining deduction under section 54 to the buyer to that extent. The remedy was in bringing the right amount of capital gains to tax by ignoring the nomenclature of sale of personal effects, specifically excluded under section 2(14)(ii) from the definition of capital assets, as sale of residential property. That, however, was not done. 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 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 deduction under section 54F by treating entire amount of Rs 78,00000 as the “cost of the residential house” purchased within specified time limit under section 54.