Facts of the Case

The assessee, an architect by profession, purchased a residential floor situated at East of Kailash, New Delhi in July 1997 through an unregistered agreement for an amount of ₹18,00,000.

Subsequently, four registered sale deeds for one-fourth shares each were executed showing consideration of ₹4.50 lakh each, aggregating to ₹18,00,000.

The assessee further claimed to have paid ₹12,00,000 separately for fixtures, fittings, furniture and removable woodwork, including items such as display windows, wardrobes, cupboards, wooden grills, wooden temples, fans, geysers, light fittings, rugs and furniture.

On 09 April 2008, the assessee sold the property through two sale deeds for ₹90,00,000 and while computing long-term capital gains deducted ₹12,00,000 by treating it as cost of acquisition/improvement.

The Assessing Officer rejected the claim and treated the items as furniture and personal effects not qualifying as capital assets for deduction purposes.

The Commissioner of Income Tax (Appeals) and subsequently the Income Tax Appellate Tribunal upheld the findings of the Assessing Officer.

The assessee thereafter filed an appeal before the Delhi High Court.

Issues Involved

  1. Whether ₹12,00,000 paid towards fixtures, fittings and furniture constituted cost of acquisition of the capital asset under Section 48 of the Income Tax Act.
  2. Whether furniture and fixtures forming part of residential premises could be treated as capital assets eligible for deduction in capital gains computation.
  3. Whether expenditure supported merely through a bill without corresponding registered documentation could be accepted as acquisition cost.

Petitioner’s Arguments

The petitioner/assessee argued:

  • The residential property had been purchased together with furniture and fixtures and therefore the expenditure formed an inseparable part of acquisition cost.
  • A residential house becomes habitable only with fixtures and fittings such as wardrobes, windows, geysers, fans and related installations.
  • Since the property was sold together with such fittings and fixtures, their cost ought to be deducted from sale consideration while computing capital gains.
  • Even assuming such expenditure represented furniture cost, its market value on the date of sale ought to have been reduced from sale consideration.
  • The authorities failed to properly appreciate Section 2(47)(v) and relevant provisions governing transfer and acquisition of capital assets.

Respondent’s Arguments

The Revenue argued:

  • The four registered sale deeds reflected purchase consideration only of ₹18,00,000 and contained no reference to any separate acquisition of fixtures and furniture.
  • The alleged payment of ₹12,00,000 was supported merely by a bill and no registered agreement existed.
  • The claimed items substantially represented furniture and personal effects specifically excluded from the definition of capital asset under Section 2(14).
  • No evidence was available showing that such items had actually been transferred as part of subsequent sale of property.
  • The findings of lower authorities were factual and required no interference.

Court Findings / Order

The Delhi High Court dismissed the appeal and upheld the findings of the Assessing Officer, Commissioner of Income Tax (Appeals), and Tribunal.

The Court held:

  • Under Section 48, only cost of acquisition of capital assets, cost of improvement and transfer-related expenses can be deducted while computing capital gains.
  • The alleged purchase of furniture and fixtures was not supported by any registered agreement or sale deed.
  • The bill relied upon lacked proper details and sufficient evidentiary value.
  • The subsequent sale deeds also did not indicate any sale of furniture and fixtures.
  • Most of the items including wooden temples, crockery, fans, geysers, light fittings and furniture were essentially personal effects and stood excluded from the definition of capital assets under Section 2(14).
  • The matter involved findings of fact and did not give rise to any substantial question of law under Section 260A.

Accordingly, the appeal was dismissed.

Important Clarification

The judgment clarifies that merely making payments towards furniture, fittings or removable items does not automatically convert such expenditure into cost of acquisition for capital gains purposes.

For inclusion under Section 48:

  • The expenditure should relate to a capital asset.
  • Proper documentary evidence should exist.
  • The items should not fall within excluded categories such as personal effects.
  • Registered transactional records should support the claim.

Sections Involved

  • Section 2(14) of the Income Tax Act, 1961 – Definition of Capital Asset
  • Section 2(47)(v) of the Income Tax Act, 1961 – Transfer of Capital Asset
  • Section 48 of the Income Tax Act, 1961 – Mode of Computation of Capital Gains
  • Section 260A of the Income Tax Act, 1961 – Appeal before High Court

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2014:DHC:6656-DB/VKR03122014ITA6552014.pdf

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