Exemption u/s 54--Dismantling the Old house

Hi Sanjeev,

I think there shouldn't be any problem in claiming exemption u/s 54 if a new house is constructed after the old one is pulled down. There are a number of case laws laying down that the test of whether a new house u/s 54/54F has been constructed or not is its "habitability"— -merely four walls and a roof would not constitute a house. The expenses incurred in pulling down a dilapidated old structure and putting up a new one on it can't be said to be expenditure on renovation; the assessee would be entitled to exemption u/s 54. Here are a few case laws:If investment had been made to make the house habitable, it could not be presumed that the house was in a habitable condition on the day when it was purchased, and that the amount spent on such investment should also be considered as spent for the purchase of the house, since the concept of `habitability' was inherent in the word `house' - CWT v. K.B. Pradhan [1981] 130 ITR 393 (Ori.).]Relying upon the above decision, the Mumbai Tribunal held that the cost of the new asset purchased should include, apart from the purchase price, the cost of renovating the house so as to make it habitable - Mrs. Sonia Gulati v. ITO [2001] 115 Taxman 232 (Mum.)(Mag.).Where the house purchased was in a state of general disrepair and was hence not in a habitable condition, expenditure incurred by the purchaser on carrying out necessary repairs to make the house habitable was to be treated as investment in the new asset - Mrs. Gulshanbano R. Mukhi v. Joint CIT [2002] 83 ITD 649 (Mum.).In Saleem Fazelbhoy v. Deputy CIT [2006] 9 SOT 601 (Mum.), the Tribunal held that the cost of purchase of a house must include the cost incurred in making the house habitable. However, the Tribunal sounded a note of caution that there was a clear distinction between expenditure incurred on making the house habitable and expenditure on renovation, and that whether the house purchased by the assessee was in a habitable condition or not on the date of purchase would depend on its state and condition on that date.Presuming that the existing structure you want to dismantle is an ancient one, you can certainly construct a new one on it after pulling it down and claim exemption u/s 54 on the cost of construction. Thanks,

CA Sanjeev Bedi

--- In

ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "sanjeev31160" wrote:>> Dear friends,> > Please give your opinions as to claim of exemption u/s 54 of I.T.Act > against construction of a residential house to be built after > demolishing entire existing structure standing upon land purchased two > years ago, with requisite approval from Competent Authority.> > Thanks!> > Regards,> CA SANJEEV GUPTA> MOBILE: 9837261347