[Opinion] Claim Section 54 Benefit for Interior Decoration

Meenakshi Subramaniam – [2024] 162 taxmann.com 424 (Article)

One man, who had got interior decoration done for his new house had a worried look. His friend asked:

“What’s the matter ?”

The man said:

“I was poring over income tax books. In one case of Asstt. CIT v. Sunil Bandacharya Joshi [IT Appeal 703 (Bang.) of 2016, dated 6-3-2018] the tax authorities said that purchasing and fixing doors of villa was not necessary. It was said to be not house ‘improvement.If doors don’t get benefit, how can I get tax exemption for interior decoration ?”

There has always been a bitter tussle over giving Section 54F exemption for interior decoration. Recently, however, the tables were turned as the Bangalore Tribunal in Sapna Hemanshu Shah v. Dy. CIT [2024] 160 taxmann.com 1194 ruled that interior decoration expenses can be claimed in section 54 cases, where a new house is constructed or purchased.

[2024 ] 160 taxmann.com 1194 (Bangalore Tribunal)
Sapna Hemanshu Shah
v.
Deputy Commissioner of Income Tax

The brief facts of the case are that the assessee filed return of income on 22/07/2013 declaring income of Rs.5,49,610/- but the AO held that the claim of Rs.8,65,641/- made towards interior decoration was ‘excess’ and disallowed it under the capital gains head.

The backdrop of the case was that upon filing return, the case had been selected for scrutiny and statutory notices were issued to the assessee. The assessee submitted reply and it was observed that the assessee sold the residential house vide sale deed dated 15/01/2013 for consideration of Rs. 1,56,50,000/-. The assessee had arrived at capital gain of Rs. 1,25,06,186/- after reducing index cost of acquisition. Thereafter, the assessee claimed exemption on account of advance given for purchase of plots of Rs. 54,65,641/- and amounts deposited in capital gain account of Rs. 70,40,545/-. Accordingly, the capital gain tax was computed Nil. As per nomination agreement, Mr Hemansu M shah, the husband of assessee had negotiated to purchase the property for total sale consideration of Rs. 1,40,00,000/- against which he had paid Rs. 46,00,000/- as advance to the vendor. Accordingly, Mr Hemanshu M. Shah received Rs. 46,00,000/- from Mrs. Sapna Shah and transferred the right in favour of the assessee. The assessee also submitted capital gain statement and the advance of the vendor was of Rs. 46,00,000/-.

Accordingly, the AO noticed that the claim of exemption on account of advance given for purchase of flats of Rs.54,65,641/- which he said “is not correct” and only advance given of Rs. 46,00,000/- was allowed.

It was at that time that the excess claim of Rs.8,65,641/- by the assessee towards interior decoration were disallowed under the capital gain head and other disallowance was also made and the AO completed the assessment.

Aggrieved from the above order, the assessee filed appeal before the CIT(A). After examining the agreement dated 25/03/2013, the CIT observed that the agreement is not genuine and assessee failed to produce the bills, vouchers with regard to interiors, copy of purchase deed or any other reliable documents for substantiating her claim of expenditure of Rs. 8,65,641/- incurred on interiors. Accordingly, he dismissed the appeal of the assessee.

Aggrieved from the above order, the assessee filed appeal before the ITAT. The ld.AR reiterated the submissions made before the lower authorities and said that the assessee transferred the amount into her husband’s bank account of Rs. 54,65,641/- on 25/03/2013 out of which Rs.8,65,641/- was towards expenditure for interiors and assessee’s husband has incurred it for making the house habitable. The money was not directly incurred by the assessee but as her husband had incurred, it was given on contract basis; therefore, bills and vouchers were kept by the contractors, which had not been handed over to the assessee.

He also submitted as per the agreement placed at paper book page No.65-72 dated 25/03/2013 it was clear that the expenditure was to be incurred for interior decoration and there is no dispute on the payments made. Accordingly, he submitted that the assessee is eligible to get the cost of acquisition as a deduction on interiors expenditure of Rs. 8,65,641/-

The ld.AR of the assessee relied on the following judgments:-

Rajat B Mehta v. ITO [2018] 90 taxmann.com 176/169 ITD 178 (Ahd. – Trib.)

Meher R Surti v. ITO [2013] 40 taxmann.com 138/[2024] 61 SOT 5 (Mum. – Trib.) (URO)

Mrs. Rahana Siraj v. CIT [2015] 58 taxmann.com 333/232 Taxman 327 (Kar.)

Y. Manjula Reddy v. ITO [2022] 140 taxmann.com 441 (Bang. – Trib.)

On the other hand, the Ld.DR relied on the orders of the lower authorities and strongly submitted that the agreement made by the assessee for expenditure towards interiors of Rs.8,65,641/- is not genuine as observed by the ld.CIT(A). The assessee “is also unable to produce any credible evidence towards expenditure incurred,” therefore, the lower authorities are justified.

Considering the rival submissions, the Tribunal noted that the dispute is only towards interior decoration expenses as incurred by the assessee of Rs.8,65,641/- for want of credible evidences.

The Tribunal said:

“We note from the bank statement submitted by the assessee at paper book page No.57 that the assessee has paid amount on 25/03/2013 of Rs. 54,65,641/- vide cheque No. 363832, out of which, Rs. 46,00,000/- was given as advance for purchase of the property and as per the paper book page No. 65 to 72, the second party with the permission of the vendor, Shri Sanjay Udani has carried out lot of interior decorations in the schedule B property spending substantial amount of Rs. 8,65,641/- and it has been brought to the notice of the first party who was convinced about the interior decoration. The payment made by the assessee has not been disputed by any of the lower authorities and payment was made to her husband and both are residing together. The case law relied by the ld.AR of the assessee supports the case of the assessee. Accordingly, the expenditure incurred by the assessee for interior decoration is eligible to get the benefit of deduction u/s 54 of the Act.”

In the result, appeal of the assessee is partly allowed.

Order pronounced in court on 30th day of January, 2024

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