Permanent Fixtures become Part and Parcel of Building: ITAT Allows ₹20L Income Tax deductions to Senior Citizen on Total Improvement Cost [Read Order]

The Bengaluru Bench of the Income Tax Appellate Tribunal (ITAT) recently held that expenditures incurred on permanent fixtures embedded into the structure of a residential property constitute part of the building itself and are therefore allowable as cost of improvement for computing capital gains, thus allowing ₹20.23 lakh worth of fixtures while disallowing certain items that were classifiable as “personal effects.”

The assessee, Vijay Lakhmichand Israni - a senior citizen and non-resident, jointly owned Villa No. 72, Adarsh Palm Retreat, Bengaluru, with his wife. The property was purchased by the couple in 2005 as an unfurnished and non-habitable unit and was later improved by incurring various capital expenditures to make it habitable.

The assessee later sold the property for ₹4.02 crore and declared long-term capital gains after claiming cost of acquisition and improvement while filing his income tax returns for Assessment Year 2022-23. The Assessing Officer (AO), however disallowed multiple components of the claims raised by the assessee.

During the scrutiny, the AO disallowed the assessee’s claim of ₹25.72 lakh, treating items such as the rooftop solar plant, wall speakers, embedded installations and other fittings as “personal effects”.

According to the AO, these could not form part of the building and were not eligible for deduction. The assessee had explained in the course of assessment as well as before the Dispute Resolution Panel that the property was sold on an “as-is-where-is” basis and that none of the fixtures were removed at the time of transfer.

The assessee emphasised that the improvements were essential to make the villa habitable and functional, and that several installations including the solar plant and wall-embedded systems were permanently fixed to the structure and not removed by the assessee during sale.

Aggrieved by the assessment, the assessee filed the present appeal before this Tribunal along with statement of facts, grounds of appeal along with the written submissions.

No appearance was made on behalf of the Assessee Dr. Divya K.J. appeared for the Revenue and supported the findings of the lower authorities.

The Bench comprising Vice President, Prashant Maharishi and Judicial Member, Keshav Dubey examined the complete list of improvement items and found that majority of the fixtures were permanently affixed to the walls, flooring or structural frame of the house.

The Tribunal observed that such fixtures form part and parcel of the immovable property and cannot be equated with movable personal effects. Accordingly, ITAT accepted the assessee’s voluntary exclusion of ₹5,49,644 attributable to air-conditioners and certain other appliances.

The remaining amount of ₹20,23,163 which pertained to the cost of permanently embedded fixtures including the rooftop solar installation was held allowable as cost of improvement under section 48 of the Income Tax Act, 1961.

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