I purchased a new flat recently and incurred renovation expenditure to make it habitable. I have included cost of such assets for claiming exemption under section 54 of the Income-tax Act. The assessing officer, however, feels that the said amount is not part of the cost of the house property but is a cost of improvement. Such cost of improvement, according to him, cannot be taken as the cost of residential house for claiming exemption. Is that correct?

—Sarvesh Singh

Section 54 of the Income-tax Act, 1961 provides that where a long-term capital gain arises on the transfer of a residential house and the assessee has, within the specified period from the date on which the transfer took place, purchased a residential house, then the capital gains arising on such sale would be exempt to the extent of investment made for the purchase of the new house. In my opinion, therefore, the term “purchase" should include other necessary expenditure to make the residential house habitable and taken together with the cost of the new house.

The tribunal in 83 ITD 649 has held that if a residential house is in a state of general disrepair and is not habitable, necessary repairs to make it habitable would constitute part of the cost of the new house for the purpose of claiming exemption under section 54.

I have been a long-term investor in equities. This year I opted for an online portal for buying and selling in the investor category. So far, I have transacted on a cash-and-delivery basis and have held scrips between 15 days to three months, qualifying them for short-term capital gain/loss. My friend warned me that if I continue in this manner, the income-tax department will term me a trader. Is that so?


A circular by the Central Board of Direct Taxes, dated 15 June 2007, lays down tests to distinguish between the shares held as stock in trade and as investment. The frequency and volume of transactions are some of the important criteria. In case it is established that you are holding shares as investment as per the test of frequency and volume of transactions, then the income will be taxable as capital gains. Otherwise, it shall be treated as business income.

While preparing my returns for assessment year (AY) 2010-11, I noticed that the capital gains earned in FY07 (AY08) was not offered for tax. Can I file revised returns now?

—Jayendra Dash

Revised returns can be filed at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. Accordingly, for assessment year 2007-08, the revised return could have been filed up to 31 March 2009.

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