main issue arising in this appeal relates to denial of assessee's claim under section 54F of Income-tax Act, 1961 ('Act') with reference to sum of Rs. 28,66,675. 2. Briefly stated facts are these: assessee had sold 89,998 shares o f Koyal Finvest Pvt. Ltd. for consideration of Rs. 4,85,98,920 in year under consideration. He also purchased flat in building, namely, Samudra Mahal, situated at Dr. Annie Besant Road, Mumbai, for consideration of Rs. 3,46,95,443. According to assessee, this flat was in inhabitable condition and, therefore, he had to incur expenditure of Rs. 28,66,675 in order to make flat habitable. In return filed, assessee claimed exemption under section 54F in respect of both amounts mentioned above. In course of assessment proceedings, Assessing Officer asked assessee to explain as to how exemption could be allowed in respect of sum of Rs. 28,66,675. In response to same, assessee, vide letter dated 15-1-2002, submitted- (i) cost under section 54F would include all expenses necessary to put asset required in good running condition; (ii) expression 'actual cost' must be understood in sense in which commercial man would understand; (iii) That as per normal rule of accountancy prevailing in commerce and industry, cost of fixed asset has to include all expenses necessary to bring such asset into existence and put them in working condition; and (iv) house purchased by assessee was in inhabitable condition n d , therefore, assessee had incurred various expenditures such as electrification of house, civil work, design and planning, plumbing work, flooring, fitting of aluminium windows, etc. In view of above submissions, it was prayed that sum of Rs. 28,66,675 should be considered as part of investment in residential house for purpose of claiming deduction under section 54F. 3. However, Assessing Officer rejected claim of assessee by observing as under: 'The submissions of assessee-company have been considered and not found acceptable for following reasons: a. Section 54F(1) spells out conditions for availing deduction under section 54F and clauses (a) and (b) in which phrase 'cost of new asset' appears specifies quantum of deduction under this section. condition under section 54F(1) is that assessee should 'purchase' residential house. process of purchase involves execution of agreement, payments pursuance o f this agreement, payment of stamp duty, registration of deed of transfer, payment of transfer fee to society and getting shares in Co-operative Housing Society transferred to one's name. When all these actions are over, process of purchase is complete. Therefore, when sections 54F(1) and 54F(1)(a) and (b) are read together, it is amply clear that 'cost of new asset' means 'cost of purchase of new asset'. It cannot include cost of improvements or cost of renovation as these activities are subsequent to 'purchase'. b. assessee has relied upon decisions in cases of Challapalli Sugar Ltd. v. CIT 98 ITR 167 (SC) and Arvind Mills Ltd. v. CIT 112 ITR 64 (Guj.). In these cases issue is of depreciation wherein asset is to be purchased, installed and put to use. Unless all three activities are completed by assessee, depreciation cannot be claimed. Therefore, for purpose of depreciation, cost of purchase as well as expenditure incurred in installation and putting asset to use is capitalised and depreciation is allowed on entire capital cost. ratio of these decisions is not at all applicable since under section 54F requirement is of 'purchase' and, therefore, 'cost of new asset' means 'cost of purchase of new asset'. c. Assessee's submission is that flat was in inhabitable condition and hence cost of renovation should be included in 'cost of new asset' are irrelevant as addition to cost structure stops as soon as purchase is complete. d. In view of above, deduction under section 54F is allowed on cost of purchase of new asset of Rs. 3,46,95,443.' On appeal, learned CIT(A) confirmed order of Assessing Officer. Aggrieved by same, assessee has preferred this appeal before Tribunal. 4. Both parties have been heard at length. question to be considered is whether exemption under section 54F can be allowed in respect of amount spent by assessee, after purchase of inhabitable house, to make house habitable. contention of revenue is that, moment house is purchased, requirement of section 54F stands complied with and, therefore, any amount spent thereafter in respect of such house would not qualify for exemption under section 54F. stand of assessee is that, incentive provisions should be construed liberally. According to him, incomplete house which is inhabitable cannot be considered as purchase of residential house and, therefore, any sum incurred to make such house habitable would form part of cost of purchase. So, entire dispute centers round interpretation of provisions of section 54F of Act. Therefore, it would be appropriate to reproduce relevant portion of provisions of section 54F as under: '54F. (1) Subject to provisions of sub-section (4), where, in case of assessee being individual or Hindu undivided family, capital gain arises from transfer of any long-term capital asset, not being residential house (hereafter in this section referred to as original asset), and assessee has, within period of one year before or two years after date on which transfer took place purchased, or has within period of three years after that date constructed, residential house (hereafter in this section referred to as new asset), capital gain shall be dealt with in accordance with following provisions of this section, that is to say,- (a) & (b)** ** **' 5. bare look to above provisions shows that above provisions are incentive provisions intended to augment investment in residential houses. It is settled legal position that incentive provisions should be construed liberally in such manner that object of statute is fulfilled rather than manner which may frustrate object. Reference can be made to following observations of Hon'ble Supreme Court in case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188: 'The provision in taxing statute granting incentives for promoting growth and development should be construed liberally; and since provision for promoting economic growth has to be interpreted liberally, restrictions on it too has to be construed so as to advance objective of provisions and not to frustrate it.' 6. At this stage, it would also be useful to refer to Board's Circular No. 471, dated 15-10-1986, which reads as under: '1. Capital gains tax.-Whether investment in flat under Self-financing Scheme of Delhi Development Authority would be construction for purpose of sections 54 and 54F of Income-tax Act, 1961. Sections 54 and 54F of Income-tax Act, 1961, provide that capital gains arising on transfer of long- term capital asset shall not be charged to tax to extent specified therein, where amount of capital gain is invested in residential house. In case of purchase of house, benefit is available if investment is made within period of one year before or after date on which transfer took place and in case of construction of house, benefit is available if investment is made within three years from date of transfer. 2. Board had occasion to examine as to whether acquisition of flat by allottee under Self-financing Scheme of Delhi Development Authority amounts to purchase or is construction by D.D.A. on behalf of allottee. Under Self-financing Scheme of Delhi Development Authority, allotment letter is issued on payment of first instalment of cost of construction. allotment is final unless it is cancelled or allottee withdraws from scheme. allotment is cancelled only under exception circumstances. allottee gets title to property on issuance of allotment letter and payment of instalments is only follow-up action and taking delivery of possession is only formality. If there is failure on part of D.D.A. to deliver possession of flat after completing construction, remedy for allottee is to file suit for recovery of possession. 3. Board have been advised that under above circumstances, inference that can be drawn is that D.D.A. takes up construction work on behalf of allottee and that transaction involved is not sale. Under scheme, tentative cost of construction is already determined and D.D.A. facilitates payment of cost of construction in instalments subject to condition that allottee has to bear increase, if any, in cost of construction. Therefore, for purpose of capital gains tax, cost of new asset is tentative cost of construction and fact that amount was allowed to be paid in instalments does not affect legal position stated above. In view of these facts, it has been decided that cases of allotment of flats under Self-financing Scheme of Delhi Development Authority shall be treated as cases of construction for purpose of capital gains.' above Circular clearly shows that object of sections 54 and 54F was to augment investment in residential accommodation. Considering said object, Board took view that payment to Delhi Development Authority, under Self-financing Scheme, amounted to investment in construction of residential house even though assessee himself had not constructed house. In view of same, in our opinion, learned CIT(A) was not justified in applying strict rule of interpretation. 7. In view of above discussion, we are of view that investment in residential house would not only include cost of purchase of house but also cost incurred in making house habitable. inhabitable premises, in our opinion, cannot be equated with residential house. If one person cannot live in premises, then such premises cannot be considered residential house. In modern age, builder may provide semi-finished house or complete house depending upon price agreed to between parties. In case of semi-finished house, purchaser will have to invest on flooring, wooden work, sanitary work, etc., to make it habitable. Therefore, in our view, investment in house would be complete only when such house becomes habitable. Similar view has also been taken by 'SMC' Bench of Tribunal in case of Mrs. Sonia Gulati v. ITO [2001] 115 TAXMAN 232 (Mum.)(Mag.). Accordingly, we hold in principle that expenditure incurred on making house habitable should be considered as investment in purchase of house subject to condition that payment was made during period specified in section 54F. 8. Before parting with this issue, we would like to mention that there is distinction between expenditure incurred on making house habitable and expenditure on renovation. We may visualize situation where assessee may buy habitable house but assessee may like to incur expenditure by way of renovation to make it more comfortable. He may not be happy with quality of material used by builder and, therefore, he may incur expenditure on improvement of house. Such expenditure cannot be equated with expenditure on making house habitable. Whether house purchased by assessee was in habitable condition or not would depend on state of condition of house at time of purchase. Hence, this aspect would have to be kept in mind while adjudicating such issue. In present case, Assessing Officer as well as learned CIT(A) had rejected claim of assessee on ground that no expenditure could b e considered for exemption under section 54F which was incurred after date of purchase. Assessing Officer had no occasion to examine state of t h e condition of house purchased by assessee. Though, list of expenditure has been provided by assessee, yet it is to be examined whether such expenditure was incurred to make house habitable or just to make house more comfortable. This aspect of matter requires examination by Assessing Officer. In view of above discussion, we hold that assessee is entitled to exemption under section 54F with reference to expenditure incurred for making house habitable. However, factual matrix requires examination. Accordingly, order of learned CIT(A) is set aside and Assessing Officer is directed to re-adjudicate issue in accordance with guidelines given by us and after considering entire material produced by assessee before him. assessee shall be given proper opportunity to represent his case. 9. In result, assessee's appeal stands allowed protanto. *** SALEEM FAZELBHOY v. DEPUTY COMMISSIONER OF INCOME TAX