Deduction u/s. 54 / 54EC cannot be denied for investment in joint names

A careful reading of section 54 as well as section 54EC makes it clear that when capital gains arise from the transfer of long term capital asset to an assessee and the assessee has, within the period of one year before or two years after the date on which the transfer took place purchase or has, within the period of three years after the date of transfer, construct residential house, then instead of capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the provisions made under the section which grants exemption from payment of capital gains as set out thereunder.

Therefore, in the entire section 54, the purchase to be made or the construction to be put up by the assessee should be there in the name of the assessee, is not expressly stated. Similarly, even in respect of section 54EC, the assessee has at any time within a period of six months after the date of such transfer invested the whole or any part of the capital gains in the long term specified asset then she would be entitled to the benefit mentioned in the said section. There also, it is not expressly stated that the investment should be in the name of the assessee. Therefore, to attract section 54 and section 54EC what is material is the investment of the sale consideration in acquiring the residential premises or constructing a residential premises or invest the amounts in bonds set out in section 54EC. Once the sale consideration is invested in any of these manner, the assessee would be entitled to the benefit conferred under this provision. In the absence of an express provision contained in these section that the investment should be in the name of the assessee only, any such interpretation would amount to Court introducing the said word in the provision which is not there. It amounts the courts legislating when the Parliament has deliberately not used those words in the said section.

In the instant case, the assessee has purchased the property jointly with her husband. She has invested the money in rural bonds jointly with her husband. It is nobody’s case that her husband contributed any portion of the consideration for acquisition of the property as well as bonds. The source for acquisition of the property and the bonds is the sale consideration. It is not in dispute. Once the sale consideration is utilized for the purpose mentioned under sections 54 and 54EC, the assessee is entitled to the benefit of those provision. As the entire consideration has flown from the assessee and no consideration has flown from her husband, merely because either in the sale deed or in the bond her husband’s name is also mentioned, in law he would not have any right. In that view of the matter, the assessee cannot be denied the benefit of deduction of the aforesaid amount. The Tribunal, on proper appreciation of the material on record, has rightly allowed the appeal and set aside the order passed by the assessing authority as well as the Appellate Commissioner.

HIGH COURT OF KARNATAKA

Director of Income-tax, International Taxation, Bangalore

v.

Mrs. Jennifer Bhide

JUDGMENT

N. Kumar, J. – This appeal is by the revenue challenging the order passed by the Tribunal which has held that the assessee is entitled to exemption u/s 54 as well as u/s 54EC of the Act.

2. The assessee is a non-resident individual. She filed her return of income on 31.07.2007 for the year 2007-08 declaring taxable income of Rs. 62,41,068. During the assessment proceedings u/s 143(3) of the Income-tax Act, 1961 (for short hereinafter referred to as “the Act”), the assessing authority noticed that the assessee has derived income from house property, income from long term capital gains on sale of property at Bangalore and income from other sources such as interest and dividend income. The assessee sold her residential property for Rs. 2,21,00,000 and had invested an amount of Rs. 49,09,804 on purchase of residential property and claimed exemption u/s 54 of the Act. On verification of the purchase deed of the said property dated 25.12.2006 registered in the officer of the sub-registrar, Haveli, Pune, he found that the above property was not in the name of the assessee alone but was also in the name of her husband. He therefore, held that if the ownership of the property is shared with someone else, then the property cannot be said to be purchased by the assessee alone and therefore only 50% of the investment is to be allowed as exempt in the hands of the assessee. He further observed that similar investment was made for Rs. 50 lakhs in Rural Electrification Corporation Ltd., Bonds in the names of Mrs. Jennifer Bhide and Mr. Vikram Anil Vasant Bhide and exemption for the entire amount of Rs. 50 lakhs u/s 54EC was claimed. Therefore, he disallowed 50% of the investment in the Bonds also which was made in the name of her husband. Aggrieved by the same, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who confirmed the order of the assessing authority. Aggrieved by the same, the assessee preferred an appeal to the Tribunal.

3. The Tribunal after taking note of section 45 of the Transfer of Property Act and the judgment of the Hon’ble High Court of Madras in the case of CIT v. V. Natarajan [2006] 287 ITR 271 and also the judgment of the Hon’ble Punjab and Haryana High Courts in the case of CIT v. Gurnam Singh [2010] 327 ITR 278 came to the conclusion that neither section 54 nor section 54EC of the Act mandates that the purchase of the property or investment in bonds should be exclusively in the name of the assessee. Though the name of the assessee’s husband in shown in the sale deed as well as in the bonds, as the entire consideration for acquisition of the same is flown from the assessee, in law the assessee’s husband has no right. In that view of the matter, the Tribunal held that both the assessing authority and the Appellate Commissioner were in error in denying the benefit of deduction and allowed the deduction. Aggrieved by the same, the revenue is before this Court.

4. Learned counsel appearing for the revenue assailing the impugned order contended that the original asset sold is in the name of the assessee. Unless the assessee invests the sale consideration in acquisition of an immovable property or the bonds in her name exclusively, she is not entitled to the benefit of deduction as in the sale deed she has included the name of her husband and in the bonds also her husband’s name is included jointly. The assessee would be entitled to only 50% of such investment and therefore should be entitled to the benefit of deduction only to the extent of 50%. Therefore, he submits that the Tribunal committed a serious error in interfering with the orders passed by the assessing authority as well as the Appellate Commissioner.

5. In the light of the said submission the question that arise for consideration is whether the husband of the assessee, by inclusion of his name as joint owner in the property, would become 50% owner of the said property and whether the assessee would not be eligible for exemption of the entire investment made by her.

6. Section 45 of the Transfer of Property Act throws some light in this regard which reads under:

“45. Where immovable property is transferred for consideration to two or more persons, and such consideration is paid out of a fund belonging to them in common, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property identical, as nearly as may be, with the interests to which they were respectively entitled in the fund; and, where such consideration is paid out of separate funds belonging to them respectively, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property in proportion to the shares of the consideration which they respectively advanced.

In the absence of evidence as to the interests in the fund to which they were respectively entitled, or as to the shares which they respectively advanced, such persons shall be presumed to be equally interested in the property.”

7. On careful reading of section 54 as well as section 54EC on which reliance is placed makes it clear that when capital gains arise from the transfer of long term capital asset to an assessee and the assessee has within the period of one year before or two years after the date on which the transfer took place purchase or has within the period of three years after the date of construction of residential house then instead of capital gain being charged to Income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the provision made under the section which grants exemption from payment of capital gains as set out thereunder. Therefore, in the entire section 54, the purchase to be made or the construction to be put up by the assessee, should be there in the name of the assessee, in not expressly stated. Similarly even in respect of section 54EC, the assessee has at any time within a period of six months after the date of such transfer invested the whole or any part of the capital gains in the long term specified asset then she would be entitled to the benefit mentioned in the said section. There also it is not expressly stated that the investment should be in the name of the assessee. Therefore, to attract section 54 and section 54EC of the Act, what is material is the investment of the sale consideration in acquiring the residential premises or constructing a residential premises or investing the amounts in bonds set out in section 54EC. Once the sale consideration is invested in any of these manner the assessee would be entitled to the benefit conferred under this provisions. In the absence of an express provision contained in these sections that the investment should be in the name of the assessee only any such interpretation were to be placed, it amounts to Court introducing the said word in the provision which is not there. It amounts Court legislating when the Parliament has deliberately not used those words in the said Section. That is the view taken by the Hon’ble Madras High Court and Hon’ble Punjab and Haryana High Courts and we respectfully agree with the view expressed in the aforesaid judgment.

8. In the instant case the assessee has purchased the property jointly with her husband. She has invested the money in rural bonds jointly with her husband. It is nobody’s case that her husband contributed any portion of the consideration for acquisition of the property as well as bonds. The source for acquisition of the property and the bonds is the sale consideration. It is not in dispute. Once the sale consideration is utilized for the purpose mentioned under sections 54 and 54EC, the assessee is entitled to the benefit of those provision. As the entire consideration has flown from the assessee and no consideration has flown from her husband, merely because either in the sale deed or in the bond her husband’s name is also mentioned, in law he would not have any right.

In that view of the matter, the assessee cannot be denied the benefit of deduction of the aforesaid amount. The Tribunal on proper appreciation of the material on record has rightly allowed the appeal and set aside the order passed by the assessing authority as well as the Appellate Commissioner. We do not see any infirmity in the order which calls for interference. Accordingly, the appeal is dismissed.

NF