Late Rajeshbhai Muljibhai Amin Vs ACIT (ITAT Mumbai)
Section 54 Allowed on Flat Booking Rights, But Capital Gains on Gifted Share to Wife Clubbed Under Section 64(1)(iv)
The Mumbai ITAT delivered a split ruling in favour of the assessee by allowing the Section 54 deduction of ₹2 crore while simultaneously upholding the applicability of Section 64(1)(iv) in respect of capital gains arising from the share of property gifted to the spouse.
The assessee had sold a residential property and invested ₹2 crore in acquiring rights in a specific flat in the redevelopment project known as “11 West”. The Assessing Officer denied the deduction under Section 54 on the ground that the assessee had merely acquired rights in a future property and had not purchased an identifiable residential house within the prescribed period. The CIT(A) also affirmed the disallowance by treating the initial arrangement as an unregistered document incapable of evidencing a valid purchase.
Reversing these findings, the Tribunal held that the assessee had substantially complied with the requirements of Section 54. It noted that the investment of ₹2 crore was made within the statutory period, the rights acquired related to a specific and identifiable residential flat, and the subsequent registered deed merely formalised rights that had already been acquired earlier. The ITAT emphasized that Section 54 is a beneficial provision requiring liberal interpretation and that acquisition of enforceable rights in a residential property is sufficient to qualify for exemption. Reliance was placed on decisions including T.N. Aravinda Reddy (SC), Podar Cement (SC), Kuldeep Singh (Delhi HC), Sambandam Udaykumar (Karnataka HC) and Hilla J.B. Wadia (Bombay HC). Accordingly, the entire disallowance of ₹2 crore was deleted.
On the second issue, the Tribunal examined the transfer of a 17% undivided share in the property by way of gift to the assessee’s wife shortly before the property was sold. The wife had offered the resultant capital gains of ₹1.00 crore in her return of income. The assessee argued that capital gains cannot be clubbed under Section 64(1)(iv). Rejecting this contention, the Tribunal held that capital gains are included within the definition of “income” under Section 2(24) and therefore fall squarely within the ambit of the clubbing provisions. Relying on the Supreme Court decision in Sevantilal Maneklal Sheth v. CIT, the Tribunal held that where an asset is transferred to a spouse without consideration, the capital gains arising from its subsequent sale continue to be attributable to the transferred asset and are therefore liable to be clubbed in the hands of the transferor spouse.
Thus, while the assessee succeeded on the Section 54 exemption issue, the Tribunal affirmed the principle that capital gains arising from assets gifted to a spouse can be clubbed under Section 64(1)(iv) where the statutory conditions are satisfied.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
