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Income Tax

Section 54F exemption on investment out of borrowed funds, in the name of Karta by HUF & On Renovation of Existing Unit

Case Law Details

TaxGuru Citation
2017 taxguru.in 278
Case Name
Shri Puranchand & Family (HUF) Vs ITO (ITAT Chennai)
Date of Judgement/Order
Only available for paid members
Related Assessment Year
2012-13
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In this case it was held that Exemption under Section 54F cannot be denied to HUF even if capital asset was purchased in the individual name of coparcener of HUF, for investment out of borrowed fund and on expenses incurred to make existing unit fit for human habitation after purchase.

1. The assessee sold a capital asset namely diamond and claims exemption on the capital gain under Section 54F of the Act. The Assessing Officer rejected the claim of the assessee on three grounds.

1) First, the capital asset was purchased in the individual name of coparcener of HUF.

2) Borrowed funds were used for purchase of the new asset and not the sale proceeds of the diamond.

3) There was no construction on the new asset.

Exemption under Section 54F cannot be denied to HUF even if capital asset was purchased in the individual name of coparcener of HUF.

2. As regards the investment made in the individual capacity, even though HUF is an independent assessable unit under Income Tax Act, under the common law, HUF cannot be considered to be a legal entity. The HUF has to be represented through any one of the coparceners. Therefore, when the assessee HUF invested the funds in the name of any one of the coparcener, it has to be construed that the investment was made in the name of HUF. When the nucleus of the HUF fund was used for purchase of a property in the name of any one of the coparcener, the property belongs to the HUF, even though the property was registered in the individual name of one of the The property belongs to all the coparceners in equal shares as members of HUF. Therefore, the Assessing Officer is not justified in rejecting the claim of the assessee especially, when the investment was made in the name of Karta of HUF.

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