Sec. 54F Allowability of investment in new residential property in the name of spouse

Kaushal Kishore Maheshwari Vs ACIT (ITAT Delhi)

What is important is that for deduction under section 54F of the Act that investment in the new property has to be made by the assessee. But in the present case before us, though the property has been purchased in the name of the wife of the assessee but the investment in purchase of the property has been made out of the loan sanctioned to the wife of the assessee and the assessee has joined name in the loan sanction letter. In the circumstances, the issue before us is whether the investment in the new property can be treated as investment made by the assessee. We find that the wife of the assessee is an independent taxpayer having her own sources of income. We also find that property has been purchased exclusively in the name of the wife of the assessee and the assessee is not co-owner of the property. The bank has sanctioned loan for purchase of the property, which is purchased in the name of wife of the assessee. The assessee has claimed that the loan has been sanctioned in the joint name of the wife of the assessee and the assessee. In our opinion, in the circumstances, it cannot be said that the assessee has made investment for purchase of the property due to the reason that loan has been primarily sanctioned to the wife of the assessee, who is having title over the property and the assessee has been joined in the loan for the purpose of repayment of the loan. The repayment of loan by the assessee is a transaction different from the transaction of investment in the property. Moreover, the assessee has not submitted any evidence of repayment of loan by him. Thus, we conclude that investment in the new property worth Rs. 1,30,31,250 has not been made by the assessee. In view of the above facts and circumstances, we are of the opinion that finding of the learned Commissioner (Appeals) with regard to the investment of Rs. 1,30,31,250 in new property is well reasoned and we do not find any error in the said finding and accordingly uphold dis allowance of deduction under section 54F of the Act in respect of the said investment of Rs. 1,30,31,250.

Full Text of the ITAT Order is as follows:-

This appeal by the assessee is directed against order dated 27-2-2014 of the Commissioner (Appeals)-XXVIII, New Delhi [in short “the CIT(A)”] for assessment year 2009-10, raising following grounds :–

“1. That on the facts and circumstances of the case and in law, the learned Commissioner (Appeals), XXVIII, New Delhi [hereinafter referred to as ‘the learned CIT(A)’] has grossly erred in denying the exemption to the Appellant under section 54F of the Income Tax Act, 1961.

2. That on the facts and circumstances of the case and in law, the order passed by the learned Commissioner (Appeals) is unsustainable in law since the learned Commissioner (Appeals) has exceeded the jurisdiction vested under law in addressing and adjudicating upon an issue not raised or disputed by the learned assessing officer.

3. That on the facts and circumstances of the case and in law, the learned Commissioner (Appeals) has erred in holding that for the purpose of claiming exemption under section 54F of the Income Tax Act, 1961, the investment in new asset cannot be made in the name of the wife of the Appellant.

4. That on the facts and circumstances of the case the learned Commissioner (Appeals) has erred in holding that investment in new property was not traceable to the sale proceeds received on account of sale of the original property.

5. That on the facts and circumstances of the case and in law, the order passed by the learned Commissioner (Appeals) violates judicial discipline in as much the learned Commissioner (Appeals) did not follow the law laid down by the coordinate bench of Hon’ble Delhi Tribunal as upheld by the Hon’ble jurisdictional Delhi High Court.

6. That on the facts and circumstances of the case an in law, the learned Commissioner (Appeals) erred in law in not adjudicating upon the claim of exemption under section 54F of the Act made by the Appellant as regards the consideration of Rs. 200,000 received by the Appellant in cash.”

2. The facts in brief of the case are that the assessee a Chartered Accountant by profession, filed return of income for the year under consideration on 26-9-2009 declaring total income of Rs. 48,23,250. During the year, the assessee sold one immovable property and the long-term capital gain of Rs. 33,74,045 on such sale was claimed as deduction under section 54F of the Income Tax Act, 1961 (in short “the Act”). The case was selected for scrutiny and notice under section 143(2) of the Act was issued and complied with. The assessing officer observed that during the year under consideration, the assessee sold one vacant plot of land at Shakti Khand, Indirapuram for sale consideration of Rs. 50,00,000 and after reducing the indexed cost of acquisition of the said plot of land, the assessee computed long-term capital gain of Rs. 33,74,045. He further observed that the assessee claimed to have invested the said sale consideration towards purchase/construction of another residential house property, namely, M-33, Ground Floor, Saket, New Delhi and claimed deduction under section 54F of the Act. According to the assessing officer, on the date of transfer of the original asset on which long-term capital gain has been computed, the assessee owned two residential house properties, namely, F-1/23, Krishan Nagar and A-4 Kaushambi, Gaziabad. The assessing officer denied the deduction under section 54F of the Act due to the following reasons :–

(i) on the date of transfer of the original asset, the assessee owned more than one residential house other than the new asset purchased.

(ii) the new property was purchased out of the loan taken of Rs. 1,35,00,000 from HDFC ltd and thus the sale consideration was not invested in the new property.

3. The assessing officer also verified the sale consideration of the immovable property sold, from the buyer ‘M/s. Milan Contractor & Promotors Ltd.’ and found that assessee also received cash of Rs. 2,00,000 alongwith Rs. 50,00,000 received through cheque. However, the assessing officer observed that the assessee declared only sale consideration of Rs. 50,00,000 and, therefore, he added the sale consideration of Rs. 2,00,000 as income from long-term capital gain.

4. Aggrieved, the assessee filed appeal before the learned Commissioner (Appeals). The learned Commissioner (Appeals), accepted the contention of the assessee that the property, namely, F-1/23 Krishan Nagar, New Delhi, was not a residential house property and the assessee owned only one residential house, namely, A-4, Kaushambi, Gaziabad therefore, the assessee fulfilled the condition of section 54F of the Act of owning not more than one residential house. However, the learned Commissioner (Appeals), observed that neither the investment in the new residential house property was made in the name of the assessee nor the investment was traced to the sale proceeds received from sale of the property. According to him, the sale proceeds of the property have gone to different accounts maintained in the joint name of the assessee and his father, whereas the new residential house property has been purchased out of the loan taken from the bank in the joint name of the wife of the assessee and the assessee. According to the learned Commissioner (Appeals), wife of the assessee, is an independent assessee and the loan was disbursed directly to the vendor ‘Smt Salochna Goyal’ and to the ‘wife of the assessee’. Further, the learned Commissioner (Appeals) observed that the source from which loan has been paid, was not produced before him. In view of the observations the learned Commissioner (Appeals) held that the assessee was not entitled for deduction under section 54F of the Act. Aggrieved with the finding of the learned Commissioner (Appeals), the assessee is in appeal before the Tribunal raising the grounds as reproduced above.

5. In grounds no. 1 to 5, the assessee has challenged the action of the learned Commissioner (Appeals) in denying the deduction under section 54F of the Act to him. All the grounds being connected to the sole issue of deduction under section 54F of the Act, same were argued together.

5.1 The learned counsel of the assessee filed a paper book containing pages 1 to 158 and submitted that investment in new asset was made in the name of the wife of the assessee. The learned counsel referred to the decision of the Hon’ble Delhi High Court in the case of CIT v. Ravindra Kumar Arora (2012) 342 ITR 38 (Del), wherein it is held that section 54F does not require that the new residential property should be purchased in the name of the assessee only. Relying on the aforementioned decision of the Hon’ble Delhi High Court, the learned counsel submitted that learned Commissioner (Appeals) was not correct in denying the deduction under section 54F of the Act for investment made in the property purchased in the name of wife of the assessee. The learned counsel referred to ground No. 5 and submitted that learned Commissioner (Appeals) has not followed the decision of the Hon’ble Jurisdictional Delhi High Court. The learned counsel supporting ground No. 4 of the appeal, referred to page 158 of the paper book, which is an affidavit of the wife of the assessee, wherein, she has deposed that total consideration for purchase of the property was given by the her husband i.e. the assessee. In view of the submission, he argued that the learned Commissioner (Appeals) was not correct in holding that sale proceeds has not been utilized for investment in the new property. Accordingly, he submitted that order of the learned Commissioner (Appeals) and the assessing officer might be reversed.

5.2 On the other hand, learned Senior DR relied on the order of the learned Commissioner (Appeals), submitted that sale consideration received was deposited in the bank account maintained by the assessee alongwith his father. He submitted that actually the property sold was also jointly owned by the assessee alongwith his father. He submitted that according to the registration deed of the purchase of the new residential property, the vendor ‘Smt Sulachna Goyal’ has been paid Rs. 1.35 crores out of the loan sanctioned to wife of the assessee. He submitted that assessee is not even co-owner of the said new property and merely inserting the name of the assessee by the bank in loan sanction letter or in loan agreement, it cannot be established that investment in the new property has been made by the assessee. He supported the finding of the learned Commissioner (Appeals) that wife of the assessee is an independent taxpayer and the assessee has also not furnished any evidence of repayment of loan by him except filing an affidavit by his wife. The learned counsel further submitted that the claim of investment made in the new residential property in excess of Rs. 1.35 crores, is towards purchase of air conditioners and other furnishing items and which cannot be treated as investment towards construction of the property and therefore that amount is also not eligible for deduction under section 54F of the Act.

5.3 We have heard the rival submission and perused the relevant material on record. We find that the learned Commissioner (Appeals) has adjudicated the issue in dispute from para 5.7 to para 5.9 of the impugned order as under :–

“5.7 The documents of purchase of Saket Property were perused and these showed in that property was purchased in name of Mrs. Manisha Kishore and not in the name of the appellant. Therefore, vide order sheet entry dated 11-2-2014 was asked to explain why the exemption under section 54F should be allowed by virus of the fact that the property was not purchased by the appellant in his own name. The appellant replied vide letter dated 25-2-2014 and claimed that —

(a) The Indrapuram property had been sold through Special Power of Attorney and Agreement to Sell.

(b) The copies of bank statement showing the sale consideration of Indrapuram property are enclosed.

(c) In order to claim exemption under section 54F the appellant utilized the sale consideration received from Shakti Khand, Indrapuram property towards purchase of Residential property at Saket, however, the property was purchased in the name of wife Mrs. Manisha Kishore.

(d) As per section 54F there is no obligation to purchase the New Residential House in the name of the same person who wants to avail exemption under section 54F.

(e) The appellant relied upon the decision of the Hon’ble’ble Delhi High Court in the case of Commissioner of Income Tax v. Kamal Wahal and Commissioner of Income Tax v. Ravinder Kumar Arora.

5.8 The facts brought out by the appellant have been examining vis-a-vis the crux of the decisions relied upon by the appellant. These show that the facts of the cases are clearly distinguishable from the facts of the case of the appellant. In the case of Kamal Wahal the Hon’ble’ High Court relied upon the decision in the case of Ravinder Kumar Arora that provisions of section 54F do not require that the New Residential House be purchased by the assessee in his own name or it should be purchased exclusively in his name. It is to be noted that the assessee has purchase it only in the name of his wife and there is no dispute that the entire investment has come out of the sale proceeds and there was no contribution from the assessee wife. Thus the Hon’ble’ court has held three things :–

• The investment need not be exclusively in the name of the assessee and can be held with the wife also.
• The entire investment has to come out of the sale proceeds and there should b no dispute regarding this important fact.
• There should be no contribution from the assessee’s wife.

5.9 In the light of the above decision when the case of the appellant is examined it is seen that in his case :–

• The investment is exclusively in the name of the wife. The husband is not a joint owner.
• The wife is an independent income tax assessee having PAN No. AHFPK6715L
• The wife has given an affidavit stating that the total consideration for the property is Rs. 1,60,00,000, however as per the Agreement to Sell the property has been purchased and paid for as under :–

• The loan vide which the above payment has been made has been taken is in joint name and though the appellant has claimed that the payment in respect of the loan is being done from his own sources, but no such evidence has been filed.
• The bank account is also jointly held by the appellant with his wife.
• The High Court has held that the entire sale proceeds in respect of the property should have been invested in purchase of the new asset.
• The appellant has claimed that the proceeds of the property has been received as under and the payment for the new asset has been made as under :–

Thus neither the investment has been made in the name of the appellant or alongwith his wife, nor the investment can be traced to the sale proceeds received on account of sale of the property. The sale proceeds of the property have gone to different accounts in the name of the appellant and his father. The property has been purchased out of loan taken from the bank in joint name. The wife is art independent assessee and the loan has been disbursed directly to Mrs. Salochna Goyal, the vendor and to the wife. The source from which loan has been paid has not been produced.

Thus it is apparent that the appellant is not entitled to deduction under section 54F.”

5.3.1 On perusal of the submission of the assessee before the lower authorities, we find that out of the loan of Rs. 1.35 crores sanctioned against the new residential property, the seller has been paid amount of Rs. 1.25 crores only. Further, the stamp duty of Rs. 5 lakh and brokerage of Rs. 31,250 has been claimed as paid toward purchase of the new property. Thus, according to the lower authorities investment in the new property has been made only of Rs. 1,30,31,250 whereas, on the other hand, the assessee has claimed following additional amounts as investment for acquisition/construction of the new property :–

(a) payment of Rs. 10 lakh on 7-1-2008

(b) payment of Rs. 20 lakhs on 16-1-2008

(c) payment of Rs. 1,70,000 on 29-5-2008 for purchase of air conditioners

5.3.2 The contention of the Revenue is that the above payments are not towards construction/renovation of the new property.

5.3.3 The fact that investment of Rs. 1,30,31,250 in the new property has been made exclusively in the name of the wife of the assessee and the assessee is not even the joint owner of the property, is not disputed. Further, the fact that wife of the assessee is an independent assessee is also not disputed.

5.3.4 Further, we note that Hon’ble Delhi High Court in the case of Ravindra Kumar Arora (supra) has held that section 54F does not require that the new property should be purchased in the name of the assessee. The relevant finding of the Hon’ble High Court is reproduced as under :–

“7. Plain reading of the aforesaid provision indicates that in order to get benefit of this Section, the assessee should, inter alia, “purchase” a house. As per the Revenue, this house has to be purchased in the name of the assessee only and benefit is not given if it is purchased by the assessee jointly with his wife.

8. At the outset, important factual findings recorded by the Tribunal in this case are that it was the assessee who independently invested in the purchase of new residential house though in his own name but along with the name of his wife also and that it was the assessee who paid stamp duty and corporation tax at the time of the registration of the sale deed of the house so purchased and has also paid commission and legal expenses in connection with the purchase of the house. The Tribunal further records that whole of the purchase consideration has been paid by the assessee and not even a single penny has been contributed by the wife in the purchase of the house. The Tribunal also noted the argument that the property was purchased by the assessee in the joint name with his wife for shagun purpose and because of the fact that the assessee was physically handicapped. The Tribunal further concludes that as a matter of fact, the assessee was the real owner of the residential house in question.

9. On the aforesaid facts, we are of the view that the conditions stipulated in section 54F stand fulfilled. It would be treated as the property purchased by the assessee in his name and merely because he has included the name of his wife and the property purchased in the joint names would not make any difference. Such a conduct has to be, rather, encouraged which gives empowerment to women. There are various schemes floated by the Government itself permitting joint ownership with wife. If the view of the assessing officer (AO) or the contention of the Revenue is accepted, it would be a derogatory step.

10. Even when we look into the matter from another angle, facts remain that the assessee is the actual and constructive owner of the house. InCIT v. Podar Cements (P.) Ltd. & Ors., (1997) 226 ITR 625 (SC), the Supreme Court has also accepted the theory of constructive ownership. Moreover, section 54F mandates that the house should be purchased by the assessee and it does not stipulate that the house should be purchased in the name of the assessee only. Here is a case where the house was purchased by the assessee and that too in his name and wife’s name was also included additionally. Such inclusion of the name of the wife for the above-stated peculiar factual reason should not stand in the way of the deduction legitimately accruing to the assessee. Objective of section 54F and the like provision such as section 54 is to provide impetus to the house construction and so long as the purpose of house construction is achieved, such hyper technicality should not impede the way of deduction which the legislature has allowed. Purposive construction is to be preferred as against the literal construction, more so when even literal construction also does not say that the house should be purchased in the name of the assessee only. Section 54F of the Act is the beneficial provision which should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied on hyper technical ground. Andhra Pradesh High Court in the case ofLate Mir Gulam Ali Khan v. CIT (1987) 165 ITR 228 (AP) has held that the object of granting exemption under section 54 of the Act is that an assessee who sells a residential house for purchasing another house must be given exemption so far as capital gains are concerned. The word “assessee” must be given wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word “assessee” as that would frustrate the object of granting exemption.

11. We also find judgements of other High Courts giving benefit of section 54F(1) of the Act when the house of the assessee is purchased jointly with his wife. In the case ofCIT v. Natrajan (2007) 287 ITR 271 (Mad), though this case was decided in relation to section 54 of the Act, the said Section is pari materia of section 54F(1) of the Act. Likewise, the Punjab & Haryana High Court in the case ofCIT v. Gurnam Singh (2010) 327 ITR 278 (P&H) took the same view while discussing the provisions of section 54 of the Act which is again pari materia of section 54F(1) of the Act.”

5.3.5 In the above decision, the entire purchase consideration was paid by the assessee and there was no contribution from the wife of the assessee, though the property was purchased in the name of the wife of the assessee.

5.3.6 In view of the above decision, what is important is that for deduction under section 54F of the Act that investment in the new property has to be made by the assessee. But in the present case before us, though the property has been purchased in the name of the wife of the assessee but the investment in purchase of the property has been made out of the loan sanctioned to the wife of the assessee and the assessee has joined name in the loan sanction letter. In the circumstances, the issue before us is whether the investment in the new property can be treated as investment made by the assessee. We find that the wife of the assessee is an independent taxpayer having her own sources of income. We also find that property has been purchased exclusively in the name of the wife of the assessee and the assessee is not co-owner of the property. The bank has sanctioned loan for purchase of the property, which is purchased in the name of wife of the assessee. The assessee has claimed that the loan has been sanctioned in the joint name of the wife of the assessee and the assessee. In our opinion, in the circumstances, it cannot be said that the assessee has made investment for purchase of the property due to the reason that loan has been primarily sanctioned to the wife of the assessee, who is having title over the property and the assessee has been joined in the loan for the purpose of repayment of the loan. The repayment of loan by the assessee is a transaction different from the transaction of investment in the property. Moreover, the assessee has not submitted any evidence of repayment of loan by him. Thus, we conclude that investment in the new property worth Rs. 1,30,31,250 has not been made by the assessee. In view of the above facts and circumstances, we are of the opinion that finding of the learned Commissioner (Appeals) with regard to the investment of Rs. 1,30,31,250 in new property is well reasoned and we do not find any error in the said finding and accordingly uphold disallowance of deduction under section 54F of the Act in respect of the said investment of Rs. 1,30,31,250.

5.4 The assessee has claimed investment of Rs. 1.60 crore in the new property, whereas the assessing officer and the learned Commissioner (Appeals) has observed that as per the registration deed, stamp duty and brokerage, only investment of Rs. 1,30,31,250 has been made in the new property and balance amount has been invested in purchase of air conditioners and other items of furnishing.

5.5 The learned counsel referred to page 96 to 98 of the paper book, which is a copy the finishing agreement between the assessee and Mrs. Salochna Goyal, seller of new property, and submitted that the assessee paid Rs. 10 lakh on 7-1-2008 and Rs. 20 Lacs at on 13-1-2008 to Mrs. Salochana Goyal for carrying out woodwork, ceramic tile flooring and fitting in the servant rooms and bathroom and polishing and painting work on the floors.

5.6 The Sr. DR, on the other hand, submitted that said payments have been shown as paid in January, 2008 i.e. prior to purchase of the property and the finishing agreement has been made in the month of June, 2008, which raises doubt on the genuineness of the finishing agreement. He also submitted that Mrs. Salochana Goyal was not a contractor, to whom such work could be assigned. We do not find any mention of the finishing agreements in the order of the lower authorities and thus, it needs verification of facts for proper adjudicating of the issue in dispute whether the payments of Rs. 30 lacs was towards construction/renovation in the new property.

5.7 For verification of the fact that payments of Rs. 10 lakh and 20 lakh paid respectively on 7-1-2008 and 13-1-2008 were towards construction or renovation of the new property, we feel it appropriate to restore the issue to the file of the assessing officer, with the direction to the assessee to produce/furnish all necessary evidence in support that construction/renovation work as mentioned in finishing agreement was carried out by seller of the property. In this regard, the assessee should furnish copy of return of income of the seller and income expenditure account showing such receipts from contract work and expenses incurred by her for carrying out construction/renovation work on the property or any other evidences which could establish that work of construction/renovation was actually carried out in the property and the said payment of Rs. 10 lacs and 20 lacs were towards such construction/renovation. If the amounts are found to be towards construction of the new property, then the assessing officer is directed to consider the deduction under section 54F of the Act in accordance with law. It is needless to mention that assessee shall be afforded reasonable opportunity of being heard.

6. Accordingly, grounds No. 1 to 5 of the appeal are allowed partly for statistical purpose.

7. In ground No. 6, the assessee is claiming that the learned Commissioner (Appeals) has not adjudicated the issue of allowing exemption under section 54F of the Act in respect of the consideration of Rs. 2 Lacs received by the assessee in cash.7.

7.1 We find that the learned Commissioner (Appeals) has adjudicated the issue as under :–

“In regard to ground no. 7, the appellant has agitated against not allowing exemption under section 54F on the amount of Rs. 2 lacs received in cash as part of the sale consideration. This ground is already covered above as the appellant is not entitled for deduction under section 54F. Besides specifically in regarding to Rs.2 lacs the appellant had not shown the sale proceeds received in cash and therefore is further not entitled to deduction under section 54F.”

7.2 Before us, the learned counsel of the assessee submitted that investment in the new property, being in far excess of the long-term capital gain and therefore, deduction under section 54F of the Act on the cash component i.e. Rs. 2 Lacs, of sales consideration should also be allowed.

7.3 Learned Sr. DR, on the other hand, relied on the order of the lower authorities.

7.4 We have heard the rival submission and perused the relevant material. Though the assessee has disclosed sale consideration of only Rs. 50 Lacs in the return of income filed, but the assessing officer on enquiry from the purchaser of the property found that sale consideration was Rs. 52 lacs and accordingly he made addition of Rs. 2 lacs to the long-term capital gain. The learned Commissioner (Appeals) has held that the assessee was not entitled for deduction under section 54F of the Act and accordingly, the claim of the assessee for deduction under section 54F of the Act, against Rs. 2.00 lakhs was also denied. We find that there is no dispute that the amount of Rs. 2 lacs is part of sale consideration and the long-term capital gain on sale of the property. The issue in dispute is only in respect of deduction under section 54F of the Act, which we have already adjudicated while dealing with the ground No. 1 to 5 of the appeal. Since we have partly restored the issue of deduction under section 54F of the Act, in respect of the investment of Rs. 30 Lacs, we also restore the issue of claim of deduction under section 54F of the Act against the sale consideration of Rs. 2 lacs to the file of the assessing officer for consideration in accordance with law. It is needless to mention that assessee shall be afforded reasonable opportunity of being heard on the issue in dispute. The Ground No. 6 of the appeal is accordingly allowed for statistical purposes.

8. The ground No. 7 of the appeal being consequential in nature and hence, not required to adjudicate upon.

9. In the result, appeal of the assessee is allowed partly for statistical purposes.