Introduction: The recent ruling by the Income Tax Appellate Tribunal (ITAT) Delhi Bench ‘D’ sheds light on the eligibility of income tax deduction under Section 54. In the case of Simran Bagga Vs ACIT in ITA No. 1786/Del/2023 (04.01.2024) , the Tribunal considered the scenario where the taxpayer invested in a new residential house registered in the spouse’s name and ruled on eligibility of income tax deduction under section 54.
In the said matter, the undisputed facts of regarding the claim of deduction u/s 54 are that the Assessee had sold her property in New Delhi during the relevant assessment year for an amount of Rs.1,30,00,000/- during A.Y. 2020-21. Out of the sale proceeds, an amount of Rs.1,00,00,000/- was invested on 5th November 2019 into a new residential house in Hyderabad. The residential house in Hyderabad, in which the investment was made by the Assessee, was registered in the name of her spouse, Mr. Ajay Suri. As the investment was made by the Assessee in a residential house, she claimed deduction u/s 54 of the Act.
The Hon’ble Appellate Tribunal held that it is not in dispute that property has been sold and the proceeds have been reinvested. The only issue arises is that when the property has been registered in the name of the spouse of the assessee whether the deduction is allowable or not.
On this issue, the Hon’ble Appellate Tribunal took the following into consideration-
a) CIT vs. Natarajan, [2006] 287 ITR 271 (Madras HC) – The deduction under section 54 was allowed where the new residential property was purchased in the name of the wife of the assessee.
b) DIT vs. Mrs. Jennifer Bhide [2011] 15 taxmann.com 82 (Kar HC) – The Tribunal has allowed exemption u/s 54 for investment in residential property by the assessee jointly with her husband.
c) Kamlesh Keswani vs. ACIT W.P.(C) 13713/2022, CM APPL. 41874/2022 & CM APPL. 41875/2022 (Delhi HC) – Followed the judgment of Hon’ble Delhi High Court in the case of CIT vs. Ravinder Kumar Arora, [2011] 15 taxmann.com 307 (Delhi)
d) CIT vs. Sh. Mahadev Balai, ITA 136/2017 (Raj HC) – The Hon’ble High Court allowed exemption u/s 54B of the Act for investment made by the assessee in the name of his wife.
e) Shankar Lal Kumawat vs. ITO 125 taxmann.com 347 (Jaipur – Trib.) – The assessee sold a residential house and invested sale consideration in purchase of a plot of land and carried out construction of a residential house thereon. The Hon’ble ITAT held that mere fact that investment in new property was made in name of his wife could not be a reason for disallowance of deduction under section 54 to assessee.
f) N Ram Kumar vs. ACIT [2012] 25 taxmann.com 337 (Hyd. ITAT) – The assessee purchase d a flat in the name of her minor daughter and claimed deduction u/s 54F. The exemption was allowed by Hon’ble ITAT.
g) Krishnappa Jayaramaiah vs. ITO – [2021] 125 taxmann.com 110 (Bangalore ITAT) – The assessee had invested sale consideration received on transfer of Capital Asset in purchasing a new residential property in name of his married widowed daughter and the exemption was allowed to the assessee.
h) Kamal Murlidhar Mokashi vs. ITO, Ward-8 (3), Pune [2019] 110 taxmann.com 120 (Pune – Trib.) – In order to claim deduction under section 54F, new residential house need not be purchased by assessee in his own name or exclusively in his name.
Further, we find that the Hon’ble Jurisdictional Delhi High Court in the cases of CIT vs. Kamal Wahal [2013] 351 ITR 4 (Delhi) and CIT vs. Ravinder Kumar Arora [2012] 342 ITR 38 (Delhi), has held that new house purchased in the name of the spouse of the assessee was eligible for claiming deduction under section 54F. The provisions of section 54 F are pari-materia with the provisions of section 54 of the Act and thus, the principle derived equally applies to section 54 as well. The Hon’ble Jurisdictional High Court has also held in the various judgments that 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/54 of the Act are the beneficial provisions which should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied.
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