Case Law Details

Case Name : Shri Jitendra V Faria Vs. ITO (ITAT Mumbai)
Appeal Number : ITA No.6792/Mum/2016
Date of Judgement/Order : 27/04/2017
Related Assessment Year : 2010-11
Courts : All ITAT (5788) ITAT Mumbai (1784)

Assessee was entitled to full exemption u/s. 54 when the full amount was invested by the assessee even though the property was purchased in the joint names of the assessee and his brother.

1. Assessee was the owner of a flat in Jai Mahavir Apartment, J. P. Road at Andheri (West) jointly with his wife Mrs. Manisha J. Faria. The said flat was sold for Rs. 1,02,55,000/-. The assessee computed long term capital gains at Rs. 43,01,665/- being 50% share in the property. The assessee invested Rs. 42,01,665/- in another residential property i.e., flat in “Parag” situated on J. P. Road, Andheri (West). The assessee claimed exemption u/s. 54 of Rs. 42,01,665/- and offered capital gains at Rs. 35,809/-. The name of the assessee’s brother was added in the Agreement of new property so purchased for the sake of convenience. However, the entire investment for the purchase of new property i.e. Parag, along with stamp duty and registration charges were paid by the assessee. This fact has been confirmed by the AO on page 2 of the Assessment order as under:‑

“The entire cost of the new property is borne by the assessee through the property is in the joint name with his brother…”

2. Since, the new house was purchased by the assessee by incorporating name of his brother, AO restricted deduction u/s.54 to the extent of 50% value of new property, however, AO did not agree with assessee’s contention and restricted exemption u/s.54 to Rs.21,32,929/- i.e., 50% of the cost of the new flat. In an appeal before CIT(A), he has directed AO to tax the entire capital gains in assessee’s hands by disregarding the fact that 50% of the sale in old house was owned by his wife. I found that wife has already offered her share of capital gains in her return of income filed with the Department. Thus, there is no justification in the order of CIT(A) for taxing the entire capital gains in the hands of the assessee.

3. Now coming to the allegation of the AO that since assessee has incorporated name of his brother, he is entitled to only 50% of the investment so made in the new house. There is no justification in the AO’s action, in so far entire investment was made by the assessee and only for the safety reason he has included the name of his brother. I found that in the assessment order itself at page 2, the AO has observed that entire cot of new property was borne by the assessee though the property is in the joint name with his brother.

4. Under these facts and circumstances, there is no justification for giving 50% benefit of investment in the new house. The issue is also covered by the decision of hon’ble Delhi High Court in the case of CIT v Ravinder Kumar Arora (2012) 342 ITR 38 (Del) wherein High Court held that the assessee was entitled to full exemption u/s. 54F when the full amount was invested by the assessee even though the property was purchased in the joint names of the assessee and his wife. It may be appreciated that even in the case before the hon’ble Delhi High Court, the AO had allowed exemption only to the extent of 50%. The question raised by the Revenue before the hon’ble High Court reads as under:

“Whether the Income-tax Appellate Tribunal was correct in law in granting the exemption under section 54F. of the Income-tax Act, 1961, to the assessee for the whole consideration of Rs. 3,28,15,000 for the purpose of the new asset (the residential property) in the joint names of the assessee and his wife, and not to the extent of 5 0 per cent. share of the assessee in the new asset?”

The hon’ble High Court has at pages 42 and 43 held as under:

“9. At the outset, the 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 names 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.

10. 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.1fthe view of the Assessing Officer (AO) or the contention of the Revenue is accepted, it would be a derogatory step.

11. Even when we look into the matter from another angle, the facts remain that the assessee is the actual and constructive owner of the house. In CIT v. Podar Cement P. Ltd. [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. The 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. The Andhra Pradesh High Court in the case of Late Mir Gulam Ali Khan v. CIT [1987J 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.”

5. This decision of the Delhi High Court was subsequently followed by Delhi High Court itself in case of Kamal Wahal 351 ITR 4.

6. In view of the above discussion, I do not find any merit in the action of AO for restricting exemption u/s.54 to the extent of 50% of the value of the new house. The CIT(A) was also not justified in directing the AO to tax entire capital gain on sale of old property in the hands of assessee when 50% of the old house was owned by his wife and she had paid capital gain separately for her share of the house.

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One Comment

  1. sagar says:

    a) My father is planning to sell a piece of land (which is purchased for INR 10,000 in 1989) for 44Lakhs now and share the money between me & my brother. Can we both as legal heirs pay the CGT or try alternatives to get an exemption? or is that our father only has to do this?
    b) I purchased a flat (in 2012 and residing in it) and a land (in 2014) while my brother purchased a flat (in 2017 and residing in it). Can we repay our home loans and get exemption for Capital gains tax? or Is my brother only eligible (as he purchased his flat this year*) for clearing his home loan with his share?
    *as per section54F,”……within a period of 1 year before or 2 years after the date on which the transfer took place”
    c) If I build another house in my vacant plot before 3 years or buy another new apartment flat* within 2 years with my share of amount, will I get exemption?
    *as per section54F,…..provided that nothing contained in this sub-section shall apply where the assessee owns on the date of the transfer of the original asset, or purchases, any residential house, the income from which is chargeable under the head “Income from house property”, other than the new asset.
    IE “the exemption is available for one residential house that is purchased by the assessee” mean that the assessee can get CGT waived when purchasing only 1 house with the same amount or
    is it has to do anything with the previous assets (houses) he has?
    Points d & e in your article –
    d) If purchasing a new house is not an option for us, can we both individually invest in NHAI/REC bonds and get excemption after 3 years? or is it that only our father has to do this and give us the bonds instead? Also the bonds to be purchased are for the actual ‘tax’ amount which is 8.76L in our case? or the entire amount 44L?

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