Case Law Details
V.R. Usha Vs ITO (ITAT Chennai)
Introduction: In the case of V.R. Usha Vs ITO, an important issue arose concerning the denial of exemption under Section 54F of the Income-tax Act, 1961 (the Act). The crux of the matter was whether the assessee, V.R. Usha, could claim Section 54F exemption when she held only partial interest in a property. This article delves into the details of the case, the arguments presented, and the final decision.
Case Background: The dispute revolved around the denial of exemption under Section 54F of the Act by the Assessing Officer. The reason for this denial was that the assessee, V.R. Usha, was considered the owner of two houses at the time of the sale of a piece of land in Pallikaranai. However, the core contention put forth by the assessee was that her ownership of the property was subject to a life interest retained by her mother.
Arguments Presented: The counsel for the assessee argued that the settlement deed executed for the property specified that the life interest had been retained by the settlor, in this case, the assessee’s mother.
- It was emphasized that as long as the assessee’s mother was alive, the assessee did not have full ownership of the property, as she could only enjoy it subject to her mother’s life interest.
- The counsel cited the Mumbai Bench of the Tribunal’s decision in ITO v. Rasiklal N. Satra (2006) 98 ITD 335, which concluded that joint ownership is distinct from absolute ownership. Therefore, joint ownership of a residential house should not be a reason to deny exemption under Section 54F of the Act.
- Additionally, the counsel referred to judgments from the Madras High Court and other decisions from the Tribunal that supported the assessee’s claim.
Detailed Analysis: The crucial point of contention was whether the property conveyed to the assessee through the settlement deed, subject to her mother’s retained life interest, could be considered as her full ownership for the purpose of denying the Section 54F exemption.
Section 122 of the Transfer of Property Act, 1882, defines a “Gift” as a voluntary transfer of certain existing movable or immovable property made without consideration. In this context, the gift must be voluntary and without consideration.
In this case, the settlement deed indicated that the property had been transferred to the assessee, but it was subject to her mother’s life interest. As the mother was alive at the time of the property’s sale, the life interest retained by her remained valid. Consequently, the property could only be enjoyed by the assessee subject to her mother’s life interest.
The Mumbai Bench of the Tribunal in a similar case, ITO v. Rasiklal N. Satra, had held that the word “own” in Section 54F of the Act referred to full and absolute ownership of a residential house. In the case before the Tribunal, the assessee’s ownership was subject to the life interest retained by her mother, indicating that it was not full and absolute.
Conclusion: The Tribunal found that the property conveyed to the assessee through the settlement deed, subject to her mother’s life interest, did not constitute full ownership. Therefore, the denial of the Section 54F exemption was unjust, and the orders of the lower authorities were set aside.
This case serves as an important precedent, emphasizing that partial ownership, especially when subject to conditions like life interest, should not be a reason to deny exemption under Section 54F of the Income-tax Act, 1961. It underscores the need for a thorough examination of property rights and interests in such cases to ensure fair and just treatment under tax laws.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-4, Chennai, dated 29.10.2015 and pertains to assessment year 2011-1 2.
2. Shri V.S. Jayakumar, the Ld.counsel for the assessee, submitted that the only issue arises for consideration is with regard to denial of exemption under Section 54F of the Income-tax Act, 1961 (in short ‘the Act’). He further submitted that the Assessing Officer disallowed the claim of the assessee under Section 54F of the Act on the ground that the assessee was owner of two houses on the date of sale of the land at Pallikaranai. Referring to the copy of the settlement deed as extracted by the CIT(Appeals), the Ld.counsel submitted that the settlement deed was executed subject to the life interest retained by the settlor, the assessee’s mother. When the assessee’s mother retained the life interest over the property, according to the Ld. counsel, no interest on the property will pass on to the assessee so long as the assessee’s mother is alive. According to the Ld. counsel, on the date of execution of sale deed, the assessee’s mother was very much alive, therefore, the assessee is not the owner of the property which was said to be conveyed to her by means of the settlement deed. Referring to the decision of the Mumbai Bench of this Tribunal in ITO v. Rasiklal N. Satra (2006) 98 ITD 335, the Ld.counsel submitted that on identical circumstances, when the assessee owned interest in the property along with others, it was found by the Mumbai Bench that joint ownership is different from absolute ownership. Ownership of a residential house means ownership to the exclusion of all others. Therefore, the Tribunal found that the joint ownership of a residential house cannot be a reason to deny exemption under Section 54F of the Act. The Ld.counsel has also placed reliance on the judgment of Madras High Court in CIT v. K. Ramachandra Chettiar (1983) 141 ITR 771, judgment of Madras High Court in R. Janardhanan v. CWT (1987) 165 ITR 144 and on the decision of Delhi Bench of this Tribunal in WTO v. Smt. Kaushalya Rani (1989) 28 ITD 435.
3. On the contrary, Sh. A.B. Koli, the Ld. Departmental Representative, submitted that even though the life interest was retained by the settlor in the settlement deed, the settlement deed at page 8 clearly says that the settlee, namely, the assessee shall enjoy the property settled absolutely and the settlement is irrevocable. Similarly, the settlement deed further says that the settlee, namely, the assessee shall henceforth be entitled to deal with the same as full owner of the property without any obstruction or hindrance from the settlor or anyone claiming under them. Therefore, according to the Ld. D.R., even though there was a reference in the preamble of the settlement deed about the reservation of life interest retained by the settlor, in the body of settlement deed, the absolute property was transferred to the assessee by means of gift / settlement deed and the physical possession of the property was handed over to the assessee as a token of acceptance of the gift. Therefore, according to the Ld. counsel, the assessee is the absolute and full owner of the property which was conveyed to her by means of settlement deed. Hence, the assessee cannot claim that the property conveyed by means of settlement deed is not her property. Therefore, the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.
4. We have considered the rival submissions on either side and perused the relevant material available on record. The claim of exemption under Section 54F of the Act was disallowed by the Assessing Officer on the ground that the assessee owns more than one house on the date of sale of the land at Pallikaranai. The assessee claims that the property conveyed by her mother by means of settlement deed is only a partial interest on the property and such partial interest cannot be considered to be full ownership for the purpose of denying the exemption under Section 54F of the Act.
5. We have carefully gone through the provisions of Section 122 of the Transfer of Property Act, 1882. Section 122 of that Act defines “Gift” as follows:-
“ “Gift” is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee.”
In view of the above definition, the gift shall be voluntary and without consideration. In the case before us, the settlor, namely, the assessee’s mother retained the life interest over the property. Subject to life interest retained by the assessee’s mother, the property was conveyed to the assessee by means of a registered settlement deed. On the date of the sale of the land at Pallikaranai, admittedly, the assessee’s mother, who settled the property, was alive. Therefore, the life interest retained by the assessee’s mother over the property was very much available and the assessee could enjoy the property only subject to life interest of her mother. Therefore, this Tribunal is of the considered opinion that the property which was conveyed by her mother by way of settlement deed cannot convey full ownership. In other words, the assessee has ownership subject to the life interest retained by the assessee’s mother. The question arises for consideration is whether such property can be considered as one of the residential houses for the purpose of denying exemption under Section 54F of the Act? The Mumbai Bench of this Tribunal in Raskilal N. Satra (supra) examined the issue and found that the word “own” in Section 54F of the Act would include only a residential house which is fully and wholly owned by the assessee. In the case before us, the assessee owns the house subject to life interest retained by the assessee’s mother, namely, settlor. Therefore, it cannot be said that the assessee owns a house fully and wholly. The ownership of the assessee over the property is subject to life interest retained by the assessee’s mother. Therefore, this Tribunal is of the considered opinion that the house property conveyed to the assessee by means of settlement deed subject to life interest over the property cannot be a reason for denying deduction under Section 54F of the Act. By following the decision of Mumbai Bench of this Tribunal and for the reason stated therein, this Tribunal is unable to uphold the orders of the lower authorities. Accordingly, the orders of the lower authorities are set aside. The Assessing Officer is directed to grant exemption under Section 54F of the Act.
5. In the result, the appeal filed by the assessee is allowed.
Order pronounced on 12th May, 2016 at Chennai.
