IN THE ITAT CHENNAI
S. Krishna Kumar
Assistant Commissioner of Income-tax
IT APPEAL NO. 837 (MDS.) OF 2012 – ASSESSMENT YEAR 2007-08
Date of Decision – MAY 4, 2012
N.S. Saini, Accountant Member –
This is an appeal filed by the assessee against the order of the CIT-I, Tiruchirappalli, dated 28.3.2012.
2. The assessee has challenged the jurisdiction of the CIT in initiating proceedings u/s 263 of the Act by taking five grounds of appeal and also challenged the denial of deduction u/s 54F by taking ten grounds of appeal.
3. The Authorized Representative of the assessee submitted that the brief facts of the case are that the assessee filed return of income declaring income of Rs. 5,66,452/- in which it had declared Long Term Capital Gains on sale of shares of Rs. 1,94,10,116/- after claiming exemption u/s 54F of the Act of Rs. 90,85,586/-. There was an audit objection regarding the claim of exemption u/s 54F on the ground that the assessee is not eligible to claim exemption as the assessee had offered income from two house properties at Trichy and Bangalore respectively u/s 64(1)(iv) for which the assessee was considered to be the deemed owner of the said properties. Thereafter notice u/s 263 of the Act was issued on 20.9.2011 to set aside the assessment order passed u/s 143(3) r.w.s 147 on 27.10.2009 on the ground that ownership includes deemed ownership and hence, the assessee was not entitled to claim exemption u/s 54F as the assessee owns more than one residential property. The assessee, in response to the show cause notice u/s 263 of the Act, filed its reply vide letter dated 21.3.2012 explaining that offering of income u/s 64 was only for the purposes of clubbing the income and that deemed ownership u/s 27 of the Act is only for the purposes of section 22 to 26 and cannot be extended for the purposes of section 54F of the Act. Thereafter, the CIT, vide order dated 28.3.2012 set aside the assessment order passed u/s 143 r.w.s 147 dated 27.10.2009 to re-examine the claim of exemption u/s 54F and to allow the same. Aggrieved by the said order, the assessee is in appeal before us.
4. The A.R of the assessee filed before us a copy of the order of the Chandigarh Bench of the Tribunal in the case of ACIT v. Madan Lal Bassi,  88 ITD 557(Chd.) and submitted that the Tribunal in that case has held that having in mind the amplitude of work ‘assessment’ and requirement of sections 45(1), 54F and 64(1A) to compute income of a minor child for purposes of addition in the total income of the father, it cannot be denied that proceedings under the Act for assessment of income of minor child are required to be taken. Therefore, under sub-clause(a) of section 2(7), minor child can be treated as an assessee for the purposes of section 54F. Whether the conditions of section 54F are satisfied or not is only to be seen in his hands. To carry the matter to a logical conclusion, the minor child has to be treated as an assessee. If by applying the provisions of section 54F, there is no income in the hands of minor child to be added under section 64(1A), the benefit cannot be denied on the ground that father of the minor child has a residential house at the time of transfer of capital asset. The denial is possible only by taking hyper technical view of the matter and by taking that father is the assessee in the sense that tax is being imposed on him and not on minor child. It would be fair and reasonable to hold that a minor child in the circumstances given above is entitled to benefit of the provisions of section 54F. Accordingly, the impugned order of the Commissioner (Appeals) was to be upheld.
5. On the other hand, the DR supported the order of the CIT.
6. We have heard the rival submissions and perused the orders of the lower authorities and materials available on record. In the instant case, in the original assessment made u/s 143(3), the Assessing Officer allowed deduction of Rs. 90,85,586/- u/s 54F of the Act. The CIT stated in the show cause notice issued u/s 263 that as per assessment records of the assessee, the assessee was owner of two house properties situated at Trichy and Bangalore. The explanation of the assessee before the Assessing Officer was that he had given some money to his wife to purchase the property at Trichy and for the flat at Bangalore loan from HDFC Bank was jointly obtained with his wife and as installments of loan were paid by him, the income from house property was shown by him in his return of income. In view of the above explanation, the CIT was of the view that the assessee was deemed owner of the two house properties and therefore, not entitled for deduction u/s 54F of the Act.
7. Before us, the A.R relied on the decision in the case of ACIT v Madan Lal Bassi (supra) for the submission that merely because of clubbing of income u/s 64, deduction u/s 54F cannot be denied to the assessee.
8. A reading of section 54F shows that no deduction under that section shall be allowed if the assessee owns more than one residential house other than the new asset on the date of transfer of the original asset. Thus, the crux of the issue to be decided is whether on the date of transfer of the original asset the assessee was owner of more than one residential house other than the new asset or not. The assessee has explained that the income from house property from two houses was shown in his return of income because of the provisions of section 64(1) of the Act only and he is not the owner of the houses. We find that section 64(1)(iv) reads as under:
“64. [(1)] In computing the total income of any individual, there shall be included all such income as arises directly or indirectly—
(iv) subject to the provisions of clause (i) of section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart ; “
9. Provisions of section 27(1) read as under:
27. For the purposes of sections 22 to 26-
(i) an individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred; “
10. However, the explanation of the assessee before the lower authorities was that he has given money to his wife for purchase of house at Trichy. Regarding flat at Bangalore, the assessee explained that loan was taken from HDFC Bank in the joint name with his wife and the repayment of loan was made from his account. In the above circumstances, income from these properties was shown in the return of income in view of the provisions of section 64 of the Act.
11. In our considered opinion, the provisions of section 64 are attracted when house property in question was transferred by the assessee to his wife otherwise than for adequate consideration. It is not the explanation of the assessee that the house properties in question were transferred by him to his wife otherwise than for adequate consideration. In the above circumstances, it could not be properly appreciated in what circumstances income from the two house properties in question was shown in his return of income. We find that the CIT has not examined the facts properly and has not passed a speaking order on the issue whether the assessee was owner of both the properties in question or merely because of the provisions of section 64 or for any other reason the income from house properties in question was shown in the return of income of the assessee. We find that in the case of Madan Lal Bassi (supra) the facts were distinct and different from the facts of the instant case. In that case deduction u/s 54F was claimed by the minor which was denied on the ground that the father in whose hands income of minor was clubbed was owner of residential house. On the above facts, the Tribunal held that in computing income of minor child deduction u/s 54F is to be allowed and for allowing that deduction house property owned by minor child only is to be considered and house property owned by his father cannot be considered for denying exemption u/s 54F to the minor child.
12. In the instant case, the claim of the CIT is that the assessee is the owner of house properties situated at Trichy and Bangalroe and therefore, the said decision is not squarely applicable to the facts of the case. In our considered view, if the house properties situated at Trichy and Bangalore are owned by the assessee’s wife then the same cannot be considered as owned by the assessee for disallowing exemption u/s 54F of the Act. We find that the assessee has brought no material before us to show that either the house property situated at Trichy or Bangalore is not owned by him. As already held herein above that the CIT also has brought no relevant material on record to show that both the house properties were owned by the assessee. The circumstances in which the income from both the house properties were shown in the return of income by the assessee is also not clear from materials available before us. We, therefore, set aside the order of the CIT and restore the issue back to the file of the CIT for proper enquiry and verification in the light of the discussion made herein above and thereafter to pass a speaking order as per law after allowing the assessee sufficient opportunity of hearing. Thus, the grounds of appeal of the assessee are allowed for statistical purposes.
13. In the result, the appeal of the assessee is allowed for statistical purposes.