SMT. TEJAL KAUSHAL SHAH ,MUMBAI vs. INCOME TAX OFFICER WARD, 25(1)(5), MUMBAI

Brief facts of the case are that the assessee is an individual and had filed her return of income dated 20.12.2012, declaring total income at Rs. 5,46,104/-. The assessee’s case was selected for scrutiny and notices u/s. 143(2) and 142(1) of the Act were duly issued and served upon the assessee. The learned Assessing Officer (ld. A.O. for short)

Aggrieved the assessee was in appeal before the first appellate authority, who vide order dated 30.05.2024 dismissed the appeal filed by the assessee on the ground that the assessee has failed to substantiate her case by cogent documentary evidences.

The assessee is in appeal before us, challenging the impugned order of the ld. CIT(A).

The learned Authorised Representative (ld. AR for short) for the assessee contended that the ground no. A was on disallowance of deduction claimed u/s. 54 of the Act, where the assessee had purchased the property vide agreement dated 03.12.2004 for a total consideration of Rs. 35,00,000/- which is also reflected in the balance sheet filed by the assessee for earlier years. The ld. AR further stated that the assessee has sold the said property vide agreement dated 22.11.2011 for a sale consideration of Rs. 1,90,00,000/-, and had worked out the capital gain of Rs. 1,30,30,729/- after reducing the index cost of Rs. 59,69,271/-. The ld. AR submitted that the assessee had invested Rs. 1,76,00,000/- over and above the capital gains of Rs. 1.30 crores in the new property purchased jointly with her husband vide agreement dated 06.12.2010, where the total (A.Y. 2012-13) Smt. Tejal Kaushal Shah consideration was Rs. 2,31,00,000/-. The ld. AR also contended that the ld. AO in the case of the assessee’s husband has accepted his claim of deduction u/s. 54 of the Act and as co-owner, the assessee was also entitled to the said claim. The ld. AR stated that the conditions of Section 54 was fulfilled and only the amended provision of Section 54 specifies ‘purchased’ or constructed ‘One’ residential house in ‘India’ instead of ‘a residential house’ which was only w.e.f. 01.04.2015. The ld. AR relied on a catena of decisions and prayed that the assessee’s claim of deduction u/s. 54 of the Act was to be allowed.

The learned Departmental Representative (ld. DR for short) on the other hand controverted the said fact and stated that the assessee has violated the conditions of Section 54 where exemption has claimed against sale of two residential houses one by the assessee and by her husband where they have invested in a single residential property. The ld. DR further stated that the assessee has failed to establish that the old property which was sold was purchased by the assessee, where from the sale agreement it is evident that the assessee’s husband’s name is mentioned first as the purchaser. The ld. DR relied on the order of the lower authorities.

We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has challenged the additions/disallowance made by the ld. AO u/s. 54 of the Act. The assessee is said to have purchased a property at Flat No. 701 in Building No. 1 of The Gulshan Villa Premises Co-Operative Society Limited for a consideration of Rs. 35,00,000/- which aggregates to Rs. 36,50,000/- including stamp duty and registration charges which the assessee claims that the same was reflected in (A.Y. 2012-13) Smt. Tejal Kaushal Shah the assessee’s balance sheet for F.Y. 2006-07 to 2010-11. Thereafter, the property was sold on 22.11.2021 for a sale consideration of Rs. 1,90,00,000/- and the capital gain was arrived at Rs. 1,30,30,729/- after reducing the indexation cost. It is observed that the assessee along with her husband had purchased a property in Flat No. 1102, B Wing, 11th Floor, Waterford Building in Kailashpuri Co-operative Housing Society Limited for a total consideration of Rs. 2,31,00,000/- out of which the assessee’s investment is said to be Rs. 1,76,00,000/-. The reason for denial of the claim of deduction u/s. 54 by the lower authorities is that the assessee has purchased the old property along with her husband where she has failed to establish that the sale consideration was paid by her and not her husband. Also, there has been a sale of two residential houses by the assessee and her husband and has invested the consideration for purchase of one residential house which the department claims to be a violation of the conditions prescribed u/s 54 of the Act. For this, it is trite to consider the provisions of Section 54 before the amendment w.e.f. 01.04.2015 for deciding the issue in hand. We hereby cite the provision herein under for ease of reference: "54 (1) Subject to the provisions of sub-section (2), where, in the case of an assessee, being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then instead of the capital gains being charged to income-tax as income of previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section.........”

On a perusal of the above provision, it is observed that the capital gain which arises from the transfer of a long term capital asset being buildings or lands appurtenant (A.Y. 2012-13) Smt. Tejal Kaushal Shah thereto and the same being a residential house where the assessee has within a period of one year before or two years after the transfer purchased or within a period of 3 years after the date of transfer constructed a residential house is entitled to claim deduction under this provision. Upon considering the same, we do not find any embargo for the assessee to claim deduction under this provision either as a co-owner, or on sale of one or two residential properties or on purchase of a residential property as a co-owner. We do not find any express bar for the assessee to claim the said deduction on a property which has been jointly purchased by the assessee. Further, the ld. AO's contention that the old property was purchased jointly by the assessee’s husband and the assessee is to be taken into view only to find out if the assessee’s husband has also claimed deduction u/s. 54 of the Act pertaining to the sale of this property and purchase of the new residential house. If as per the contention, the old property belongs to the assessee and the sale consideration received out of the transfer was invested by the assessee in the new property, the assessee is entitled to claim deduction u/s. 54 to the extent of her investment in the new residential property. The ld. AO has also not brought on record any fact to show that the assessee has sold more than one property and merely because the assessee’s husband has transferred his other property, which detail is not before us, it cannot be said that the assessee has transferred two properties. Even otherwise, assuming that the old property which was sold belonged to the assessee’s husband then the assessee’s husband was entitled to claim the entire benefit u/s. 54, though the property was purchased jointly. In the present case in hand, it is not the case of the revenue that both the assessee and her husband has claimed benefit u/s. 54 twice for the (A.Y. 2012-13) Smt. Tejal Kaushal Shah entire sale consideration but it is a case where they have claimed proportionately to the extent of investment made by either of them in the purchase of the new property. Pertinently, courts have taken a liberal view with regard to the claim of Section 54 and Section 54F which are beneficial provisions that are to be interpreted liberally in favour of the assessee and deduction should not be merely denied on hyper-technical ground. We would like to place our reliance on the decision of Delhi High Court in the case of Commissioner of Income-tax vs. Ravinder Kumar Arora [2011] 15 taxmann.com 307 (Delhi)/[2011] 203 Taxman 289 (Delhi)/[2012] 342 ITR 38 (Delhi)/[2012] 252 CTR 392 (Delhi)[27-09-2011], where the relevant extract of the said decision is cited herein under for the ease of reference: “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. In CIT v. Podar Cement (P.) Ltd. [1997] 92 Taxman 541 / 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 of Mir Gulam Ali Khan v. CIT [1987] 165 ITR 228 /[1986] 28 Taxman 572 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.

We also find judgments 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 of CIT v. Natarajan [2006] 287 ITR 271/ 154 Taxman 399 (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 of CIT v. Gurnam Singh [2010] 327 ITR 278/[2008] 170 Taxman 160 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.”

From the above, it is evident that benefit u/s. 54 cannot be denied merely because the property was purchased jointly in the name of the assessee and her husband, where in case of property held jointly the capital gain shall be calculated for each owner in accordance with the funding and allocation of shares of the house properties for claiming tax benefits. We find justification in allowing ground no. A with the direction that the ld. AO shall verify that there has been no double deduction claimed by the assessee and her husband on the capital gain arising out of the sale of property claimed by the assessee and to allow deduction u/s. 54 to the extent of the investment made by the assessee on the purchase of the new property. Ground no. A(1) is hereby allowed.

The assessee is in appeal before us, challenging the impugned addition.

The ld. AR for the assessee contended that merely because the assessee has earned a meager income as commission income does not entitle the ld. AO to come to a conclusion that the office premises is not used as business premises. The ld. AR further stated that the ld. AO has erroneously considered a different location for determining the ALV and has also not taken into consideration the judicial precedents which has held that only the municipal rentable value should be considered for determining the ALV of the property. The ld. AR relied on the following decisions: a. CIT v. Tip Top Typography [2014] 368 ITR 330 (Bom) b. CIT v. Moni Kumar Subha [2011] 333 ITR 38 (Del.)(FC) c. Smt. Kokilaben D. Ambani v. CIT [2010] 323 ITR 104 (Bom.)

After considering the rival submissions, it is observed that the assessee has failed to furnish documentary evidences to demonstrate the fact that the said property was used by the assessee and her husband for their business purposes. We are also conscious of the fact that there are various judicial precedents which has held that the ALV of a property has to be determined based upon the municipal rentable value which in the present case has not been considered by the ld. AO. We therefore deem it fit to remand this issued to the ld. AO to the limited extent of determining the ALV of the said property as per the municipal rentable value to the extent of the holding of the assessee in the said property as per the judicial decision relied upon by the ld. AR. Ground no. B(2) is partly allowed as per the above terms.

Therefore, Ground No. A(1) is allowed and Ground No. B(2) is partly allowed.