CIT vs. RAVINDER KUMAR ARORA

Whether Reporters of Local newspapers may be allowed to see the Judgment?

To be referred to the Reporter or not?

Whether the Judgment should be reported in the Digest?

On going through the purchase deed of the above residential house, it was noticed by the AO that the purchase deed was made jointly in the names of the assessee and his wife Smt. Manju Arora. The assessee had claimed exemption under Section 54F of the Act with reference to the whole amount invested in the said house property. The AO vide questionnaire dated 04.12.2009 asked the assessee to explain his claim of exemption under Section 54F of the Act with reference to the whole amount invested in the said house inasmuch as the property was purchased jointly with his wife. The assessee vide reply dated 15.12.2009 submitted that wife‟s name was only included in the sale deed just to avoid any litigation after his death though all the funds invested in the said house were provided by the assessee himself as was clear and evident from the Bank Statement. The assessee, therefore, submitted before the AO that the exemption under Section 54F of the Act is to be allowed with reference to the full amount of purchase consideration paid by him for the aforesaid residential house. 2011:DHC:4801-DB

The assessee‟s submission was considered by the AO. The AO noted that though all the payments were made by the assessee, the residential house was purchased jointly in the names of the assessee and his wife. The AO then referred to Section 54F of the Act only to the extent of his right in the new residential house purchased jointly with his wife. The AO, therefore, allowed 50% of the exemption claimed under Section 54F of the Act as against total claim of `3,18,59,276/- made by the assessee. The AO allowed claim only to the extent of `1,59,29,638/- and the balance 50% being `1,59,29,638/- was disallowed.

Aggrieved by that order, the assessee filed the appeal before the CIT (A), which was also dismissed. However, in further appeal before the Income Tax Appellate Tribunal (hereinafter referred to as „the Tribunal‟), the assessee has succeeded there as the Tribunal has held that the assessee is entitled for benefit of Section 54F of the Act with reference to the total investment of `3,28,15,000/-.

In these circumstances, the instant appeal is filed by the Revenue under Section 260A of the Act, which we have admitted on the following substantial question of law: 2011:DHC:4801-DB

With the consent of the learned counsel for the parties, we have heard the matter finally at this stage itself and in our opinion, the question of law is to be decided in favour of the assessee and against the Revenue. Section 54F(1) of the Act needs to be noted: “Section 54F. CAPITAL GAIN ON TRANSFER OF CERTAIN CAPITAL ASSETS NOT TO BE CHARGED IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE. (1) Subject to the provisions of sub-section (4), where in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (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 842a , a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say, -

Plain reading of the aforesaid provision indicates that in order to get benefit of this Section, the assessee should, inter alia, “purchase” a house. As per the Revenue, this house has to be purchased in the name of the assessee only 2011:DHC:4801-DB

At the outset, 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 name 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.

On the aforesaid facts, we are of the view that the conditions stipulated in Section 54F stand fulfilled. It would be treated 2011:DHC:4801-DB

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 Vs. Podar Cements (P) Ltd. & Ors., (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. 2011:DHC:4801-DB

We, thus, answer the question in favour of the assessee and dismiss this appeal with cost quantified @ `10,000/-.