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Facts
The assessee sold a property and claimed exemption under Section 54F for capital gains, investing the proceeds in a new property. The assessing officer and CIT(A) disallowed the claim, amounting to Rs. 48,47,406/-, because the new property was purchased solely in the name of her husband. Notably, a similar claim by the assessee's husband for an earlier assessment year (AY 2012-13) was allowed by the CIT(A).
Held
The Tribunal held that the exemption under Section 54F cannot be denied merely because the new residential property is in the name of the assessee's husband, especially when the investment originated from the assessee's sale proceeds. Relying on the Delhi High Court judgment in CIT Vs Kamal Wahal and the precedent of the husband's case, the tribunal set aside the CIT(A)'s order and deleted the addition.
Key Issues
Whether capital gains exemption under Section 54F of the Income Tax Act can be denied if the new residential property is purchased solely in the name of the assessee's husband, where the investment is made from the assessee's sale proceeds.
Sections Cited
148, 143(3), 54F
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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: HON’BLE SHRI MANU KUMAR GIRI & HON’BLE SHRI S. R. RAGHUNATHA
आदेश / O R D E R PER MANU KUMAR GIRI (Judicial Member)
This appeal is preferred by the assessee against the order of the Commissioner of Income Tax (Appeals) [‘CIT(A)’ in short ], (NFAC), Delhi, dated 17.10.2023 for the assessment year 2015-16.
The registry has noted the delay of 362 days in filing the appeal. Considering the prayer of period of delay and reasons pleaded, we condone the delay and admit the appeal for adjudication.
Brief facts of the case: The appellant was working overseas for several years and has been transferring his earnings in abroad by way of Inward remittance through his NRI Account in India.
The appellant was not having any source of income apart from the interest on the Bank Deposits made through her inward remittance. The appellant sold one of the lands held by him at Vilangadupakkam. The appellant has filed the return of income for the year ended 31.03.2015 relating Asst. Year 2015-2016 admitting a total income of Rs.5,13,540/- and claiming exemption of the capital gain arising on sale of land as above on account of the investment made by her u/s. 54F of the Income Tax Act. The assessing officer issued notice u/s 148 on 13.06.2019 and the assessee furnished the letter for justification of its claim of deduction u/s 54F of the Act. However the same was rejected and the assessment was completed u/s. 143(3) RWS 148 of the Act vide order dated 06.12.2019 with an addition of Rs. 48,47,406/- towards the disallowance of claim u/s 54F of Rs.48,47,406/-.
On further appeal to ld.CIT(A), who affirmed the order of the AO and dismissed the appeal of the assessee. Now assessee is in appeal before us.
The ld. Counsel for the asssessee submitted that the ld. CIT(A) having accepted the claim of deduction u/s 54F of the Act in the hands of the appellant’s husband for the claim made for the same sale proceeds and the said proceedings having attained finality, the disallowance of claim of deduction in the hands of the present appellant on mere hyper technical ground that the newly reinvested property was only in the name of the husband is not sustainable in law.
6. Per contra, the ld. DR for the revenue relied upon the findings of the ld CIT(A) and AO and vehemently pleaded for the dismissal of the appeal filed by the assessee.
7. We have heard the rival submissions and perused the record. The assessee with her husband had sold property on 13.07.2011 for Rs.1,18,99,200/- in which the share of the appellant was 50%. In AY 2012-13, the appellant had claimed deduction u/s 54F of Rs.48,47,406/-, however the same was disallowed during scrutiny assessment proceedings for AY 2012-13. Identical disallowance was also made in the case of appellant's husband for AY 2012-13. The disallowance made in the case of appellant's case was confirmed by the Ld.CIT(A) but the Hon'ble ITAT while deciding the appeal filed by the appellant against the order of Ld.CIT(A) had set aside the matter to the file of Ld.CIT(A) vide order dated 17.03.2020. The assessee further informed that deduction u/s 54F has allowed been in the case of her husband by Ld.CIT(A) vide order dated 04/09/2018. Therefore, ld.counsel for the assessee prayed for the deletion of the addition made by the AO.
We find that the order of Ld.CIT(A) in the case of appellant's husband dated 04.09.2018 wherein claim of deduction u/s 54F has been accepted and no further appeal is pending against the same. Further the entire investment in purchase of plot is in the name of the husband of the appellant and the share of assessee in the said investment is immaterial so long the assessee has a direct connection/nexus with the husband. In similar situation, the Hon’ble Delhi High Court in CIT Vs Kamal Wahal [2013] 30 taxmann.com 34 (Delhi) has held as under:
The revenue preferred an appeal before the Tribunal questioning the decision of the CIT(Appeals). The Tribunal, however, by the impugned order, agreed with the decision of the CIT (Appeals) and in doing so followed the judgment of the Madras and Andhra Pradesh High Courts cited supra and also another judgment of the Karnataka High Court in DIT, International Taxation v. Mrs. Jennifer Bhide [2011] 203 Taxman 208/15 taxmann.com 82. It also noted the judgment of the Bombay High Court in Prakash v. ITO [2008] 173 Taxman 311 in which a contrary view was taken but preferred the view taken by the Madras and Karnataka High Courts adopting the rule laid down by the Supreme Court in CIT v. Vegetable Products Ltd [1973] 88 ITR 192 which says that if a statutory provision is capable of more than one view, then the view which favours the tax payer should be preferred. The Tribunal also observed that Section 54F being a beneficial provision enacted for encouraging investment in residential houses should be liberally interpreted.
We have no hesitation in agreeing with the view taken by the Tribunal. Apart from the fact that the judgments of the Madras and Karnataka High Courts (supra) are in favour of the assessee, the revenue fairly brought to our notice a similar view of this Court in CIT v. Ravinder Kumar Arora [2012] 342 ITR 38/[2011] 203 Taxman 289/15 taxmann.com 307. That was also a case which arose under Section 54F of the Act. The new residential property was acquired in the joint names of the assessee and his wife. The income tax authorities restricted the deduction under Section 54F to 50% on the footing that the deduction was not available on the portion of the investment which stands in the name of the assessee's wife. This view was disapproved by this Court. It noted that the entire purchase consideration was paid only by the assessee and not a single penny was contributed by the assessee's wife. It also noted that a purposive construction is to be preferred as against a literal construction, more so when even applying the literal construction, there is nothing in the section to show that the house should be purchased in the name of the assessee only. As a matter of fact, Section 54F in terms does not require that the new residential property shall be purchased in the name of the assessee; it merely says that the assessee should have purchased/constructed "a residential house".
This Court in the decision cited alone also noticed the judgment of the Madras High Court (supra) and agreed with the same, observing that though the Madras case was decided in relation to Section 54 of the Act, that Section was in pari materia with Section 54F. The judgment of the Punjab and Haryana High Court in the case of CIT v. Gurnam Singh [2010] 327 ITR 278/[2008] 170 Taxman 160 in which the same view was taken with reference to Section 54F was also noticed by this Court.
9. It thus appears to us that the predominant judicial view, including that of this Court, is that for the purposes of Section 54F, the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. It is moreover to be noted that the assessee in the present case has not purchased the new house in the name of a stranger or somebody who is unconnected with him. He has purchased it only in the name of his wife. There is also no dispute that the entire investment has come out of the sale proceeds and that there was no contribution from the assessee's wife.
Having regard to the rule of purposive construction and the object which Section 54F seeks to achieve and respectfully agreeing with the judgment of this Court, we answer the substantial question of law framed by us in the affirmative, in favour of the assessee and against the revenue. The appeal is accordingly dismissed with no order as to costs.
8. Respectfully following the judgment of the Hon’ble Delhi High Court in CIT Vs Kamal Wahal [2013] 30 taxmann.com 34 (Delhi) and order of the CIT(A) in assessee’s husband case we are of the considered view that the exemption u/s. 54F could not be denied to the assessee by the authorities below. Hence, we set aside the order of the ld. CIT(A) and delete the addition on account of Long Term Capital Gain.
In result, the appeal of the assessee is allowed.
Order pronounced in the open court on 22nd day of July 2025 at Chennai.