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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश /O R D E R
PER MAHAVIR SINGH, VICE PRESIDENT:
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-1, Chennai in dated 25.10.2018. The assessment was framed by the ACIT, Non-Corporate Circle – 15(1), Chennai for the 2013-14 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 07.03.2016.
The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in making disallowance of exemption claimed by the assessee u/s.54 of the Act, while computing Long Term Capital Gain for the reason that the property was constructed by the assessee in the land owned by her husband. For this, assessee has raised various grounds which are argumentative and hence, need not be reproduced.
Brief facts are that the assessee Smt. Meena Thiagarajan is an individual received income from medical profession and long term capital gains. On 24.12.2012, the assessee sold a plot of land for a consideration of Rs.1.25 crores and earned long term capital gain of Rs.1,10,09,586/-. The assessee invested this long term capital gain in construction of residential house on 28.12.2012 and claimed exemption u/s.54F of the Act, while filing her return of income for the assessment year 2013-14. The AO during the course of assessment proceedings noticed that the assessee has constructed new residential house on the land purchased by assessee’s spouse Shri Rajasekaran Sitaraman and no other join holder. This was Shri Rajasekaran Sitaraman on 23.08.2007. The AO also noted that the assessee’s husband did not file his return of income for the said relevant assessment year 2013-14. Accordingly, the AO during the course of assessment proceedings show caused as to why the exemption claimed u/s.54F of the Act in regard to part of the amount invested in the said residential house be not disallowed as the property constructed was in the land belonging to the spouse of the assessee. The AO accordingly disallowed the claim of assessee and added back to the returned income of the assessee amounting to Rs.1,10,09,586/-. Aggrieved, assessee preferred appeal before CIT(A).
The CIT(A) noted the facts in para 4.3.1 & 4.3.2 as under:- 4.3.1 The addition contested in appeal is the denial of deduction u/s 54F claimed by the Appellant for the reason that the land on which the residential house was constructed belonged to the Husband of the appellant. The fact remains that the land on which the construction was made belonged to the spouse who had not filed his returns of income despite having income chargeable to tax exceeding the threshold limit.
4.3.2. It is not clear from the records whether the property is assessed to tax in the name of the appellant or in the name of her husband. The provisions of the Act require that the transferor seeking exemption from capital gain should invest the entire net consideration by either purchasing one year before or two years after or construct a residential house within a period of three years from the date of transfer of the capital asset giving rise to capital gain. There are certain attendant conditions attached to the claim in the 3 years thereafter. If this condition requires compliance, the fact that the construction is made on a piece of land belonging to her husband, what sort of a ownership right accrues to the appellant as a result of the same in relation to the residential house to prove that she continues to be the owner for the stipulated period. From the fact that the husband owns the land, he can be construed to be owner of the property by the principle of constructive ownership which divests the appellant of the ownership of the residential house unless documents are there to suggest that the superstructure belongs to the appellant and the construction has taken place on a land under implicit leasehold rights to the appellant.
Thereafter, the CIT(A) applying various case laws i) D Devdass vs ITO [TS-5244-ITAT-2016(CHENNAI)-O], ii) Jai Narayan vs ITO [TS- 5713-HC-2007 (PUNJAB & HARYANA)-O], iii) CIT vs V Natarjan [TS- 5128-HC-2006 (MADRAS)-O], iv) T Ramesh vs ITO [TS-7189-ITAT- 2017(CHENNAI)-O] & v) Kaushal Kishore Maheshwari vs ACIT [TS- 6590-ITAT-2017(DELHI)-O] confirmed the disallowance of exemption claimed by assessee by observing in para 4.3.4 as under:- 4.3.4 To conclude, I concur with the AO’s reliance on case laws in favour of Revenue and I find the decisions relied on by the appellant not applicable to her case. In spite of reasonable 0opportunity given, the appellant could not demonstrate that she fulfilled all the conditions to claim deduction U/S 54F. Particularly, she has not proved that she reinvested the LTCG in a residential property in her name.
Aggrieved, now assessee is in appeal before the Tribunal.
Before us, the ld.counsel for the assessee Shri Arjun Raj argued and for Revenue, Additional CIT(A) Shri AR.V. Sreenivasan argued.
We have heard rival contentions and gone through the facts and circumstances of the case. The admitted facts are that the assessee sold one plot of land on 24.12.2012 for a consideration of Rs.1.25 crores and earned long term capital gain of Rs.1,10,09,586/-. The assessee invested this long term capital gain on a plot of land purchased by her husband Shri Rajasekaran Sitaraman and admittedly, he has not filed his return of income for the relevant assessment year 2013-14. The assessee constructed new residential house on this land purchased only in the name of spouse of the assessee and claimed exemption u/s.54F of the Act. But the AO disallowed the claim of exemption made u/s.54F of the Act by the assessee for the reason that as per the scheme of section 54F of the Act, the assessee who is the owner of the original asset need to purchase or construct a residential house within the specified period and the new asset should be in the name of the assessee but it is not the case in present facts of the case. The CIT(A) also confirmed the action of the AO by relying on various case laws cited above. We noted that this issue is covered in favour
Hon’ble Jurisdictional High Court in the case of CIT vs. V Natarajan, [2006] 287 ITR 271. The Hon’ble High Court considered this issue on identical facts and held in favour of assessee in para 3.3 to 3.6 as under:- 3.3 It is admitted by the assessee that he sold a house property at Bangalore. Therefore, it is clear that the assessee owned a house property and sold the same. He also admits that he purchased a property at Madras in the name of his wife Smt. Meera out of the money obtained by him by the sale of the property at Bangalore.
3.4 Section 54 of the Act clearly says that if the assessee is the owner of the property, he is not (SIC) entitled for exemption.
3.5 In the instant case, the assessee purchased a house at Anna Nagar in the name of his wife Smt. Meera after selling the property at Bangalore. But the same was assessed in the hands of the assessee. Hence, as correctly held by the CIT(A) as well as by the Tribunal that the assessee is entitled for exemption under Section 54 of the Act.
3.6 The assessee sold a property at Bangalore and purchased a property at Anna Nagar in the name of his wife is only a question of fact. It is a settled law that the factual findings of the Tribunal cannot be disturbed in exercise of the powers under Section 260A of the Act vide M. Janardhana Rao v. Jt. CIT (2005) 193 CTR (SC) 585 : (2005) 273 ITR 50 (SC). Hence, we do not see any question of law much less, substantial question of law arises for consideration. Accordingly, the first question fails and the same is rejected.
6.1 Similarly, the Hon’ble Delhi High Court in the case of CIT vs. Kamal Wahal, [2013] 351 ITR 4 has also considered the identical issue and held that the assessee can purchase new house in the name of his wife and not in the name of any stranger who was not connected with him, exemption could not be denied u/s.54F of the Act. The Hon’ble Delhi High Court has observed in para 7 to 10 as under:- 7. 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 Vs. Ravinder Kumar Arora : (2012) 342 ITR 38 (Del.). 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 Vs. Gurnam Singh : (2014) 327 ITR 278 in which the same view was taken with reference to Section 54F was also noticed by this Court.
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.
6.2 Respectfully following the above case laws, we allow the appeal of assessee and direct the AO to allow the claim of exemption u/s.54F of the Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 4th August, 2022 at Chennai.