YASH ASHITBHAI VASHI,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-1, INTERNATIONAL TAXATION, AHMEDABAD

The assessee preferred an appeal before CIT(A). The CIT(A) upheld the disallowance of deduction under Section 54, as the new property was registered solely in the name of the assessee’s mother, Smt. Heenaben Vashi, and not in his own name. The AO was asked to submit a remand report through the ITBA system but failed to do so, leading the CIT(A) to decide the matter based on the available records. The assessee contended that he had invested ₹17,68,000 from his bank account in purchasing the new house and that the purchase was made in his mother’s name for sentimental reasons. However, the CIT(A) rejected this argument, noting that mere transfer of funds does not establish ownership, and the assessee failed to furnish any documentary evidence proving joint ownership or a legal right over the property. The CIT(A) distinguished the case of Laxmi Narayan v. CIT (2018) 402 ITR 117 (Raj. HC), relied upon by the assessee, stating that it pertained to Section 54B of the Act, which allows exemption when property is purchased in a spouse’s name, whereas Section 54 strictly requires the property to be in the assessee’s own name. The CIT(A) referred to judicial precedents, including Ganta Vijaya Lakshmi v. ITO (AP HC), D. Devadass v. ITO (Chennai ITAT) and Prakash v. ITO (Bom. HC), which categorically held that exemption under Section 54 or 54F of the Act is available only if the new property is in the assessee’s name. The CIT(A) also cited the Supreme Court’s decision in the case of Ponds India Ltd. v. Jt. CTT (2008), emphasizing that legislative provisions must be adhered to strictly. Given the clear requirement under Section 54 that the new property must be owned by the assessee, the CIT(A) concluded that the assessee was not eligible for the deduction. Accordingly, the addition of ₹14,62,660 as taxable LTCG was confirmed, and the appeal was dismissed. Yash Ashitbhai Vashi vs. The ITO Asst. Year : 2018-19

Aggrieved by the order of CIT(A), the assessee is in appeal before us with following grounds of appeal:

During the course of hearing before us, we observe that the assessee has made a written submission before us, we note that the assessee is assessed by the Income Tax Officer, International Taxation, and his residential status is Non-Resident. The CIT(A) had called for a remand report from the AO through the ITBA system, but the AO failed to submit any response. The CIT(A), therefore, proceeded to decide the matter based on the material available on record. Upon review, the CIT(A) upheld the AO’s findings and confirmed the disallowance of deduction under Section 54 of the Act, on the grounds that the new property was registered in the name of the assessee’s mother, Late Smt. Heenaben Vashi, and not in the assessee’s own name. The AO, in his order, specifically mentioned that the assessee invested the amount in the name of his Late mother, raising further concerns about the legal ownership and ultimate succession of the property. However, neither the AO’s order nor the CIT(A)’s order clearly establishes whether the mother was also a co-owner of the sold property, whether the property was inherited, or who the other co-owners were. These critical facts remain unclear from the orders of both authorities. Yash Ashitbhai Vashi vs. The ITO Asst. Year : 2018-19 5.1. The assessee has relied on various judicial precedents where deduction under Section 54 of the Act was allowed when the property was purchased in the name of a wife or daughter. While we appreciate the substance of this argument, the reason why the assessee decided to purchase the property in the name of his mother, who is no more, and its implications on the ultimate ownership of the property remain unanswered. The CIT(A)’s order acknowledges that the assessee purchased the property in his mother’s name for sentimental reasons, but it is crucial to examine what happened to the property after the mother’s demise. Specifically, it is necessary to determine whether the property was transmitted to the assessee or to other legal heirs. The ultimate ownership of the property is an essential aspect in determining whether the assessee effectively complied with the conditions of Section 54 of the Act.

In our opinion, when the property is purchased in the name of wife or daughter, the courts have decided in favor of the assessees primarily identifying the concept of family and the importance of Class I legal heirs. However, in the present case, the property was purchased in the name of the assessee’s mother, who is no more, and the subsequent transmission of ownership remains unclear. This aspect is crucial, as the final ownership of the property plays a significant role in determining the applicability of Section 54 exemption.