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Facts
The assessee sold a residential property, generating long-term capital gain which she claimed to have reinvested in a new plot, jointly owned with her husband, and for construction on her husband's existing house. The Assessing Officer disallowed the capital gain exemption (Section 54(2) reference and Section 50C valuation applied), while the CIT(A) granted partial relief (50% of the jointly owned property investment) but disallowed the construction expenses due to lack of evidence and the property being in her husband's name.
Held
The Tribunal allowed the assessee's appeal. It held that exemption under Section 54F should not be restricted for joint ownership with a spouse, citing beneficial construction principles. For construction expenses, the Tribunal ruled that Section 54/54F benefits cannot be denied solely due to the property being in the husband's name, provided the assessee incurred the expenditure. The Ld. AO was directed to verify the investments and grant full relief.
Key Issues
1. Whether capital gains exemption under Section 54F is available for the full amount when the new property is purchased in joint names with the spouse. 2. Whether capital gains exemption under Section 54/54F is available for construction expenses incurred by the assessee on a property owned by her husband.
Sections Cited
250, 50C, 54, 54F, 260A
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Income Tax Appellate Tribunal, NAGPUR “SMC” BENCH :: NAGPUR
Before: SHRI NARENDER KUMAR CHOUDHRYSmt. Rajani Surendra
This appeal has been preferred by the Assessee against the order dated 04/08/2020 impugned herein passed by the Commissioner of Income Tax (Appeals)-1, Nagpur (in short, ‘Ld. Commissioner’) u/sec. 250 of the Income Tax Act, 1961 (in short, ‘Act’) for the A.Y. 2011-12.
(Smt. Rajani Surendra Adamane) 2. In this case, the Assessing Officer (AO) in the scrutiny assessment observed that the Assessee had sold one residential property vide sale deed dated 15/03/2011 for a consideration of Rs. 48 Lac, as against stamp duty valuation of Rs. 53,52,000/- but not reflected the capital gain earned, in the income tax return and therefore, the Ld. AO by issuing show-cause notice asked the Assessee “as to why no income from long term capital gain on the sale of above property has not been reflected in the return of income”.
The Assessee before the Ld. AO replied that consideration amount received on account of that property has been reinvested in purchase of new asset and hence, no capital gain was reflected in the return. The Assessee also filed a fresh computation of income tax and copy of sale deed dated 17/09/2012 which shows a sum of Rs. 15,35,000/- has been reinvested in purchase of the said property. The Assessee further claimed that she has reinvested the amount of Rs. 15,35,000/- in the purchase of plot with an intention to construct a house and balance amount has been utilized in the construction of second floor of existing house owned by her husband.
The Ld. AO though considered the aforesaid claim of the Assessee, however, not accepted the same in view of the provisions of section 54(2) and observed that the Assessee has not deposited the amount of unutilized in the capital gain in scheme till the date of filing of return and therefore, he is of the view that amount so utilized is taxable in the hands of the Assessee as ‘income from long term capital gain’.
(Smt. Rajani Surendra Adamane) The Ld. AO, ultimately, by considering the sale consideration of the property at Rs. 53,52,000/- as per stamp duty valuation in view of section 50C of the Act and while deducting the indexed cost of acquisition of plot to the tune of Rs. 1,33,284/- and other expenses claimed to the tune of Rs. 2,67,863/- by the Assessee, ultimately determined long term capital gain of Rs. 49,69,430/- and consequently made the addition of such amount by disallowing the claim of LTCG.
5. The Ld. Commissioner, in appeal, granted the relief to the extent of 50% of Rs. 16,35,260/- being cost of new property by following the decision of Mumbai Bench of this Tribunal in the case of Mrs. Niharika M. Jhangiani vs. Addl. CIT in MA No. 349/MUM/2017 (arising out of whereby the property was purchased in the joint ownership and the Ld. Commissioner restricted the exemption claimed u/sec. 54F of the Act to the extent of 50% of the total investment and the Tribunal affirmed the order of Ld. Commissioner.
Whereas, the Assessee has argued that in the present case, the Assessee has paid entire consideration amount of Rs. 16,35,260/- in purchasing new property as appears from the copy of sale deed, copy of bank statement etc. and, therefore, the Assessee is entitled to get the benefit of complete amount of Rs. 16,35,260/-.
This Court has given thoughtful consideration to the peculiar facts and circumstances of the case and is of the considered view that simple mentioning of name in the sale deed cannot determine the percentage of ownership in the property, as the same can be established by producing the evidence for the amount invested and even otherwise, in many cases, it has been held that mere (Smt. Rajani Surendra Adamane) consideration earned in the hands of HUF on sale of capital asset has been invested for the purpose of new residential house in the name of some of its member, instead of HUF, still the deduction u/sec. 54F in the hands of the HUF would be permissible.
Further, the Hon'ble Delhi High Court in the case of CIT vs. Ravinder Kumar Arora [342 ITR 38 (Del.)] has also dealt with an identical issue, wherein the house was purchased in joint ownership of spouse by the Assessee and claimed the benefit of section 54F of the Act. The Hon’ble High Court, ultimately allowed the identical claim by observing and holding as under.
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.
3. 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.
4. 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: "Whether the ITAT was correct in law in granting the exemption u/s 54F of the Income Tax Act, 1961, to the assessee for the whole consideration of Rs.3,28,15,000/- for the purpose of the new asset (the residential property) in the joint name of the assessee and his wife, and not to the extent of 50% share of the assessee in the new asset?"
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On the aforesaid facts, we are of the view that the conditions stipulated in Section 54F stand fulfilled. It would be treated as the property purchased by the assessee in his name and merely because he has included the name of his wife and the property purchased in the joint names would not make any difference. Such a conduct has to be, rather, encouraged which gives empowerment to women. There are various schemes floated by the Government itself permitting joint ownership with wife. If the view of the Assessing Officer (AO) or the contention of the Revenue is accepted, it would be a derogatory step.
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 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 (Smt. Rajani Surendra Adamane) 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 Late Mir Gulam Ali Khan Vs. CIT, (1987) 165 ITR 228 (AP) 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.
11. 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 Vs. Natrajan, (2007) 287 ITR 271 (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 Vs. Gurnam Singh, (2010) 327 ITR 278 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.
We, thus, answer the question in favour of the assessee and dismiss this appeal with cost quantified @ `10,000/-”.
The Hon’ble High Court in the said judgment also relied upon the judgement of the Hon'ble Apex Court in the case of CIT vs.
Thus, considering to the above fact and the decisions of the Hon'ble Apex Court and Delhi High Court, this Court is inclined to allow the claim of the Assessee in entirety to the tune of Rs.16,35,260/-, but subject to verification by the Ld. AO. Thus, the Ld. AO is directed to verify the amount invested by the Assessee in the said property and to grant the relief accordingly.
9. Coming to sustaining the remaining addition of Rs. 38,17,000/- by the Ld. Commissioner, the Assessee has claimed that she has reinvested the said amount in part i.e. Rs. 8 Lac during the F.Y. 2011-12 and Rs. 30.17 Lac during the F.Y. 2012-13 and therefore, the Assessee is entitled to get the benefit u/sec. 54 of the Act. This Court observe that the Assessee sold the property, on which capital gain was earned, on dated 15/03/2011 and therefore, according to the provisions of section 54 of the Act, the Assessee is entitled to purchase a house within 02 years on the date of transfer took place of the purchased property, or to construct a residential house within a period of 03 years after such date of sale of property. In this case, as the property was sold on dated 15/03/2011, therefore the Assessee was entitled to purchase residential property in lieu of long term capital gain upto 14/03/2013 and/or to construct a house on or before 15/03/2014. As the Assessee has claimed that she has constructed a house by spending total amount of Rs. 38.70/- Lakhs {Rs. 8 Lac and Rs. 30.70 Lac during the F.Ys. 2011-12 & 2012-13 respectively} which is admittedly within the time limit as prescribed u/sec. 54 of the (Smt. Rajani Surendra Adamane) Act. However, this Court observe from the impugned order that the Ld. Commissioner held that the evidence produced by the Assessee before the Ld. AO could not conclusively relate to the source of investment being Assessee’s fund, the lack of complete evidence in the form of bills etc. has not only been highlighted in the remand report but also find mention in the valuation report dated 29/07/2019, wherein under the heads “scope and limitation and methodology” failure about these issues. Further, in absence of complete evidence, claim of the Assessee is not sustained. Thus, the claim of the Assessee is inadmissible u/sec. 54 of the Act, as the property is conclusively owned by the Assessee’s husband.
The Assessee has claimed that she has duly filed all the evidences before the Ld. Commissioner and in the remand report as well but still the aforesaid authorities without pointing out any specific defect and/or discrepancy, opined against the Assessee and, therefore, the decision of the Ld. Commissioner for not allowing the benefit of amount spent, in the construction of house is unsustainable.
This Court by considering the aforesaid peculiar facts and circumstances and the fact that the Assessee may purchase property in the name of her husband for legal inheritance of heirship or in love and affection, but still cannot be denied the benefits of section 54F of the Act, which is benevolent and beneficial provision and thus, this Court direct the Ld. AO to verify the details of expenditure incurred exclusively by the Assessee during the F.Ys. 2011-12 & 2012-13, as claimed by the Assessee, by sidelining the ownership of the property in the name of husband and to grant relief/benefit of the provision of section 54 accordingly.
Order pronounced in open court on 25.09.2025 as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963.