MEENAKSHI SATISH VARMA,MUMBAI vs. ITO (IT) 2(1), MUMBAI

The grounds of appeal read as under: 1. confirming the action of the learned AO in not allowing exemption u/s.54F amounting to Rs.62,73,840/- out of the total exemption of Rs.1,61,84,180/- claimed by the appellant allegedly on the ground that the residential property purchased by the appellant was registered in her son's name and hence the same does not qualify for claiming exemption u/s.54F. The Ld. CIT(A) has failed to appreciate that funds for the purchase of residential flat were completely utilized

Mrs. Meenakshi Satish Varma out of the sale consideration received by the appellant from the sale of capital asset. 2. confirming the disallowance of the sum of Rs.50,30,239/- out of the indexed cost of the capital asset disposed of. The Ld. CIT(A) has failed to appreciate that the said indexed cost of Rs.50,30,239/- was on account of the cost of furnishing the property sold by the appellant [actual costRs.28,75,559/-].

In this case, during the course of assessment the Assessing Officer noticed that the assessee had sold one flat bearing No.402, 9, JVPD, Andheri (W), Mumbai, for a consideration of Rs.3,56,40,000/- on 16/5/2010. The said property was purchased by the assessee in July, 2003 for a total sum of Rs.1,34,79,370/-. After claiming the index cost of acquisition the long term capital gain has been worked out to Rs.1,49,40,579/-. Further the assessee also claimed deduction u/s.54F of the I. T. Act, 1961 on the basis of purchase of two residential properties by making a total investment of Rs.1,61.84,180/- in the month of June, 2011. From the details submitted before the Assessing Officer it was found that Flat No.703, 7th Floor, C-Wing, Rustornjee Elanza Building, Maiad (W), Mumbai was bought for a total consideration of Rs.99,10,340/- including the stamp duty and registration charges. The said flat is registered in the name of the assessee herself.

It was further submitted that the new house was purchased in the name of son of the assessee and the entire investment in second property has been made out of the sale proceeds of the assessee. However, the Assessing Officer was not convinced. He referred to the provisions of section 54F of the Act. He found that the provisions of the Act are very specific and there is no any legal interpretation. He further observed that the assessee has not explained the nature of the money transaction to the son of the assessee, i.e., loan advance, gift, etc. That any money transaction in the eyes of law has to be specified in order to examine the taxability of such income under the provision of the Act both in the hands of the assessee and the son of the assessee. That by simply stating the second property has been purchased in the name of the son of the assessee to the sale proceeds of the assessee does not fall for exemption u/s. 54F of the Act. Hence, the Assessing Officer held that the claim of exemption u/s. 54F of the Act is not available to the assessee on investment made in Flat No. 704 as she has no legal owner of the assessee. That the assessee might have extended the money to her son out of love and affection towards her son and for other reasons, but she cannot claim ownership over the property and accordingly, exemptions or otherwise under Mrs. Meenakshi Satish Varma the various provisions of the Income-tax Act, 1961 for the simple reason that the second property was purchased out of the money given to her son. That in view of the afore-stated discussion, the claim of deduction u/s. 54F was rejected and accordingly, the sum of Rs.62,73,840/- was brought to tax under the head long term capital gains for the assessment year under consideration.

Further, the Assessing Officer observed that the assessee with respect to the property sold has included a sum of Rs.28,75,559/- as furniture cost and claimed indexed cost of acquisition. Despite several request, the assessee never produced any evidence for the said expenditure. Hence, as the assessee did not corroborate the claim of cost of furniture, the Assessing Officer disallowed the same.

Upon the assessee’s appeal, the ld. Commissioner of Income Tax (Appeals) considered the assessee’s submission regarding the claim of deduction on account of flats purchased in her own name. He decided the issue against the assessee as under:

Against the above order, the assessee is in appeal before us.

We have heard both the counsel and perused the records. The ld. Counsel of the assessee relied on the submissions made before the authorities below. He submitted that upon sale of the earlier flat, the assessee has purchased two adjacent flats one in the name of the assessee and one in the name of the son. This was done on account of expediency as the assessee and her son both resides abroad. Purchase in two names will allow proper supervision of the flat when one of the person come to India.

Per contra, the ld. Departmental Representative relied upon the orders of the authorities below. He submitted that there is a direct decision of Hon’ble Bombay High Court decision in the case of Prakash vs. Income Tax Officer & Ors, reported in (2009) 312 ITR 40 (Bom) in the same issue. Hence, he submitted that the Hon’ble High Court’s decision precedent over the decision of Hon’ble Delhi High Court decision in the case of CIT vs. Kamal Wahal (2013) 351 ITR 4 (Del) referred by the ld. Counsel of the assessee.

We have carefully considered the submissions and perused the records. We find that assessee in this case has purchased two flats, one is registered in her own name and another one is registered in the name of her son. Assessee wants exemption u/s. 54F on account of both the flats. The authorities below have not granted exemption on account of flat registered in the name of the son. Here we may gainfully refer to the provision of section 54F as under:

We find that section 54F does not provides for deduction for exemption for purchase of flats in name of other persons other than the assessee. The reasoning given by the authorities below are quite cogent, Moreover there is a direct decision of hon’ble Bombay High Court in the case of Prakash vs. CIT [2009] 312 ITR 40 (Bom) wherein a similar claim of exemption u/s. 54F of the Act was made on account of a new property purchased in adopted son's name. The same was held to be not allowable by the honourable jurisdictional High Court. In view of a direct decision of honourable jurisdictional High Court, in our considered opinion, the order of other High Court relied upon by the ld. Counsel of the assessee doesn't support the case of the assessee.

As regards the disallowance of cost of improvement and indexation thereof, we agree with the authorities below that without any evidence of the incurring of the Mrs. Meenakshi Satish Varma expenditure, no allowance and indexation thereof can be permitted. Hence, we affirm the order of authorities below on this issue also.