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Facts
The assessee, working in the merchant navy, sold a property purchased in his wife's name and bought two new flats in his wife's name. He declared the capital gain and claimed exemption under section 54F of the Income-tax Act, 1961. The Assessing Officer rejected the claim, stating the property was not in the assessee's name and that purchasing two flats violated the 'one flat' provision. The CIT(A) upheld the assessment order.
Held
The Tribunal held that the purchase of new residential units in the name of the spouse does not disentitle the assessee from claiming exemption under section 54F, especially when the assessee is the beneficial owner and the investment was made by him. It was also held that the amendment restricting the exemption to 'one house' was applicable from AY 2015-16 onwards, not AY 2014-15, and the two flats purchased were adjacent and treated as a single unit.
Key Issues
Whether investment in new residential units in the name of spouse is eligible for deduction under section 54F, and whether purchasing two adjacent flats is a violation of section 54F provisions for AY 2014-15.
Sections Cited
54, 54F, 139(1), 143(3), 147, 148, 64(1)
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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI ANIKESH BANERJEE & MISS PADMAVATHY S.
Instant appeal of the assessee was filed against the order of the Learned National Faceless Appeal Centre (NFAC), Delhi [in short, Ld.CIT(A)],appeal order was passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2014-15, date of order14.03.2024. The impugned order was emanated from the order of the Learned Income Tax Officer, Ward-22(3)(5), Mumbai, order was passed under section 143(3) read with section 147 of the Act, date of order 06/11/2018.
“1. The learned Commissioner of lncome Tax {Appeals} erred in facts and in law in disallowing appellant’s claim of exemption u/s 54.
The learned Commissioner of lncome Tax {Appeals} erred in not applying the provisions of section 64(1) of the I.T. Act in their correct import and amplitude.
The learned Commissioner of lncome Tax {Appeals} erred in not "appreciating that the exemption under section 54 was clearly allowable on two counts namely the appellant being the beneficial owner of the residential house purchased and the house sold or alternatively if the income was to be computed in the hands of the wife for clubbing the income computed would be NIL after the claim of section 54 in her hands.
The learned Commissioner of lncome Tax erred in not appreciating that owing to the appellant’s nature of profession, he stayed outside India for most of his time and therefore the transactions in relation to immovable property were carried out in the spouse's name.
The learned Commissioner of lncome Tax (Appeals) erred in facts and in law in not appreciating that the two residential units were intended to be used as a single house and therefore were eligible to be treated as investment made in a residential house.
The learned Commissioner of lncome Tax erred in not appreciating that prior to amendment made to section 54 by the Finance Act 2014, investment made in more than one residential house was eligible for claim of exemption u/s 54. 7 The learned Commissioner of lncome Tax erred in disregarding various judicial precedents which upheld that investment in new property in the name of spouse could not be a reason for disallowance of exemption under section 54 of the Act.
The learned Commissioner of lncome Tax erred in not preferring purposive interpretation over literal interpretation more so even literal interpretation does not say that house, must be purchased in the name of assessee.
The appellant craves leave to add, alter or amend any of the grounds of the appeal, at any time before or at the time of hearing.”
Vivek Gangadhar Mehendale 3. The brief facts of the case are that the assessee, by profession, is a salaried person and is working in merchant navy. The assessee purchased a flat in the financial year 1991-92 on 14/06/1991 by investing amount to Rs.5,11,750/- in the name of his wife, Mrs. Pooja Mehendale. The assessee sold the property on dated 02/05/2013 and purchased two new flats bearing address, Flat No.501 & 502, Sandhya CHS Ltd, Ramnagar Colony, Bavdhan, Pune, in the name of his wife. During filing of the return, the assessee declared the capital gain by transfer of property in his own return of income filed under section 139(1) of the Act and claimed exemption under section 54F of the Act for purchasing the new flats by exploiting the sale consideration. The notice under section 148 of the Act was issued and assessment was framed under section 143(3) / 147 of the Act. As the assessee is not holding any property in his own name, so the claim U/s 54F of the Act was rejected by the ld. AO and entire capital gain amount to Rs.1,08,45,142/- was added back with the total income of the assessee. Further, the Ld.AO noted in the order that the assessee had purchased two flats whereby provisions of section 54F of the Act is contravened, as only one flat is eligible for deduction under section 54F of the Act. Being aggrieved on the assessment order, the assessee filed an appeal before the Ld.CIT(A). The Ld.CIT(A) passed appeal order by upholding the assessment order. Being aggrieved on the appeal order, the assessee filed an appeal before us.
The Ld.AR argued that the flat was purchased in the name of assessee’s wife and entire amount was invested by the assessee himself. The sale value was Rs.1,30,00,000/- and after deduction of the indexed cost of acquisition Rs.21,54,858/-, the assessee calculated long term capital gain U/s 54 of the Act read with section 64(1) of the Act. Further, the entire amount was invested for Vivek Gangadhar Mehendale purchase of two adjacent flats amount to Rs.1,25,53,262/- including stamp duty and registration and claimed benefit under section 54F of the Act. The Ld.AR further argued on the prevailing provisions of section 54F of the Act with the amendment of “one flat” is inserted from 01/04/2015 which is applicable for A.Y. 2015-2016. Before the amendment, purchasing more than one flat was not contravening the provisions of section 54F of the Act. The assessee invested Rs.1,25,00,000/- which is fully in the name of his wife, so the assessee is eligible for deduction. The Ld.AR respectfully relied on the order of the coordinate Bench of ITAT-Delhi in the case of Simran Bagga vs ACIT (2024) 158 taxmann.com 265 (Del Trib), where at paragraph 13 on page 4 of the order of the co-ordinate bench has held as under: - “13. Further, we find that the Hon'ble Jurisdictional Delhi High Court in the cases of CIT vs. Kamal Wahal [2013] 351 ITR 4 (Delhi) and C IT vs. Ravinder Kumar Arora [2012] 342 ITR 38 (Delhi), has held that new house purchased in the name of the spouse of the assessee was eligible for claiming deduction under section 54F. T he provisions of section 54 F are pari-materia with the provisions of section 54 of the Act and thus , the principle derived equally applies to section 54 as well. The Hon'ble Jurisdictional High Court has also held in the various judgments that 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/54 of the Act are the beneficial provisions which should be interpreted liberally in favour of the Simran Bagga exemption/deduction to the taxpayer and deduction should not be denied.”
He further relied on the order of Hon’ble High Court of Karnataka in the case of CIT vs D. Ananda Basappa (2009) 180 Taxman 4 (Karnataka); relevant paragraphs 6 to 8 on pages 14 are as below: - “6.The contention of the revenue is that the phrase “a” residential house would mean one residential house and it does not appear to the correct understanding. The contention “a” residential house should be understood in a sense that building should be residential in nature and “a” should not be understood to indicate a singular number. The combined reading of sections 54(1) and 54F of the Income-tax Act discloses that, a non-residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to section 54 of the Income-tax Act, lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gain tax, when he invests the capital gain in purchase of additional residential building. Hindu undivided family’s residential house is sold, the capital gain should be invested for the purchase of only one residential house in an incorrect proposition. After all, the Hindu undivided family property is held by the members as joint tenants. The members keeping in view the future needs in event of separation, purchase more than the residential building, it cannot be said that the benefit of exemption is denied under section 54(1) of the Income-tax Act.
On facts, it is shown by the assessee that the apartments are situated side by side. The builder has also stated that he has affected modification of the flats to make it as one unit by opening the door in between two apartments. The fact that at the time when the inspector inspected the premises, the flats were occupied by two different tenants is not the ground be hold that the apartment is not a one residential unit. The fact that the assessee could have purchased both the flats two premises in one single sale deed or could have narrated the purchase of purchase of two premises as one unit is not the ground to hold that the assessee had no intention to purchase the two flats as one unit.”
The Ld. DR vehemently argued and fully relied on the orders of the revenue authorities. The Ld. DR invited our attention in appeal order page 7, paragraph 3(b) which is extracted as below: - “3(b). Further, the assessee contends that the income of his wife, Mrs. Pooja Mehendale was clubbed in the ROI filed by him u/s. 64 of the IT Act, therefore, reinvestment made by him in the name of his wife is allowable as deduction u/s Vivek Gangadhar Mehendale 54 of the IT Act. The assessee's contentions are not acceptable. The assessee did not file any details evidencing the clubbing of income of his wife in his hands. Even otherwise, usually deduction towards capital gains is only eligible for the owner of the property who, after sale of the property shall reinvest the sale proceeds in his own name. However, the assessee relies on judicial pronouncements in the case of CIT Vs. V Natarajan (203CTR0037), DIT (International Taxation) Vs. Jennifer Bhide (Karnataka High Court). I have gone through the above case laws. The facts and circumstances of the above case laws are distinguishable with the facts of the present case. The provisions of section 54 in clear terms states that the reinvestments should be made by the assessee. For the sake of ready reference, the provisions of section 54 are reproduced hereby as under- 54 [1] "Subject to the provisions of sub-section(2), where, in the case of an assessee being an individual or Hindu Undivided Family, the capital gain arises from the transfer of a long term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "income from house property (hereafter in this section referred to as the original asset), and the assesses has within a period of one year before or two years after the date on which the transfer took place purchases), or has within a period of three years after that date (constructed one residential house in India), then), instead of the capital gain being charged to income tax as income of the previous year in which the transfer took place..
We heard the rival submissions and considered the documents available in the record. The two issues agitated by the assessee are – (i) The transaction of the flat related to sale and purchase was done in his wife’s name and assessee was not holding any property, so there is a gross violation of provisions of section 54F of the Act; and (ii) Contravention of section 54F relating to investment of capital gain in two flats not in single flat. The ld. AR stated that the assessee’s wife is dependent, and the spouse’s income is declared in the husband’s return filed under section 139(1) of the Act. The Vivek Gangadhar Mehendale assessee is the beneficial owner of the property. It is declared that the entire investment was made by the assessee himself to purchase the flat in his wife’s name. So, the income is duly declared in his own return of income.The section 54 must read with section 64 of the Act. The disputed issue whether the assessee can declare the income of capital gain of his wife in his return U/s 64 of the Act. For ready reference here quick look on the relevant part of the section 64 of the Act. “Income of individual to include income of spouse, minor child, etc. 64. [(1)] In computing the total income of any individual, there shall be included all such income as arises directly or indirectly— (iv) subject to the provisions of clause (i) of section 27[* * *] to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart;” In our considered view the section prevails that the inclusion of the dependent’s income U/s 64 of the Act is justified. In other issue the investment of new assets in the name of the wife is fully covered by the order of the co-ordinate bench of ITAT, Delhi Bench in the case of Simran Bagga (supra). We respectfully follow the order of Simran Bagga (supra). Further, related to investment in two flats, which contravened the provisions of section 54F of the Act, the said amendment of “one house” is implemented with effect from 01/04/2015, so the relevant section 54F is not application for the A.Y. 2014-15. The Ld.AR placed purchase deeds of two flats, wherefrom it is clear that both the flats are adjacent flats and not in the open sky. So, both the units are taken as a single unit which is not contrary to section 54F of the Act. We Vivek Gangadhar Mehendale respectfully relied on the order of the Hon’ble High Court of Karnataka in D. Ananda Basappa (supra). We find that the assessee is eligible for deduction under section 54F of the Act for purchasing two new flats in the name of his wife. We note that the sale and purchase of the flats are executed in the name of assessee’s wife.But the ld. DR has not pointed out any contrary decision against the proposition laid down above. We find no justification in rejection of claim U/s 54F of the Act. We set aside the appeal order and the impugned addition amount to Rs.1,08,45,142/- is deleted.
In the result, the appeal of the assessee bearing is allowed. Order pronounced in the open court on 07th day of October 2024. Sd/- sd/- (MISS. PADMAVATHY S.) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, दिन ांक/Dated: 07/10/2024 Pavanan