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Facts
The appellant claimed a deduction under Section 54 for the purchase of a new residential house, registered in his wife's name. The Assessing Officer denied this deduction, treating the long-term capital gain as taxable income. The CIT(A) upheld the Assessing Officer's decision, relying on a Bombay High Court judgment.
Held
The Tribunal held that the deduction under Section 54 should be allowed even if the new residential property is purchased in the name of the assessee's wife, provided the entire sale consideration is paid by the assessee and there is a reasonable explanation for the purchase being in the wife's name. The Tribunal relied on various High Court and Tribunal decisions, including a Delhi High Court judgment in similar circumstances.
Key Issues
Whether the deduction under Section 54 of the Income Tax Act can be claimed when the new residential property is purchased in the name of the assessee's wife.
Sections Cited
Section 54, Section 54F, Section 143(3)
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Income Tax Appellate Tribunal, G BENCH, MUMBAI
(Assessment Year: 2016-17) wife, the deduction was not allowable. He reduced the deduction and computed the capital gains accordingly.
On appeal, the CIT (Appeal) accepted the assessee's contention based on the judgment of the Madras High Court in CIT v. V. Natarajan [2006] 287 ITR 271/154 Taxman 399 and that of the Andhra Pradesh High Court in Mir Gulam Ali Khan v. CIT [1987] 165 ITR 228/[1986] 28 Taxman 572.
The revenue preferred an appeal before the Tribunal questioning the decision of the CIT(Appeals). The Tribunal, however, by the impugned order, agreed with the decision of the CIT (Appeals) and in doing so followed the judgment of the Madras and Andhra Pradesh High Courts cited supra and also another judgment of the Karnataka High Court in DIT, International Taxation v. Mrs. Jennifer Bhide [2011] 203 Taxman 208/15 taxmann.com 82. It also noted the judgment of the Bombay High Court in Prakash v. ITO [2008] 173 Taxman 311 in which a contrary view was taken but preferred the view taken by the Madras and Karnataka High Courts adopting the rule laid down by the Supreme Court in CIT v. Vegetable Products Ltd [1973] 88 ITR 192 which says that if a statutory provision is capable of more than one view, then the view which favours the tax payer should be preferred. The Tribunal also observed that Section 54F being a beneficial provision enacted for encouraging investment in residential houses should be liberally interpreted.
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 v. Ravinder Kumar Arora [2012] 342 ITR 38/[2011] 203 Taxman 289/15 taxmann.com 307. 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 (Assessment Year: 2016-17) 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 v. Gurnam Singh [2010] 327 ITR 278/[2008] 170 Taxman 160 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.”(Emphasis Supplied)
On perusal of above, it is clear that the Hon’ble Delhi High Court has 10. taken note of the judgments of various High Courts including the judgment of Hon’ble Bombay High Court on which reliance was placed by the Revenue while concluding that the predominant judicial view was that for the purpose of Section 54F of the Act (pari materia with Section 54 of the Act) was that deduction under Section 54F of the Act is to be allowed in case of purchase of new residential house property purchased by an assessee in the name of his wife. The Hon’ble Delhi High Court noted that in that case there was no dispute that entire consideration for the purchase of new residential house (Assessment Year: 2016-17) property came from proceeds arising from sale of immovable property and there was no contribution from the wife. The facts and circumstances of the present case are identical to the facts and circumstances of the case before the Hon’ble Delhi High Court. In the present case also, there was no dispute that the entire consideration for the purchase of new residential house property was sourced from aggregate sale consideration received by the Appellant from the sale of two residential properties owned by the Appellant. The Appellant has also been able to provide a reasonable explanation for purchase of new residential house property in the name of his wife. In view of the aforesaid, given the facts and circumstances of the present case and the above judgment of Hon’ble Delhi High Court, we hold that the Appellant is entitled to claim deduction under Section 54 of the Act in respect of the new residential house property purchased in the name of his wife. The addition of INR 1,35,14,034/- as LTCG in the hands of the Appellant is, therefore, deleted. Ground No. 1 raised by the Appellant is allowed while all the other grounds are dismissed as being infructuous.
In result, the present appeal preferred by the Assessee is allowed. 11.
Order pronounced on 01.03.2024.