ITAT grants Rs. 1.3 crore exemption under Section 54 to Smt. Tejal Kaushal Shah on sale of two houses used to purchase joint property, overruling AO’s objections.
CA Pratibha Goyal | May 14, 2025 |
ITAT Allows 1.3 Cr Capital Gain Exemption u/s 54 on Sale of 2 Houses to Buy Joint Property: Read to Know More
Smt. Tejal Kaushal Shah, an individual, filed her return of income for AY 2012–13, declaring total income of Rs. 5,46,104. Her case was scrutinised under Sections 143(2) and 142(1) of the Income Tax Act, 1961.
Assessing Officer Disallowed exemption under Section 54 of Rs. 1,30,30,729 for capital gains arising from the sale of residential property.
The ld. AO rejected the claim of exemption u/s. 54 of the Act amounting to Rs. 1,30,30,729 in the assessee’s case for the reason that the exemption u/s. 54 has been claimed both by the assessee and her husband separately for contributing to the purchase of a new residential house, and further, the ld. AO held that the new property has been purchased by transferring two residential houses, which violates the condition of Section 54 of the Act. Further, the ld. AO has stated that the assessee’s husband’s name is mentioned as the ‘First Owner’ in the purchase agreement of the old property which was sold by the assessee in which the assessee’s name is mentioned only as the ‘Second Owner’ for which the assessee contends to be an error crept in the registered agreement. The ld. AO further held that the assessee has failed to furnish documentary evidence such as ba ank statement,t to show that the payment for purchase of old property was made by the assessee and not her husband and has also failed to furnish copy of purchase and sale agreement of the old property to establish the mode of payment.
Further, the ld. AO also made an addition of Rs. 10,43,158 on the annual let out value of the office premises located at Juhu lane u/s. 23(1) of the Act after considering the fair rental value of office located in the neighborhood as available in the website www.magicbricks.com.
These additions were upheld by the first appellate authority.
Section 54 Claim:
The assessee sold the residential house and invested Rs. 1,76,00,000 in a new house purchased jointly with her husband.
Claimed LTCG exemption under Section 54 for Rs. 1,30,30,729.
Argued that joint ownership or co-investment does not bar Section 54 benefit.
“The ld. AR stated that the conditions of Section 54 was fulfilled and only the amended provision of Section 54 specifies ‘purchased’ or constructed ‘One’ residential house in ‘India’ instead of ‘a residential house’ which was only w.e.f. 01.04.2015. The ld. AR relied on a catena of decisions and prayed that the assessee’s claim of deduction u/s. 54 of the Act was to be allowed.”
Section 23 Addition:
Section 54 Claim:
Section 23 Addition:
9. On a perusal of the above provision, it is observed that the capital gain which arises from the transfer of a long term capital asset being buildings or lands appurtenant thereto and the same being a residential house where the assessee has within a period of one year before or two years after the transfer purchased or within a period of 3 years after the date of transfer constructed a residential house is entitled to claim deduction under this provision. Upon considering the same, we do not find any embargo for the assessee to claim deduction under this provision either as a co-owner, or on sale of one or two residential properties or on purchase of a residential property as a co-owner. We do not find any express bar for the assessee to claim the said deduction on a property which has been jointly purchased by the assessee. Further, the ld. AO’s contention that the old property was purchased jointly by the assessee’s husband and the assessee is to be taken into view only to find out if the assessee’s husband has also claimed deduction u/s. 54 of the Act pertaining to the sale of this property and purchase of the new residential house. If as per the contention, the old property belongs to the assessee and the sale consideration received out of the transfer was invested by the assessee in the new property, the assessee is entitled to claim deduction u/s. 54 to the extent of her investment in the new residential property. The ld. AO has also not brought on record any fact to show that the assessee has sold more than one property and merely because the assessee’s husband has transferred his other property, which detail is not before us, it cannot be said that the assessee has transferred two properties. Even otherwise, assuming that the old property which was sold belonged to the assessee’s husband then the assessee’s husband was entitled to claim the entire benefit u/s. 54, though the property was purchased jointly. In the present case in hand, it is not the case of the revenue that both the assessee and her husband has claimed benefit u/s. 54 twice for the entire sale consideration but it is a case where they have claimed proportionately to the extent of investment made by either of them in the purchase of the new property. Pertinently, courts have taken a liberal view with regard to the claim of Section 54 and Section 54F which are beneficial provisions that are to be interpreted liberally in favour of the assessee and deduction should not be merely denied on hyper-technical ground. We would like to place our reliance on the decision of Delhi High Court in the case of Commissioner of Income-tax vs. Ravinder Kumar Arora [2011] 15 taxmann.com 307 (Delhi)/[2011] 203 Taxman 289 (Delhi)/[2012] 342 ITR 38 (Delhi)/[2012] 252 CTR 392 (Delhi)[27-09-2011], where the relevant extract of the said decision is cited herein under for the ease of reference:
“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 v. Podar Cement (P.) Ltd. [1997] 92 Taxman 541 / 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 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 Mir Gulam Ali Khan v. CIT [1987] 165 ITR 228 /[1986] 28 Taxman 572 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 v. Natarajan [2006] 287 ITR 271/ 154 Taxman 399 (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 v. Gurnam Singh [2010] 327 ITR 278/[2008] 170 Taxman 160 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.”
10. From the above, it is evident that benefit u/s. 54 cannot be denied merely because the property was purchased jointly in the name of the assessee and her husband, where in case of property held jointly the capital gain shall be calculated for each owner in accordance with the funding and allocation of shares of the house properties for claiming tax benefits. We find justification in allowing ground no. A with the direction that the ld. AO shall verify that there has been no double deduction claimed by the assessee and her husband on the capital gain arising out of the sale of property claimed by the assessee and to allow deduction u/s. 54 to the extent of the investment made by the assessee on the purchase of the new property. Ground no. A(1) is hereby allowed.
11. Ground No. B(2) pertains to the addition of Rs. 10,43,158/- u/s. 23 of the Act being the deemed rental income of the office premises at Masjid Bunder which the assessee alleged to be owned by the assessee and her husband jointly at 90.90% and 9.10% share respectively and the same was used as office premises for business purpose by the assessee. Without prejudice the assessee claims that the deemed rental value has to be determined based on the municipal ratable value. The ld. AO during the assessment proceeding observed that the assessee has not offered any income under the head ‘income from house property’ out of the three properties owned by her, as per the deeming provision of Section 23 of the Act. The assessee submitted that the flat at Waterford was self-occupied and the flat at Juhu Lane was let out and vacant during the year under consideration and the same was covered u/s. 23(1)(c) of the Act. The assessee further submitted that the office at Masjid Bunder was occupied by her and her husband for their business purpose and the same cannot be deemed to be let out. The ld. AO rejected the assessee’s contention on the ground that the assessee has not shown any business income except commission income under the head ‘other sources’ and has failed to furnish documentary evidences such as electricity bill and other bills related to office expense in support of her contentions. The ld. AO also held that the assessee has showed only a single receipt of commission income of Rs. 1,10,999/- for the whole year under consideration and even otherwise if the property has been occupied by the husband for office premises, the assessee should have offered annual let out value as per the deeming provision. The ld. AO computed the ALV at Rs. 10,43,158/- after taking the annual value at Rs. 14,90,227/- less 30% based on the rate available at www.magicbricks.com on similar office premises located in the neighborhood.
The ld. CIT(A) upheld the addition made by the ld. AO.
12. The assessee is in appeal before us, challenging the impugned addition.
13. The ld. AR for the assessee contended that merely because the assessee has earned a meager income as commission income does not entitle the ld. AO to come to a conclusion that the office premises is not used as business premises. The ld. AR further stated that the ld. AO has erroneously considered a different location for determining the ALV and has also not taken into consideration the judicial precedents which has held that only the municipal rentable value should be considered for determining the ALV of the property. The ld. AR relied on the following decisions:
a. CIT v. Tip Top Typography [2014] 368 ITR 330 (Bom)
b. CIT v. Moni Kumar Subha [2011] 333 ITR 38 (Del.)(FC)
c. Smt. Kokilaben D. Ambani v. CIT [2010] 323 ITR 104 (Bom.)
14. The ld. DR on the other hand controverted the said fact and stated that the assessee has failed to furnish any documentary evidences to establish the fact that the said property was used by the assessee and her husband for their business purposes. The ld. DR relied on the order of the lower authorities.
15. After considering the rival submissions, it is observed that the assessee has failed to furnish documentary evidences to demonstrate the fact that the said property was used by the assessee and her husband for their business purposes. We are also conscious of the fact that there are various judicial precedents which has held that the ALV of a property has to be determined based upon the municipal rentable value which in the present case has not been considered by the ld. AO. We therefore deem it fit to remand this issued to the ld. AO to the limited extent of determining the ALV of the said property as per the municipal rentable value to the extent of the holding of the assessee in the said property as per the judicial decision relied upon by the ld. AR. Ground no. B(2) is partly allowed as per the above terms.
16. Therefore, Ground No. A(1) is allowed and Ground No. B(2) is partly allowed.
17. In the result, the appeal filed by the assessee is partly allowed.
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