Sec 54 Deduction should not be denied merely because name of spouse is mentioned in purchase document when consideration has flown from Taxpayer

The Income Tax Appellate Tribunal (ITAT Bangalore) in the matter of Y. Manjula Reddy Vs. ITO ruled out that Sec 54 Deduction should not be denied merely because name of spouse is mentioned in purchase document when consideration has flown from Taxpayer.

The appeal of the assessee relates to partial rejection of deduction claimed u/s 54F of the Income-tax Act, 1961.

The assessee is an individual and she filed her return of income for the year under consideration on 29.9.2008 declaring a total income of Rs.9,06,860/-. The assessee had earned long term capital gain of Rs.1,56,85,225/- on sale of a land and claimed exemption u/s 54F of the Act from it to the extent of Rs.1,56,33,870/-. Accordingly, the assessee offered net long term capital gain of Rs.51,355/-.

The Coram found out that, “The agreement for the purchase of property was first entered by the assessee’s husband in 2004. However the sale agreement for transfer of plot was registered only on 24.2.2007 and it was registered in the name of the assessee and her husband.Accordingly, the AO/Ld CIT(A) has taken the view that the assessee was already entitled to 50% of the right in the property.

In this Case, the assessee’s husband had advanced money initially. Subsequently, the admitted fact is that the assessee has reimbursed the money to her husband and finally, it is the assessee who has actually given funds for the acquisition of the property.

The deduction u/s 54F of the Act only induces an assessee to make investment in residential house property. If the assessee has herein has given money for acquisition of the property either directly to the builder or as reimbursement to her husband, then the assessee should be given benefit of deduction u/s 54F of the Act for the cost of acquisition.

The assessee claimed the cost of acquisition to be Rs.1,72,29,993/-. During the remand proceedings, the assessee herself has agreed for reduction of cost of acquisition by Rs.16,97,098/-, since she could not prove the incurring of expenses to that extent. Hence the cost of acquisition as per the assessee now stands at Rs.1,55,32,895/-. There is no dispute that the assessee has invested the money to the above said extent in acquisition of the property.”

The Appellate Authority rule out that, “the amount spent after the date of registration of land, i.e., 24.02.2007 for interiors, renovation, furnishing etc cannot be part of acquisition. The Hon’ble Karnataka High Court has held in the case of Mrs. Rahana Siraj (2015)(58 taxmann.com 333)(Kar) that the money spent in additions, alterations, modifications and improvements on the new asset to make it habitable would be eligible for benefit of deduction u/s 54F of the Act. Accordingly, we set aside the view so taken by Ld CIT(A) as it is contradictory to the binding decision of jurisdictional High Court. Accordingly, we hold that the assessee is eligible for deduction u/s 54F of the Act in the amount spent on interiors, renovation, furnishing etc.”

The Judgment was made by N.V. Vasudevan and B.R. Baskaran.

The Petitioner was represented by Shri Padam Chand Khincha and Respondent was represented by Shri Sankar Ganesh K.

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