The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that exemption under section 54 of the Income-tax (I-T) Act for purchase of a new property, cannot be restricted to 50% merely because the new residential property is purchased jointly with the spouse.
The ITAT held that the relevant consideration for determining the exemption is the investment actually made by the taxpayer in the new residential property, and that joint ownership by itself does not justify mechanically attributing 50% of the investment to each co-owner.
Bhatt (first name withheld) – the taxpayer had filed his return for the financial year 2010-11 declaring taxable income of Rs 1. 3 lakh. The assessment was subsequently reopened and his claim of exemption under section 54 of Rs 72 lakh for investing long-term capital gains arising on sale of a house in another new flat was not allowed.
He had purchased the new flat in a housing society in Santacruz for a sum of Rs. 1.3 crore, in a joint name with his wife. Bhatt claimed that the entire consideration for the new property had been borne by him. He submitted that the sale consideration of Rs 1.27 crore from the old residential property had been utilised towards acquisition of the new flat and that the balance consideration was also paid by him. He contended that his wife’s name had been included in the purchase agreement for convenience and that she had not contributed towards the acquisition.
The I-T officer, however, treated only 50% of the purchase consideration as Bhatt’s investment on the ground that the property was jointly held. Accordingly, he restricted the section 54 exemption to Rs 68.50 lakh, being 50% of the Rs 1.37 crore purchase consideration. This readjustment resulted in a taxable long-term capital gain of Rs 4.3 lakh. The Commissioner (Appeals) upheld this course of action.
Before the ITAT, relying on judicial precedents, Bhatt argued that section 54 did not require the new residential property to be purchased exclusively in his name. What was relevant, he submitted, was the investment actually made by him.
The ITAT agreed. The tax tribunal held that section 54 does not mandate that the new residential property must stand exclusively in the taxpayer’s name. Nor does it prescribe that the exemption must necessarily be restricted proportionately merely because the spouse’s name is also included in the purchase document. According to the ITAT, what assumes significance for determining the quantum of exemption is the investment made by a taxpayer in the eligible new asset.
Significantly, the ITAT observed that the I-T officer had not recorded any finding that the taxpayer’s wife had actually contributed 50% of the purchase consideration. The 50% restriction was essentially based on the fact that both names appeared in the purchase document.
The tax tribunal said the question before it was not whether Bhatt could deny or extinguish his wife’s civil ownership rights under the registered purchase document. The issue was the quantum of investment made by him that qualified for exemption under section 54.
Source from: https://timesofindia.indiatimes.com/articleshowprint/133464787.cms
