Addition of Son’s Name in New Residential Flat Wouldn’t Affect Claim of Sec. 54F Exemption | ITAT

Case Details: Abdul Nayab Shaikh vs. Income Tax Officer - [2024] 167 taxmann.com 381 (Mumbai - Trib.)

Judiciary and Counsel Details

• Anikesh Banerjee, Judicial Member & Gagan Goyal, Accountant Member
• Ajay Singh and Akshay Pawar for the Appellant.
• Manoj Kumar Sinha (SR. DR) for the Respondent.

Facts of the Case

The assessee owned a residential house in joint ownership with his wife. During the relevant assessment year, he sold this house and purchased three new residential flats, two in the name of his wife and son and one in the name of himself and his son. While furnishing the return of income, the assessee claimed exemption under section 54F on the capital gain originated from the sale of house property.

During the assessment proceedings, the Assessing Officer (AO) calculated the capital gain in the hands of the assessee and restricted the exemption under section 54F to the new flat purchased in the name of the assessee and his son. The AO did not consider the purchase of other flats on the ground that the assessee was not involved in the purchases of other flats.

On appeal, CIT(A) upheld the AO’s order, and the matter was brought before the Mumbai Tribunal.

ITAT Held

The Tribunal held that the original asset was in the assessee’s and his wife’s ownership. Both were the eligible owners of the original asset. In an ordinary sense, property is something that a person exclusively owns and something peculiar to a person. Property is ownership of something. Thus giving an exclusive and unrestricted right. In the case of Mc Alister v. Pritchard (1921) 287 Mo 494, dated 9-4-1921, the Supreme Court of Missouri, Division One, held that the term ‘property’ is believed to be extended to every category of valuable rights and interests. Thus, anything a person owns can be considered a person’s property.

In the instant case, the assessee and his wife were both beneficial owners of the property, and the income derived from the property will be taxed in the individual hands of both parties. By selling the original asset, both the assessee and his wife gained capital gain, and the income will be distributed in both hands but not in the assessee’s hand alone.
The AO took the view that the assessee’s wife had no ownership rights. As per the Transfer of Property Act, 1882, both the assessee and his wife had equal rights to ownership. So, the tax will be computed in specific hands.

Now, the question will come whether the exemption under section 54F will be applicable if the assessee has invested in new property with his son. If one looks at section 54F, the criteria should be fulfilled with the time limits for purchasing a new property; the assessee should invest through selling the original property, and the assessee should be the new property owner.

Considering the factual matrix, the assessee invested from the bank account where he received the sale consideration of the original asset. The assessee is also the owner of the new residential flat. So, adding the son’s name to the new residential flat purchased would not affect the claim of exemption under section 54F. The assessee will be eligible for indexation of the property and the deduction claim under section 54F. The assessee’s income should be restricted to the assessee’s income.

List of Cases Reviewed

• Mc Alister v. Pritchard (1921) 287 Mo 494, dated 9-4-2021;
• CIT v. Podar Cement (P.) Ltd. [1997] 92 Taxman 541/226 ITR 625 (SC);
• National Thermal Power Co. Ltd. v. CIT [1998] 97 Taxman 358/229 ITR 383 (SC);
• Nirmala L. Mehta v. A Balasubramaniam, CIT [2004] 139 Taxman 394/269 ITR 1 (Bom);
• Jitendra V Faria v. ITO [2017] 81 taxmann.com 16/164 ITD 443 (Mum);
• ITO v. Ch. Atchaiah [1996] 84 Taxman 630/218 ITR 239 (SC)
• DIT International Taxation v. Mrs. Jennifer Bhide [2011] 15 taxmann.com 82/203 Taxman 208/[2012] 349 ITR 80 (Kar.) (para 12) followed.

List of Cases Referred to

• Prakash v. ITO [2008] 173 Taxman 311/[2009] 312 ITR 40 (Bom) (para 7),
• ITO v. Ch. Atchaiah [1996] 84 Taxman 630/218 ITR 239 (SC) (para 7),
• Nirmala L. Mehta v. A Balasubramaniam, CIT [2004] 139 Taxman 394/269 ITR 1 (Bom) (para 8),
• Mc Alister v. Pritchard [1921] 287 Mo 494, dated 9-4-2021 (para 12),
• CIT v. Podar Cement (P.) Ltd. [1997] 92 Taxman 541/226 ITR 625 (SC) (para 12),
• National Thermal Power Co. Ltd. v. CIT [1998] 97 Taxman 358/229 ITR 383 (SC) (para 12),
• DIT International Taxation v. Mrs. Jennifer Bhide [2011] 15 taxmann.com 82/203 Taxman 208/[2012] 349 ITR 80 (Kar.) (para 12)
• Jitendra V. Faria v. ITO [2017] 81 taxmann.com 16/164 ITD 443 (Mum) (para 12).