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New asset purchased in another person’s name or in joint name-whether exemption u/s 54 & 54F available?

March 17, 2017[2017] 78 taxmann.com 145 (Article)
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Query

The querist has sold a plot which was in his name. The sale consideration was Rs. 80 Lacs. He invested entire sale consideration in a residential house which was purchased within two years of sale of plot. All the other conditions of section 54F were satisfied. However the new residential house was purchased in the name of his wife. The ITO did not allow the exemption u/s. 54F on the ground that the new house was not purchased in the name of the assessee himself. Is he correct?

Solution and Analysis

According to section 54F an individual or HUF can claim exemption of any long term capital asset other than a residential house on investing net sale consideration in a residential house within two years in case of purchase and within three years in case of construction. The assessee must not have more than one residential house other than the new one. In the given query the querist has mentioned that he has invested the entire sale consideration in a residential house within two years of sale of plot and has fulfilled all other conditions of section 54F.

But since the new house was purchased in the name of wife the assessing officer has denied the benefit of section 54F saying that the investment in new house should be in the name of the assessee himself. Now the query is that whether the assessing officer is correct in his contention?

In this regard it can be said that section 54F does not throw any light on it. It only laid down the time limit within which the new house is to be purchased or constructed along with other conditions in order to claim exemption u/s. 54F. Therefore to be able to answer this query reference is to be made to judicial pronouncements in this regard.

In a recent case of CIT v. Kamal Wahal [2013] 351 ITR 4/214 Taxman 287/30 taxmann.com 34 (Delhi) the honorable Delhi High Court ruled in assessee's favor. The honorable Court relied upon its own judgment in the case of CIT v. Ravinder Kumar Arora [2012] 342 ITR 38/[2011] 203 Taxman 289/15 taxmann.com 307 (Delhi) in which it was laid down that "where the entire purchase consideration was paid only by the assessee and not a single penny was contributed by any other person, preferring a purposive construction against a literal construction, more so when even applying the literal construction, there is nothing in section 54F to show that the house should be purchased in the name of the assessee only. Section 54F in terms does not 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"

The Court also laid down that there is a predominant judicial view that there is nothing in section 54F to show that the new house must have been purchased in the name of assessee himself. Moreover in this case the assessee has not made investment in the name of a stranger; rather he has purchased the same 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. Therefore the substantial question of law was answered in assessee's favor.

In the case of Ravinder Kumar Arora (supra) relied upon by the honorable Delhi Court in the aforesaid case, while examining the issue whether exemption u/s. 54F is available to an assessee who has purchased a new house in joint name with his wife, the honorable Delhi High Court laid down that: "Plain reading of section 54F indicates that in order to get benefit of this section, the assessee should, inter alia, 'purchase' a house. As per the revenue, this house has to be purchased in the name of the assessee only and benefit is not given if it is purchased by the assessee jointly with his wife.

It was the assessee who independently invested in the purchase of new residential house though in his own name but along with the name of his wife also and that it was the assessee who paid stamp duty and corporation tax at the time of the registration of the sale deed of the house so purchased and has also paid commission and legal expenses in connection with the purchase of the house. The Tribunal further records that whole of the purchase consideration has been paid by the assessee and not even a single penny has been contributed by the wife in the purchase of the house. The Tribunal also noted the argument that the property was purchased by the assessee in the joint name with his wife for 'shagun' purpose and because of the fact that the assessee was physically handicapped. The Tribunal further concludes that as a matter of fact, the assessee was the real owner of the residential house in question.

On the aforesaid facts, the conditions stipulated in section 54F stand fulfilled. It would be treated as the property purchased by the assessee in his name and merely because he has included the name of his wife and the property was purchased in the joint names would not make any difference. If the view of the Assessing Officer (AO) or the contention of the revenue is accepted, it would be a derogatory step.

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 is the beneficial provision which should be interpreted liberally in favour of the exemption/deduction to the tax-payer and deduction should not be denied on hyper-technical ground."

Another significant ruling in favor of assessee can be found in the case of DIT (International Taxation) v. Mrs. Jennifer Bhide [2012] 349 ITR 80/[2011] 203 Taxman 208/15 taxmann.com 82 (Kar.) by Karnataka High Court. In this case the honorable High Court examined whether investment made in joint name with her husband would entitle the assessee to claim exemption u/s. 54 and 54EC, the High Court ruled in favor of assessee stating that "Once the sale consideration is utilized for the purpose mentioned under sections 54 and 54EC, the assessee is entitled to the benefit of those provision. As the entire consideration has flown from the assessee and no consideration has flown from her husband, merely because either in the sale deed or in the bond her husband's name is also mentioned, in law he would not have any right. In that view of the matter, the assessee cannot be denied the benefit of deduction of the aforesaid amount. The Tribunal, on proper appreciation of the material on record, has rightly allowed the appeal and set aside the order passed by the assessing authority as well as the Appellate Commissioner."

However not all judgments are in favor of the assessee. In the case of Prakash v. ITO, Ward 1(5), the honorable Mumbai High Court ruled in favor of revenue. The issue in that case was whether for qualifying exemption u/s. 54F investment has to be in the name of assessee himself, the Court observed that no benefit is available to any other person u/s. 54F whose provisions are to be interpreted strictly. The assessee purchased new house in the name of his adopted son therefore no benefit accrues to him u/s. 54F.

Therefore the above ruling though relates to house purchased in the name of adopted son and not in the name of wife either jointly or singly, is significant for the purpose of determination of this query.

In an another judgment of ITAT, Hyderabad in the case of Girish Dharod v. Asstt. CIT [2014] 61 SOT 99/[2013] 40 taxmann.com 282 Hyderabad, the honorable ITAT clearly observed that in many cases the Courts have adopted a liberal construction to extend the benefit of section 54 and 54F to cases where investments have been made in the name of wife while statutory provision as such does not include assessee's wife or assessee's minor children. But the same cannot be stretched beyond a reasonable point so as to cover other blood relations.

Conclusion

From what we have seen above, it can be said that while there are a few judgments in favor of assessee even if investment is made in the name of wife, one cannot conclude that the issue is finally settled in favor of assessee since there are conflicting judgments also like that of Bombay High Court in Prakash's case (supra). There is no ruling of Supreme Court in this regard; therefore the querist will be better advised to make investment in his name only in order to buy peace and to avoid any lengthy litigation.

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