Investment in the name of Wife and Daughter not eligble for capital gain exemption: ITAT Mumbai

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Investment in the name of Wife and Daughter not eligble for capital gain exemption: ITAT Mumbai

For capital gain exemption, investment has to be there in the name of the assessee only and not anyother person. ITAT Mumbai in the case of HEM CHANDRA R. GAVANKAR vs. INCOME TAX OFFICER [ITA No. 7451/Mum/2017] has held as under:

“7. I have considered rival submissions and perused the material on record. The core issue arising for consideration before me is, whether the assessee is eligible to claim deduction under section 54 of the Act in respect of investment made in a house property/flat purchased in the name of wife and adult daughter? A reading of Section 54 sub-section (1) of the Act makes it clear that the capital gain derived by the assessee from sale of the original asset if invested by him in purchase of a new asset within the stipulated period would be eligible for deduction under the said provision. In the present case there is no dispute with regard to the source of investment in the new house property. It is also a fact on record that the original asset sold by the assessee giving rise to the capital gain was owned by him with his wife. The AO has also taken note of the aforesaid fact and assessed 50% of the long term capital gain at the hands of the assessee. Insofar as the claim of deduction under section 54 of the Act is concerned, the assessee, though, has admitted that the property was purchased in the name of his wife and daughter, however, he has submitted that the provisions contained under section 54 being a beneficial provision it should be construed liberally and benefit under the section should be allowed to the assessee. Further, the assessee submitted, interpretation of Section 54 and 54F no way suggest that the new house property, wherein, the assessee invested the capital gain has to be purchased in the name of the assessee. He submitted, the provision only requires the assessee to invest the capital gain in purchase of a new house property. Thus, he has submitted, if the assessee can demonstrate that the investment in purchase of a new property, even though in the name of wife, was made by the assessee from the capital gain, conditions of section 54 will be fulfilled. In support of his contention though the assessee has relied upon certain judicial precedents, however, relevant citations have not been provided in the written submission. Be that as it may, while considering more or less identical issue relating to the claim of deduction under section 54F of the Act, the Hon’ble Bombay High Court in the case of Prakash (supra), had an occasion to interpret the provisions of Section 54/54F of the Act. The Hon’ble High Court held that for claiming deduction under the aforesaid provisions the new house property must be owned by the assessee and/or having legal title over the same. Therefore, as per the ratio laid down in the aforesaid decision of the Hon’ble Jurisdictional High Court if the new house property in respect of which the assessee has claimed deduction under section 54/54F of the Act is not purchased in the name of the assessee, no deduction under the said provisions can be claimed. Though, I must observe, there are judicial precedents holding contrary view including the decision of the Hon’ble Delhi High Court in the case of ITO vs. Kamal Waha 351 ITR 4. However, since I am bound by the decision of the Hon’ble Jurisdictional High Court rendered in the case of Praksh (supra), following the ratio laid down therein I hold that since the purchase of new property/flat is in the name of assessee’s wife and adult daughter and not in assessee’s own name, the assessee is not eligible to claim deduction under section 54 of the Act”.

In short, ITAT, Mumbai after considering the case of ITO vs. Kamal Waha 351 ITR 4 has very consciously held that the exemption u/s 54 is not available if the investment is not done in the name of the Assessee.

The copy of the order is as under:

EM CHANDRA R. GAVANKAR vs. INCOME TAX OFFICER

IN THE ITAT MUMBAI BENCH ‘SMC’

SAKTIJIT DEY, JM.

ITA No. 7451/Mum/2017

Nov 30, 2018

(2018) 54 CCH 0501 MumTrib

(2019) 173 DTR 0001 (Mumbai)(Trib), (2019) 197 TTJ 0186 (Mumbai)

Legislation Referred to

Section 54, 54F

Case pertains to

Asst. Year 2006-07

Decision in favour of:

Revenue

Capital Gains—Profit on sale of property used for residence—Assessee failed to file return of income for relevant AY witin due date as prescribed u/s 139(1)—Thereafter, AO received an AIR information revealing that assessee sold an immovable property during relevant PY but had not offered any capital gain and thus, AO sought to reopen assessee’s cases u/s 147—During re-assessment proceedings, AO allowed benefit towards purchase cost of property—Assessee being 50% owner of alleged property, AO made addition @50% of net LTCG to assessee’s income—CIT(A) found that AO had wrongly allowed benefit of cost of acquisition by relying upon DVO report—It was also held that for claiming benefit u/s 54, assessee must invest capital gain/sale consideration in purchase of house property in its own name—For availing benefit us 54, assessee must be owner of property and/ or must be having legal title—Since, new house property/flat in respect of which assessee claimed deduction u/s 54 was purchased in name of assessee’s wife and adult daughter, CIT(A) denied assessee’s claim of deduction u/s 54—Held, s. 54(1) made it clear that capital gain derived by assessee from sale of original asset if invested by him in purchase of a new asset within stipulated period would be eligible for deduction under said provision—In present case, there was no dispute with regard to source of investment in new house property—It was also a fact on record that original asset sold by assessee giving rise to capital gain was owned by him with his wife—AO had also taken note of said fact and assessed 50% of LTCG at assessee’s hands—Insofar as claim of deduction u/s 54 was concerned, assessee, though, had admitted that property was purchased in name of his wife and daughter, however, he submitted that provisions contained u/s 54 being a beneficial provision it should be construed liberally and benefit under said section should be allowed to assessee—If new house property in respect of which assessee had claimed deduction under Ss. 54/54F was not purchased in assessee’s name, no deduction under said provisions could be claimed—Assessee’s appeal dismissed.

Held

Sec. 54(1) made it clear that capital gain derived by assessee from sale of original asset if invested by him in purchase of a new asset within stipulated period would be eligible for deduction under said provision. In present case, there was no dispute with regard to source of investment in new house property. It was also a fact on record that original asset sold by assessee giving rise to capital gain was owned by him with his wife. AO had also taken note of said fact and assessed 50% of LTCG at assessee’s hands. Insofar as claim of deduction u/s 54 was concerned, assessee, though, had admitted that property was purchased in name of his wife and daughter, however, he submitted that provisions contained u/s 54 being a beneficial provision it should be construed liberally and benefit under said section should be allowed to assessee. If new house property in respect of which assessee had claimed deduction under Ss. 54/54F was not purchased in assessee’s name, no deduction under said provisions could be claimed.

(Para 7)

 

Praksh vs. ITO, (2008) 312 ITR 40, followed.

Conclusion

If new house property in respect of which assessee has claimed deduction u/s 54/54F is not purchased in assessee’s name, no deduction under said provisions can be claimed.

In favour of

Revenue

Cases Referred to

ITO vs. Kamal Waha 351 ITR 4
Praksh vs. ITO (2008) 312 ITR 40

Counsel appeared:

None for the Petitioner.: S.K. Bepari for the Respondent.

SAKTIJIT DEY, JM.:

  1. This appeal filed by assessee is directed against the order of the Commissioner of Income Tax (Appeals)-33, Mumbai dated 18.07.2017 and it relates to A.Y. 2006-07.
  2. There is a delay of 80 days in filing the present appeal. After considering the reasons for delay as explained by the assessee in the delay condonation petition and the affidavit accompanying it, I am satisfied that the delay in filing of the appeal is due to sufficient cause. Accordingly, I condone the delay and hear the appeal for adjudication on merit.
  3. The dispute in the present appeal is confined to denial of deduction claimed under section 54 of the Income Tax Act, 1961 (hereinafter “the Act”).
  4. Brief facts of the case are that the assessee, an individual, initially did not file his return of income for the impugned assessment year within the due date as prescribed under section 139(1) of the Act. Subsequently, on the basis of AIR information that the assessee has sold an immovable property during the relevant previous year but has not offered any capital gain, the Assessing Officer (AO) reopened the assessment under section 147 of the Act. During the assessment proceedings the AO on the basis of information available on record and submission made by the assessee having found that the assessee in the relevant previous year has sold a flat for a consideration of Rs.38,40,480/- proceeded to compute the long term capital gain. After allowing the benefit towards purchase cost of the property and indexation the AO quantified the net long term capital gain at Rs.35,07,490/-. The assessee being 50% owner of the property sold, the AO added an amount of Rs.17,53,750/- at the hands of the assessee being 50% of the net long term capital gain. Being aggrieved by the aforesaid decision of the AO, the assessee preferred appeal before the learned CIT(A). In the course of hearing of the appeal before the First Appellate Authority the assessee made two fold submissions. Firstly, it was submitted that the AO has wrongly allowed benefit of cost of acquisition at Rs.67,000/- by relying upon the DVO report whereas the cost of acquisition as per the valuation report of the Registered Valuer should be allowed at Rs.3,85,000/-. The second submission made by the assessee was that since the capital gain derived by the assessee was invested in purchase of new flat/residential house the benefit under section 54 of the Act should be allowed. As regards the first contention of the assessee, the learned CIT(A), after examining the claim of the assessee in the context of facts and material on record, accepted that the cost of acquisition of the original asset should be adopted at Rs.3,85,000/- as per the valuation report of the Registered Valuer. As regards the claim of deduction under section 54 of the Act, the learned CIT(A) after referring to the provisions of Section 54 of the Act was of the view that for claiming benefit under the said provision the assessee must invest the capital gain/sale consideration in purchase of house property in its own name. In other words, for availing benefit under the aforesaid provision the assessee must be the owner of the property and/ or must be having legal title over the of the new legal owner of the new house property. For coming to such conclusion the learned CIT(A) primarily relied upon the decision of the Hon’ble Bombay High Court in the case of Praksh vs. ITO (2008) 312 ITR 40. Since, the new house property/flat in respect of which the assessee claimed deduction under section 54 of the Act was purchased in the name of assessee’s wife and adult daughter, the learned CIT(A) denied assessee’s claim of deduction under section 54 of the Act. While doing so, the learned CIT(A) observed that the assessee had not claimed deduction under section 54 either in the return of income filed for the impugned assessment year or in the course of assessment proceedings. Being aggrieved by the aforesaid decision of the learned CIT(A) the assessee is before the Tribunal.
  5. Pertinently, instead of engaging a counsel or appearing in person for representing his case, the assessee has chosen to file a written submission by letter dated 10.04.2018 and has requested disposal of his appeal on the basis of the written submissions.
  6. The learned Departmental Representative (D.R.) relying upon the observations of the learned CIT(A) as well as the decision of the Hon’ble Bombay High Court in the case of Prakash (supra) submitted, the assessee having invested the capital gain in a house property purchased in the name of his wife and adult daughter, is not eligible for deduction under section 54 of the Act.
  7. I have considered rival submissions and perused the material on record. The core issue arising for consideration before me is, whether the assessee is eligible to claim deduction under section 54 of the Act in respect of investment made in a house property/flat purchased in the name of wife and adult daughter? A reading of Section 54 sub-section (1) of the Act makes it clear that the capital gain derived by the assessee from sale of the original asset if invested by him in purchase of a new asset within the stipulated period would be eligible for deduction under the said provision. In the present case there is no dispute with regard to the source of investment in the new house property. It is also a fact on record that the original asset sold by the assessee giving rise to the capital gain was owned by him with his wife. The AO has also taken note of the aforesaid fact and assessed 50% of the long term capital gain at the hands of the assessee. Insofar as the claim of deduction under section 54 of the Act is concerned, the assessee, though, has admitted that the property was purchased in the name of his wife and daughter, however, he has submitted that the provisions contained under section 54 being a beneficial provision it should be construed liberally and benefit under the section should be allowed to the assessee. Further, the assessee submitted, interpretation of Section 54 and 54F no way suggest that the new house property, wherein, the assessee invested the capital gain has to be purchased in the name of the assessee. He submitted, the provision only requires the assessee to invest the capital gain in purchase of a new house property. Thus, he has submitted, if the assessee can demonstrate that the investment in purchase of a new property, even though in the name of wife, was made by the assessee from the capital gain, conditions of section 54 will be fulfilled. In support of his contention though the assessee has relied upon certain judicial precedents, however, relevant citations have not been provided in the written submission. Be that as it may, while considering more or less identical issue relating to the claim of deduction under section 54F of the Act, the Hon’ble Bombay High Court in the case of Prakash (supra), had an occasion to interpret the provisions of Section 54/54F of the Act. The Hon’ble High Court held that for claiming deduction under the aforesaid provisions the new house property must be owned by the assessee and/or having legal title over the same. Therefore, as per the ratio laid down in the aforesaid decision of the Hon’ble Jurisdictional High Court if the new house property in respect of which the assessee has claimed deduction under section 54/54F of the Act is not purchased in the name of the assessee, no deduction under the said provisions can be claimed. Though, I must observe, there are judicial precedents holding contrary view including the decision of the Hon’ble Delhi High Court in the case of ITO vs. Kamal Waha 351 ITR 4. However, since I am bound by the decision of the Hon’ble Jurisdictional High Court rendered in the case of Praksh (supra), following the ratio laid down therein I hold that since the purchase of new property/flat is in the name of assessee’s wife and adult daughter and not in assessee’s own name, the assessee is not eligible to claim deduction under section 54 of the Act.

Accordingly, I uphold the decision of the learned CIT(A) on this issue by dismissing the ground raised.

  1. In the result, the appeal filed by the assessee is dismissed.

Order pronounced in the open court on 30th November, 2018.

 

 

Hem_Chandra_R_Gavankar_Mumbai_vs_Income_Tax_Officer_21_1_2_on_30_November_2018

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