Applicability of Section 54F Where Assessee Holds a Jointly-Owned Residential Property
ITAT Delhi recently in the case of Kusum Sahgal v. ACIT – ITAT Delhi Bench-Assessment Year: 2015–16, Order Date: 08.11.2023 was having an interesting issue as to whether exemption under Section 54F can be denied merely because the assessee holds a joint ownership interest (fractional share) in another residential property on the date of transfer?
Let us have a Short Overview of the background of legal provision as well as about observation in this case:
1. Introduction:-Section 54F of the Income-tax Act, 1961 grants exemption on long-term capital gains arising from the transfer of any capital asset other than a residential house, subject to investment in a new residential house within the prescribed time.
A recurring controversy concerns whether joint ownership of a residential house disqualifies the taxpayer under the proviso to Section 54F(1), which denies exemption if on the date of transfer the assessee:
1. owns more than one residential house (other than the new one), or
2. purchases or constructs another residential house within the prescribed period.
The issue has led to divergent judicial views, resulting in substantial litigation. The ITAT Delhi in Kusum Sahgal v. ACIT revisited this controversy and delivered a comprehensive judgment harmonising various precedents.
2. Core Issue:-Whether exemption under Section 54F can be denied merely because the assessee holds a joint ownership interest (fractional share) in another residential property on the date of transfer?
3. Case Citation;-Kusum Sahgal v. ACIT – ITAT Delhi Bench-Assessment Year: 2015–16, Order Date: 08.11.2023
4. Brief Facts:-The assessee sold a plot of land and earned long-term capital gains.
1. She invested the capital gains in a new residential house and claimed exemption u/s 54F.
2. The Assessing Officer found that the assessee held 1/4th joint ownership in another residential house along with family members.
3. On this basis, the AO held that the assessee “owned” a residential house on the date of transfer.
4. Exemption u/s 54F was accordingly denied.
5. The CIT(A) upheld the AO’s denial.
6. The assessee appealed before ITAT.
5. Statutory Provision: Section 54F
5.1 Section 54F(1) – Main Provision:-Allows exemption if net consideration is invested in purchasing or constructing a new residential house.
5.2 Proviso to Section 54F(1) – Disqualification:-Exemption shall not be allowed if:
• The assessee owns more than one residential house (other than the new asset) on the date of transfer.
5.3 Meaning of “Owns”
Not defined in the Act, leading to interpretational disputes regarding:
• Joint ownership vs. absolute ownership
• Whether fractional ownership qualifies as “owns”
• Whether benami/beneficial ownership also counts
6. Findings of Authorities Below:
6.1 Assessing Officer
• Assessee owned 1/4th share in another residential house.
• Therefore, assessee “owned” a residential house on the date of transfer.
• The proviso to Section 54F(1) was triggered.
• Deduction was denied.
6.2 CIT(A):-Upheld AO’s view.Relied on Karnataka High Court’s strict interpretation in M.J. Siwani that even fractional interest constitutes ownership.
6.3 ITAT:-Held that joint ownership does not bar exemption based on multiple High Court rulings and binding principle of resolving ambiguity in favour of the assessee.
The copy of the order is as under:
