2005 (9) TMI 635 - AT - Income Tax

Capital gain on sale of shares - Investment in purchase of residential flats - Claimed e xemption u/s 54F are available to co-owner? - interpretation of Residential House - Whether assessee can be said to be the owner of that residential house - HELD THAT - In our opinion, it must mean a complete residential house and would not include shared interest in a residential house. Where the property is owned by more than one person, it cannot be said that any one of them is the owner of the property. In such case, no individual person of his own can sell the entire property. No doubt, he can sell his share of interest in the property but as far as the property is considered, it would continue to be owned by co-owners. Joint ownership is different from absolute ownership. In the case of residential unit, none of the co-owners can claim that he is the owner of residential house. Ownership of a residential house, in our opinion, means ownership to the exclusion of all others. Therefore, where a house is jointly owned by two or more persons, none of them can be said to be the owner of that house. Since, the Legislature has not amended the provisions of section 54F, it has to be held that the word own in section 54F would include only the case where a residential house is fully and wholly owned by assessee and consequently would not include a residential house owned by more than one person. In the present case, admittedly the house at Sion, Mumbai, was purchased jointly by assessee and his wife. It is nobody s case that wife is benami of assessee. Therefore, the said house was jointly owned by assessee and his spouse. In view of the discussions made above, it has to be held that assessee was not the owner of a residential house on the date of transfer of original asset. Consequently, the exemption u/s 54F could not be denied to assessee. The order of the Learned CIT (Appeals) is, therefore, upheld. In the result, the appeal of the revenue stands dismissed.

Summary

Issues Involved:
Claim for exemption under section 54F of the Income-tax Act, 1961.

Analysis:

Issue 1: Claim for exemption under section 54F
The only issue in this appeal pertains to the assessee's claim for exemption under section 54F of the Income-tax Act, 1961. The assessee declared capital gains from the sale of shares and sought exemption by investing the proceeds in the purchase of residential flats in Vashi, Navi Mumbai. However, the Assessing Officer noticed that the assessee was a co-owner of a flat in Sion, Mumbai, and questioned the eligibility for exemption under section 54F. The Assessing Officer contended that the assessee could be considered the owner of the house in Sion at the time of the original asset's sale, thus denying the claim under section 54F.

Issue 2: Interpretation of ownership for exemption
On appeal, the contention revolved around whether shared interest in a property constitutes ownership for the purpose of claiming exemption under section 54F. The Learned CIT (Appeals) accepted the assessee's argument that shared interest does not equate to ownership. The Tribunal considered the definition of "residence" and "residential house," emphasizing that a residential house is where one can eat, drink, and sleep. It was clarified that joint ownership does not confer individual ownership, and for a property to qualify as a residential house under section 54F, it must be wholly owned by the assessee to the exclusion of others.

Issue 3: Judicial interpretation and legislative intent
The Tribunal analyzed various judgments and legislative amendments related to ownership in the context of tax provisions. Referring to the Supreme Court's decision in Seth Banarsi Dass Gupta v. CIT, it was established that fractional ownership is insufficient for claiming benefits under tax laws. The Tribunal held that the word "own" in section 54F implies complete ownership, excluding shared ownership scenarios. As the house in Sion was jointly owned by the assessee and his spouse, the Tribunal concluded that the assessee did not qualify as the sole owner of a residential house, thereby upholding the exemption under section 54F.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the assessee's entitlement to exemption under section 54F based on the interpretation of ownership and legislative intent regarding shared ownership of residential properties.