2016 (4) TMI 522 - AT - Income Tax

Computation of capital gain - exemption claimed by the assessee under Section 54F - capital gain was invested in multiple residential units - Held that - Section 54F of the Act clearly says that the capital gain arising from the transfer of any long term capital, the asset not being residential house, is eligible for exemption, if the assessee, within a period of one year before or two years after the date of transfer, purchased or has within a period of three years after the date of transfer, constructed a residential house in India. The term constructed a residential house was amended by Finance Act, 2014 with effect from 1.4.2015 by saying that constructed one residential house in India. This amendment was interpreted by Madras High Court in V.R. Karpagam (2014 (8) TMI 899 - MADRAS HIGH COURT ) and found that this amendment is applicable prospectively and based on that the assessee is eligible for exemption even though the assessee invested in multiple residential units. The year under consideration is 2011-12. Therefore, in view of the judgment of Madras High Court in V.R. Karpagam (2014 (8) TMI 899 - MADRAS HIGH COURT ), the assessee is eligible for exemption even though the capital gain was invested in multiple residential units. New house purchased in the joint name of the assessee and her daughter - Held that - This Tribunal is of the considered opinion that when the assessee purchased a house in the joint name along with her daughter, the assessee is eligible for exemption under Section 54F of the Act. The distinction made by the Assessing Officer on the ground that the assessee before Delhi High Court and his wife are living together may not be relevant consideration at all. What is to be considered is when the assessee purchased a house along with her legal heir for investment of capital gain, whether such investment is eligible for exemption under Section 54F of the Act? This was considered by the Delhi High Court in Kamal Wahal (2013 (1) TMI 401 - DELHI HIGH COURT ). The Delhi High Court held that the assessee is eligible for exemption under Section 54F of the Act under such circumstances. Therefore, the Assessing Officer is not justified in disallowing the claim of the assessee. Assessee is having one house inherited from her father by way of will - Held that - Proviso to Section 54F says that when the assessee owns more than one residential house other than the new asset on the date of turnover of original asset, the assessee is not eligible for exemption. On the date of transfer of original asset, the assessee owns a property inherited from her father by way of will. Other than that the assessee had no property at all. What is provided is more than one residential house. Other than the new asset acquired, the assessee was owning one more house property which was inherited from her father through will. Therefore, on the date of transfer, the assessee is not owning more than one residential house which was inherited from her father. Therefore, this Tribunal is of the considered opinion that proviso to Section 54F of the Act may not stand in the way of allowing exemption under Section 54F of the Act. In the case before us, both the properties were registered on 28.10.2011. Section 54F clearly says that the new asset has to be purchased within a period of two years after the date of transfer. In this case, the property was purchased on the very same day. The assessee had no other asset other than the house inherited from her father on the date of purchase. Therefore, this Tribunal is of the considered opinion that the proviso to Section 54F of the Act may not stand in the way of allowing exemption. - Decided in favour of assessee

Summary

Issues Involved:
1. Computation of capital gain.
2. Exemption claimed under Section 54F of the Income-tax Act, 1961.
3. Ownership and investment in multiple residential units.
4. Joint ownership of the new residential property.
5. Pre-existing ownership of inherited residential property.

Detailed Analysis:

1. Computation of Capital Gain:
The primary issue in this appeal concerns the computation of capital gain arising from the sale of two commercial properties by the assessee, which were sold for a total consideration of ?90,00,000/-. The properties were sold on 07.05.2010 and 28.10.2010 for ?51,00,000/- and ?39,00,000/- respectively. The assessee invested the entire sale consideration in two residential flats.

2. Exemption Claimed under Section 54F of the Income-tax Act, 1961:
The assessee claimed exemption under Section 54F of the Income-tax Act, 1961, which allows for exemption of capital gains if the sale proceeds are invested in a residential house. The key contention was whether the purchase of two residential flats qualifies for this exemption. The Tribunal referred to the amendment in Section 54F by the Finance (No.2) Act, 2014, effective from 01.04.2015, which specifies "one residential house." However, for the assessment year 2011-12, the Tribunal held that the amendment does not apply, and based on the Madras High Court judgment in CIT v. V.R. Karpagam, the assessee is eligible for exemption even if the investment is in multiple residential units.

3. Ownership and Investment in Multiple Residential Units:
The Assessing Officer initially rejected the exemption claim on the grounds that the assessee purchased more than one residential house. The Tribunal, however, clarified that the amendment specifying "one residential house" was not applicable for the assessment year in question. Thus, the investment in multiple residential units did not disqualify the assessee from claiming the exemption.

4. Joint Ownership of the New Residential Property:
Another objection raised was that the new residential properties were purchased in the joint names of the assessee and her daughter. The Tribunal referred to the Delhi High Court judgment in CIT v. Kamal Wahal, which held that purchasing a house in joint names does not disqualify the assessee from claiming exemption under Section 54F, provided the investment is made for the benefit of the assessee. The Tribunal found this applicable and overruled the Assessing Officer's objection.

5. Pre-existing Ownership of Inherited Residential Property:
The Assessing Officer contended that the assessee was not eligible for exemption as she owned another residential property inherited from her father. The Tribunal examined the proviso to Section 54F, which disallows exemption if the assessee owns more than one residential house other than the new asset on the date of transfer. It was found that the assessee only owned one inherited property and no other residential house. Therefore, the Tribunal concluded that the proviso did not apply in this case, allowing the exemption.

Conclusion:
The Tribunal set aside the orders of the lower authorities and directed the Assessing Officer to allow the exemption under Section 54F of the Act. The appeal of the assessee was allowed, and it was pronounced that the assessee is eligible for the claimed exemption.