2016 (7) TMI 94 - AT - Income Tax

Claim of exemption u/s 54F - Whether assessee owns another house property - nature of partial interest into property - The assessee claims that the property conveyed by her mother by means of settlement deed is only a partial interest on the property and such partial interest cannot be considered to be full ownership for the purpose of denying the exemption u/s 54F Held that - Assessee owns the house subject to life interest retained by the assessee s mother, namely, settlor. Therefore, it cannot be said that the assessee owns a house fully and wholly. The ownership of the assessee over the property is subject to life interest retained by the assessee s mother. Therefore, this Tribunal is of the considered opinion that the house property conveyed to the assessee by means of settlement deed subject to life interest over the property cannot be a reason for denying deduction under Section 54F of the Act. AO is directed to grant exemption u/s 54F of the Act. - Decided in favour of assessee.

Summary

Issues:
Denial of exemption under Section 54F of the Income-tax Act, 1961 due to ownership of two houses on the date of sale of land at Pallikaranai.

Analysis:
The appeal was against the order of the Commissioner of Income Tax (Appeals) concerning the denial of exemption under Section 54F for the assessment year 2011-12. The main contention was whether the assessee, who was conveyed property through a settlement deed subject to the life interest retained by the settlor (assessee's mother), could be considered the owner of the property for the purpose of claiming exemption. The Assessing Officer disallowed the claim based on the assessee owning two houses on the sale date. The assessee argued that as long as the mother retained life interest, the assessee did not have full ownership of the property. Reference was made to legal precedents like the decision of the Mumbai Bench of the Tribunal in ITO v. Rasiklal N. Satra (2006) 98 ITD 335 and judgments of the Madras High Court and Delhi Bench of the Tribunal to support the argument that joint ownership does not equate to absolute ownership.

The Departmental Representative contended that the settlement deed clearly transferred absolute ownership to the assessee, allowing her to deal with the property without hindrance. The physical possession was also handed over as a token of acceptance of the gift, establishing the assessee as the full owner. The CIT(A) upheld the Assessing Officer's decision.

The Tribunal analyzed the provisions of Section 122 of the Transfer of Property Act, defining a gift as a voluntary transfer without consideration. It noted that the property was conveyed to the assessee subject to the mother's life interest, indicating that the assessee did not have full ownership. Citing the Mumbai Bench's decision, the Tribunal held that ownership under Section 54F should be absolute and exclusive. As the assessee's ownership was subject to the mother's life interest, it did not meet the criteria for denial of exemption. Therefore, the Tribunal set aside the lower authorities' orders and directed the Assessing Officer to grant exemption under Section 54F. The appeal filed by the assessee was allowed, with the order pronounced on 12th May 2016 in Chennai.