2017 (5) TMI 12 - AT - Income Tax

Exemption u/s. 54 - Assessment of capital gain - joint ownership - new property purchased was in the name of two persons namely the assessee and his brother - 100% consideration paid by the assessee - AO allowed 50% exemption u/s 54 - CIT(A) diallowed entire exemption - Held that - There is no justification in the AO s action, in so far entire investment was made by the assessee and only for the safety reason he has included the name of his brother. As found that in the assessment order itself at page 2, the AO has observed that entire cot of new property was borne by the assessee though the property is in the joint name with his brother. Under these facts and circumstances, there is no justification for giving 50% benefit of investment in the new house. The issue is also covered by the decision of hon ble Delhi High Court in the case of CIT v Ravinder Kumar Arora (2011 (9) TMI 343 - DELHI HIGH COURT) wherein held that the assessee was entitled to full exemption u/s. 54F when the full amount was invested by the assessee even though the property was purchased in the joint names of the assessee and his wife. Thus no merit in the action of AO for restricting exemption u/s.54 to the extent of 50% of the value of the new house. The CIT(A) was also not justified in directing the AO to tax entire capital gain on sale of old property in the hands of assessee when 50% of the old house was owned by his wife and she had paid capital gain separately for her share of the house. - Decided in favour of assessee

Summary

Issues Involved:
1. Dispute over the taxation of capital gains on the sale of a property owned jointly by the assessee and his wife.
2. Interpretation of Section 54 of the Income Tax Act regarding exemption on capital gains reinvested in a new property.
3. Assessment of ownership and investment in a new property when purchased jointly with another individual.
4. Justification for restricting exemption to 50% of the value of the new property.
5. Comparison with relevant legal precedents regarding ownership and entitlement to exemption under Section 54F.

Analysis:
1. The appeal was filed by the assessee against the order of CIT(A) directing the AO to tax the entire capital gains on the share of an old property in the hands of the assessee, instead of the 50% assessed by the AO. The dispute arose from the sale of a residential property jointly owned by the assessee and his wife, with the AO questioning the investment in a new property purchased jointly with the assessee's brother.

2. The ITAT Mumbai carefully examined the facts and found that the entire investment in the new property was made by the assessee, even though the property was purchased jointly with his brother for convenience. The ITAT referred to Section 54 of the Income Tax Act, which provides for exemption on capital gains reinvested in a new property, and emphasized that the assessee fulfilled the conditions for claiming the exemption.

3. The ITAT rejected the AO's argument that the assessee was entitled to only 50% of the investment in the new property due to the joint ownership with his brother. The tribunal cited a decision of the Delhi High Court, which held that the actual investment made by the assessee should determine the entitlement to exemption under Section 54F, regardless of joint ownership.

4. Highlighting the importance of constructive ownership and the legislative intent behind provisions like Section 54F, the ITAT emphasized that the assessee's inclusion of his brother's name for convenience should not impact the assessee's right to claim the full exemption. The tribunal stressed the need for a liberal interpretation of beneficial provisions like Section 54F in favor of the taxpayer.

5. The ITAT concluded that there was no justification for restricting the exemption to 50% of the value of the new property or for taxing the entire capital gains on the old property in the hands of the assessee. Citing relevant legal precedents, including decisions of the Delhi High Court, the tribunal allowed the appeal of the assessee, ruling in favor of granting the full exemption on the capital gains reinvested in the new property.