2020 (8) TMI 722 - AT - Income Tax

Deduction u/s 54F disallowed - As per CIT-A assessee cannot purchase any residential house other than the new asset within a period of one year after the date of transfer of the original asset - HELD THAT - For triggering the provisions of the proviso (ii) to section 54F (1), the pre requirement is this that the assessee has purchased one more residential house other than the new asset within one year after the date of transfer of the original asset and this is not enough that some ownership right is acquired by him in such property within such time which has not accrued to him on account of purchase. Hence, it has to be the case that there is such purchase by the assessee and mere acquisition of some right is not enough. In the present case, both persons i.e. the present assessee and his wife Smt. Alka Dev are stating that the purchase is by Smt. Alka Dev, wife of the assessee although in the purchase deed, name of the assessee is also there along with the name of Smt. Alka Dev and purchase consideration of this second residential property is paid by her out of the joint/her individual bank account and we have seen that she was having sufficient own funds in that joint bank account received as her share in sale proceeds of the shares and this claim is accepted by CIT (A) also in her case and that order of CIT (A) has attained finality because the appeal of revenue against this order of CIT (A) got dismissed by the tribunal because of low tax effect. We delete the disallowance of the assessee s claim for deduction u/s 54F made by the AO and confirmed by CIT (A). - Decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of the assessee's claim for deduction under section 54F of the Income Tax Act.
2. Determination of ownership and eligibility for deduction under section 54F in the context of jointly held properties.

Detailed Analysis:

1. Rejection of the assessee's claim for deduction under section 54F:
The primary issue in this appeal is whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] were justified in rejecting the assessee's claim for deduction under section 54F. The assessee argued that the sale proceeds from shares held jointly with his wife were used to purchase a residential property at 183, Binanmangala, 2nd Stage, Bangalore. The payment for this property was made before the sale of the original asset (shares), and although the property was in joint names, the assessee claimed to be the sole owner.

2. Determination of ownership and eligibility for deduction under section 54F in the context of jointly held properties:
The CIT(A) rejected the deduction claim on the grounds that the assessee had purchased another residential property at 180, NGEF Quarters, Binnamangala I Stage, Bangalore within one year of the sale of the original asset, invoking the proviso (ii) to section 54F. The assessee contended that the second property was solely owned by his wife, despite being in joint names, and thus should not disqualify him from the deduction.

The Tribunal examined the relevant provisions of section 54F, which stipulate that an assessee cannot purchase another residential house within one year if they wish to avail of the deduction. The AO observed that the second property was funded from a joint bank account, leading to the conclusion that the assessee was a joint owner.

The Tribunal referred to the CIT(A)'s order in the case of the assessee's wife, where it was determined that:
- The Chennai property was a commercial property.
- The property at 180, NGEF Quarters, was fully owned by the wife.
- The property at 183, Binanmangala, was fully owned by the assessee.

This order had attained finality as the revenue's appeal was dismissed due to low tax effect. The Tribunal noted that the wife had sufficient funds to purchase the second property and that mere inclusion of the assessee's name in the purchase deed did not necessarily imply ownership. The Tribunal emphasized that for the proviso (ii) to section 54F to apply, the assessee must have purchased another residential house, not merely acquired some ownership rights.

Considering these facts, the Tribunal concluded that the assessee's claim for deduction under section 54F should be allowed, as the second property was purchased by the wife using her funds, and the assessee did not purchase another residential house within the stipulated period.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the assessee was entitled to the deduction under section 54F for the residential property at 183, Binanmangala, 2nd Stage, Bangalore, as the second property was exclusively owned by his wife and did not trigger the proviso (ii) to section 54F. The decision was pronounced in the open court.