2006 (6) TMI 150 - AT - Income Tax

Summary

Issues:
Claim of exemption under section 54F for long-term capital gain on sale of shares invested in construction of residential house on husband's land.

Analysis:
The assessee earned a long-term capital gain on sale of shares and claimed exemption under section 54F of the Income Tax Act for investing the sale consideration in the construction of a residential house within three years. The Assessing Officer (AO) denied the claim as the property title was not transferred to the assessee. The assessee argued that possession of the house was sufficient for ownership under section 27(iii)(a) of the Transfer of Property Act. The Commissioner of Income Tax (Appeals) upheld the AO's decision due to lack of title transfer and relationship between the contracting parties. The Tribunal considered the legal aspect of ownership and cited the Supreme Court judgment in R.B. Jodhamal Kulthiala vs. CIT (1971) 82 ITR 570 (SC) to establish that registration is not necessary for ownership. The Tribunal also referred to section 27(iiia) which deems a person as an owner if in possession of a building under a contract in part performance of the Transfer of Property Act.

The Tribunal found that the assessee, despite not holding legal title, was the owner of 50% of the house constructed on the husband's land. The Tribunal rejected the Revenue's argument that the agreement between husband and wife was not genuine, emphasizing that the assessee had indeed constructed a residential house, meeting the requirements of section 54F. The Tribunal clarified that exclusive ownership was not mandatory under section 54F and that the assessee's ownership of 50% was sufficient. The Tribunal also highlighted the relevance of ownership over division in cases where contracting parties are related.

Furthermore, the Tribunal considered judgments such as Saiffuddin vs. CIT (1985) 48 CTR (Raj) 197 and CIT vs. Ajit Kumar Roy (2001) 170 CTR (Cal) 187 to support the assessee's case of ownership despite lack of legal title. The Tribunal noted that in these cases, ownership was recognized based on factors like construction involvement and investment, even when legal title was not in the assessee's name. Based on the legal principles and precedents, the Tribunal concluded that the CIT(A)'s decision was not sustainable and allowed the assessee's claim for exemption under section 54F.

Therefore, the Tribunal allowed the appeal of the assessee, recognizing her ownership of 50% of the residential house constructed on her husband's land, and granting the exemption under section 54F for the long-term capital gain on sale of shares.