9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (4) TMI 1353 - AT - Income TaxDisallowance of deduction u/s. 54 - property purchases jointly - assessee has purchased the old property along with her husband where she has failed to establish that the sale consideration was paid by her and not her husband - HELD THAT - We do not find any embargo for the assessee to claim deduction under this provision either as a co-owner or on sale of one or two residential properties or on purchase of a residential property as a co-owner. Any express bar for the assessee to claim the said deduction on a property which has been jointly purchased by the assessee. AO s contention that the old property was purchased jointly by the assessee s husband and the assessee is to be taken into view only to find out if the assessee s husband has also claimed deduction u/s. 54 pertaining to the sale of this property and purchase of the new residential house. If as per the contention the old property belongs to the assessee and the sale consideration received out of the transfer was invested by the assessee in the new property the assessee is entitled to claim deduction u/s. 54 to the extent of her investment in the new residential property. AO has also not brought on record any fact to show that the assessee has sold more than one property and merely because the assessee s husband has transferred his other property which detail is not before us it cannot be said that the assessee has transferred two properties. Even otherwise assuming that the old property which was sold belonged to the assessee s husband then the assessee s husband was entitled to claim the entire benefit u/s. 54 though the property was purchased jointly. In the present case in hand it is not the case of the revenue that both the assessee and her husband has claimed benefit u/s. 54 twice for the entire sale consideration but it is a case where they have claimed proportionately to the extent of investment made by either of them in the purchase of the new property. Pertinently courts have taken a liberal view with regard to the claim of Section 54 and Section 54F which are beneficial provisions that are to be interpreted liberally in favour of the assessee and deduction should not be merely denied on hyper-technical ground. Benefit u/s. 54 cannot be denied merely because the property was purchased jointly in the name of the assessee and her husband where in case of property held jointly the capital gain shall be calculated for each owner in accordance with the funding and allocation of shares of the house properties for claiming tax benefits. We find justification in allowing ground no. A with the direction that the ld. AO shall verify that there has been no double deduction claimed by the assessee and her husband on the capital gain arising out of the sale of property claimed by the assessee and to allow deduction u/s. 54 to the extent of the investment made by the assessee on the purchase of the new property. Ground no. A(1) is hereby allowed. Addition u/s. 23 - deemed rental income of the office premises which the assessee alleged to be owned by the assessee and her husband jointly at 90.90% and 9.10% share respectively and the same was used as office premises for business purpose by the assessee - HELD THAT - The assessee has failed to furnish documentary evidences to demonstrate the fact that the said property was used by the assessee and her husband for their business purposes. We are also conscious of the fact that there are various judicial precedents which has held that the ALV of a property has to be determined based upon the municipal rentable value which in the present case has not been considered by the ld. AO. We therefore deem it fit to remand this issued to the ld. AO to the limited extent of determining the ALV of the said property as per the municipal rentable value to the extent of the holding of the assessee in the said property.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are: (a) Whether the disallowance of deduction claimed under Section 54 of the Income Tax Act, 1961, amounting to Rs. 1,30,30,729/-, was justified where the assessee claimed exemption on long-term capital gains arising from sale of a residential house by investing in a new residential house purchased jointly with her husband; (b) Whether the addition of Rs. 10,43,158/- under Section 23 of the Act as deemed rental income on an office premises owned jointly by the assessee and her husband was justified, especially considering the claim that the premises was used for business purposes and the method adopted for determining the annual let-out value (ALV); and (c) Whether the method of determining deemed rental income under Section 23(1) of the Act should be based on municipal ratable value rather than market rental values from other sources. 2. ISSUE-WISE DETAILED ANALYSIS Issue A: Disallowance of Deduction under Section 54 of the Income Tax Act Relevant Legal Framework and Precedents: Section 54(1) provides exemption from capital gains tax where an individual or Hindu Undivided Family (HUF) transfers a long-term capital asset being a residential house and within prescribed time limits purchases or constructs a residential house. Prior to the amendment effective from 01.04.2015, the provision did not restrict the purchase to a single residential house or require the property to be held solely by the assessee. Judicial precedents emphasize a liberal and purposive interpretation of Section 54 and its counterpart Section 54F, to promote the objective of incentivizing investment in residential houses. The Tribunal relied on the Delhi High Court decision in Commissioner of Income-tax vs. Ravinder Kumar Arora, which held that inclusion of a spouse's name in the purchase deed does not bar the exemption, and that the beneficial provisions should not be denied on hyper-technical grounds. Similarly, decisions from other High Courts (Madras and Punjab & Haryana) were cited supporting joint ownership and liberal interpretation. Court's Interpretation and Reasoning: The Tribunal noted that the assessee had purchased the old property individually (reflected in balance sheets and agreements) and subsequently sold it, claiming long-term capital gains. The new property was purchased jointly with the husband, with the assessee contributing Rs. 1.76 crores towards the total consideration of Rs. 2.31 crores. The AO's rejection was primarily based on the contention that the exemption was claimed by both spouses on the same property and that the old property was jointly held or purchased by the husband. The Tribunal clarified that Section 54 does not prohibit claiming exemption when the new property is jointly purchased. It further held that the assessee is entitled to claim exemption proportionate to her investment in the new property. The Tribunal rejected the AO's assertion that the assessee had sold two properties, noting that the husband's sale of a different property was unrelated and did not affect the assessee's claim. Key Evidence and Findings: The assessee's balance sheets, sale and purchase agreements, and the husband's return of income were examined. No evidence was brought by the AO to show double claiming of exemption by both spouses on the same capital gain amount. Application of Law to Facts: Applying the provisions of Section 54 as it stood before 2015, and the judicial precedents favoring liberal construction, the Tribunal concluded that the assessee was entitled to the deduction to the extent of her investment in the new residential property. Treatment of Competing Arguments: The AO and DR argued that the exemption was wrongly claimed on two residential houses and that the sale consideration was not solely attributable to the assessee. The Tribunal rejected these on the grounds that the AO failed to prove double claiming and that joint ownership does not preclude exemption. Conclusion: The Tribunal allowed the deduction under Section 54 to the extent of the assessee's investment in the new residential property, directing the AO to verify that no double deduction was claimed by the assessee and her husband. Issue B: Addition of Rs. 10,43,158/- as Deemed Rental Income under Section 23 of the Act Relevant Legal Framework and Precedents: Section 23(1) of the Income Tax Act provides that if a property capable of being let out is not actually let out, the owner is deemed to have received income at a reasonable expected rent. The annual value is generally determined based on municipal ratable value or fair rental value, subject to judicial interpretation. Precedents cited by the assessee include:
which emphasize that municipal ratable value should be the basis for determining annual let-out value rather than market rental values from unrelated locations. Court's Interpretation and Reasoning: The AO determined the ALV based on rental values of similar office premises in the vicinity from a commercial website, www.magicbricks.com, and applied a 30% standard deduction. The AO rejected the assessee's claim that the property was used for business purposes, citing lack of documentary evidence such as electricity bills or other office expenses and the low commission income declared by the assessee. The Tribunal observed that the assessee failed to produce documentary evidence to substantiate the claim of business use of the premises. However, it also noted that the AO did not consider municipal ratable value in determining the ALV, which is a recognized standard as per judicial precedents. Key Evidence and Findings: The assessee submitted that the office premises was jointly owned and used for business by herself and her husband. The AO found only a single commission income receipt and no corroborative evidence of business use. The AO's ALV determination was based on market rental values from a website, not municipal ratable values. Application of Law to Facts: While the absence of documentary proof weakened the assessee's claim of business use, the Tribunal emphasized that the ALV should be computed based on municipal ratable value as per judicial guidance, not on market rental values from unrelated sources. Treatment of Competing Arguments: The assessee argued that the property was used for business and that the rental value should be based on municipal ratable value. The AO and DR countered with lack of evidence and reliance on market rental values. The Tribunal struck a balance by remanding the issue to the AO for reassessment of ALV strictly based on municipal ratable value. Conclusion: The Tribunal partly allowed the appeal on this ground, directing the AO to determine the annual let-out value of the office premises based on municipal ratable value and the assessee's share in the property, consistent with judicial precedents. 3. SIGNIFICANT HOLDINGS The Tribunal established the following core principles and determinations: "We do not find any embargo for the assessee to claim deduction under this provision either as a co-owner, or on sale of one or two residential properties or on purchase of a residential property as a co-owner. We do not find any express bar for the assessee to claim the said deduction on a property which has been jointly purchased by the assessee." "Courts have taken a liberal view with regard to the claim of Section 54 and Section 54F which are beneficial provisions that are to be interpreted liberally in favour of the assessee and deduction should not be merely denied on hyper-technical ground." "The AO's contention that the old property was purchased jointly by the assessee's husband and the assessee is to be taken into view only to find out if the assessee's husband has also claimed deduction u/s. 54 of the Act pertaining to the sale of this property and purchase of the new residential house. If as per the contention, the old property belongs to the assessee and the sale consideration received out of the transfer was invested by the assessee in the new property, the assessee is entitled to claim deduction u/s. 54 to the extent of her investment in the new residential property." "We are also conscious of the fact that there are various judicial precedents which has held that the ALV of a property has to be determined based upon the municipal rentable value which in the present case has not been considered by the ld. AO." Final determinations:
|
