2012 (8) TMI 264 - AT - Income Tax

Deduction u/s 54F - Long term capital gains on sale of shares - assessee invested sale proceeds in purchase of row houses located at the ground floor and at the 1st & 2nd floor in joint name along with his wife - denial of deduction on ground that exemption u/s 54F is available in respect of one residential house and that to in the name of the individual - Held that - It is found that AO rejected the claim without making any physical verification. Therefore matter is restored back to the files of the A.O to verify whether the dwelling unit bears a single municipal number. The A.O. is further directed to verify whether the dwelling units have only one access and common entrance. If the answers to both the aforesaid questions are in affirmative then the ground floor and the first and second floor cannot be regarded as a separate residential house and to be treated as a single dwelling unit entitled for exemption u/s 54F. Since name of the wife has been added only for the sake of convenience and total consideration has been met from the account of the assessee. Moreover provisions of section 45 of the Transfer of the Property Act which provides that the share in the property will depend on the amount contributed towards the purchase consideration and as in the present case the total contribution has come from the assessee the exemption cannot be denied. Short-term capital loss on redemption of units - date of realization of cheque issued for purchase of units taken for determination of period of holding whereas assessee contending for date of tendering of cheque to be taken - revenue contended period of holding to be less than 3 months and thus hit by provisions of Section 94(7) - Held that - Date of tendering the cheque should be taken as the date of the purchase of units. Once this date is taken for consideration then the provisions of section 94(7) would ultimately not apply on the facts of the transaction - Decided in favor of assessee.

Summary

Issues Involved:
1. Denial of exemption claimed under Section 54F of the Income Tax Act.
2. Entitlement for set off of Short Term Capital Loss under Section 94(7) of the Income Tax Act.

Detailed Analysis:

1. Denial of Exemption Claimed under Section 54F:

Facts:
The assessee claimed an exemption of Rs. 1,23,90,428 under Section 54F of the Income Tax Act, having invested Rs. 1,33,48,000 in purchasing a row house. The Assessing Officer (A.O.) denied the exemption, noting that the assessee purchased two row houses (one on the ground floor and the other on the 1st and 2nd floors) jointly with his wife, which violates Section 54F conditions that allow exemption for only one residential house and in the name of the individual.

Assessee's Argument:
The assessee contended before the Commissioner of Income Tax (Appeals) [CIT(A)] that only one row house was purchased with two separate deeds, having a single entrance and occupied by one family. Supporting documents included account details, civil contractor's bill, ration card, telephone bill, electricity bill, society certificate, tax returns, and balance sheet.

CIT(A)'s Decision:
CIT(A) held that two separate agreements indicated the purchase of two row houses, even if used as a single unit, confirming the A.O.'s findings and not addressing the joint ownership issue.

Tribunal's Analysis:
The Tribunal considered two questions:
- Whether the assessee purchased one residential unit.
- Whether joint ownership with his wife affects the exemption claim.

Findings:
- The Tribunal noted the purchase of House 16A and House 16B through separate deeds and agreements for amenities, indicating a single building with the 1st and 2nd floors being part of the same structure.
- The Tribunal directed the A.O. to verify if the dwelling unit has a single municipal number and one common entrance. If affirmative, it should be treated as a single dwelling unit, aligning with the decisions in ITO vs. Ms. Sushila M. Jhaveri and CIT vs. Ananda Basappa.
- On joint ownership, the Tribunal referenced cases where exemption under Section 54F was allowed despite joint names, provided the entire consideration came from the assessee. The Tribunal found the wife's name was added for convenience, and the full payment was made by the assessee, thus not denying the exemption.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the A.O. to verify specific conditions.

2. Entitlement for Set Off of Short Term Capital Loss under Section 94(7):

Facts:
The assessee purchased Sundaram Bond Saver Units on 26.12.2003, received a dividend of Rs. 1,16,03,049 the same day, and redeemed the units on 29.03.2004, booking a short-term capital loss of Rs. 1,29,94,149. The A.O. disallowed the loss, citing dividend stripping under Section 94(7), arguing the cheque for the units was realized on 30.12.2003, making the holding period less than 3 months.

Assessee's Argument:
The assessee argued the purchase date should be 26.12.2003, per SEBI guidelines allowing unit issuance before cheque realization, thus falling outside Section 94(7).

CIT(A)'s Decision:
CIT(A) agreed with the assessee, noting the mutual fund accepted 26.12.2003 as the purchase date based on SEBI guidelines. CIT(A) also dismissed the A.O.'s claim of the transaction being a colorable device, referencing the Supreme Court's remand in a similar case and the Bombay High Court's decision in CIT vs. Walfort Share & Stock Brokers Pvt. Ltd.

Tribunal's Analysis:
The Tribunal supported the CIT(A)'s findings, accepting 26.12.2003 as the purchase date, thus exempting the transaction from Section 94(7). It also upheld CIT(A)'s view that the transaction was legitimate and not a colorable device.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision allowing the set off of the short-term capital loss.