2018 (11) TMI 1123 - AT - Income Tax

Disallowance of exemption U/s.54F - investment by the assessee of the capital gains in purchase or construction of a residential house - property purchased in the name of wife - Held that - Andhra Pradesh High Court in the case of Late Gulam Ali Khan vs. CIT 1984 (12) TMI 9 - ANDHRA PRADESH HIGH COURT wherein it was held that the object of granting exemption u/s 54F of the Act, is that the house should have been purchased for residential purposes, must be given exemption so far as capital gains are concerned that the word assessee must be given a wide and liberal interpretation so as to include his legal heirs also and there is no warrant for giving too strict interpretation on the word assessee as that would frustrate the object of granting the exemption. In the case before us, the assessee and his wife are independent income tax assessee and the assessee already owned one house at Kilpauk, Chennai. The assessee therefore, cannot be said to have invested in order to avoid capital gains to tax in his hands, as u/s 54F(1) the assessee is entitled to exemption u/s 54F even if he already holds one property in his name. Therefore, the investment by the assessee of the capital gains in purchase or construction of a residential house at Alagappa Nagar, Chennai in the name of his wife will not disentitle the assessee from exemption u/s 54F of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of exemption under Section 54F of the Income Tax Act.
2. Eligibility of deduction when the property is in the name of the spouse.

Analysis:
1. The appellant appealed against the CIT (A) order disallowing exemption under Section 54F. The appellant claimed exemption for capital gains invested in a house at Chennai in the name of his wife. The AO disallowed the exemption citing lack of proof of construction, absence of residential/commercial distinction, and existing property ownership. The CIT (A) accepted the house as residential but disallowed the claim due to the property being in the wife's name and not the only property owned by the appellant. The ITAT allowed the appeal, emphasizing compliance with Section 54F's objective of promoting residential property investment.

2. The main issue was whether exemption under Section 54F is applicable when the residential property is in the spouse's name. The appellant and his wife were independent taxpayers. The ITAT considered precedents where property was purchased in family members' names and held that the appellant's case was distinguishable due to the wife's independent income. Citing relevant case laws, the ITAT concluded that the appellant, despite owning another property, was entitled to exemption under Section 54F for investing in a residential house in his wife's name. The judgment favored a liberal interpretation of the term "assessee" to include legal heirs, ensuring the exemption's objective was not frustrated.

In conclusion, the ITAT allowed the appellant's appeal, ruling in favor of granting exemption under Section 54F despite the property being in the spouse's name. The judgment highlighted the importance of promoting residential property investments and adopted a broad interpretation of the term "assessee" to uphold the exemption's purpose.