2022 (1) TMI 601 - HC - Income Tax

Exemption u/s 54 in respect of repayment of housing loan - investment made in the name of the asssessee s wife - Whether, the finding of the Tribunal that exemption under section 54F is not allowable if the assessee is in possession of a residential house on the date of transfer of the original asset is irrelevant and contrary to the provisions of section 54F and hence perverse and contrary to law? - HELD THAT - As regards the claim made under Section 54 of the Act, relating to the investment made by the assessee in a new asset purchased in the name of his wife is concerned, the Tribunal has extended the relief placing reliance on the Coordinate Bench decision of this Court in the case of DIT v. Mrs.Jennifer Bhide, 2011 (9) TMI 161 - KARNATAKA HIGH COURT We have no reason to differ from the same. Payments said to have been made by the assessee towards stamp duty by way of Demand Drafts, no adequate material being available to identify to whom these accounts belong to, the Tribunal has remanded the matter to the Assessing Officer to ascertain the payments, hence, no exception can be found with this finding of the Tribunal. Accordingly, we confirm the same. As regards Section 54F assessee claimed deduction under Section 54 and 54F in respect of long term capital gain arising from the said sale of land. The Authorities observed that the assessees therein had two residential houses having one half share each therein on the date of sale of the land, thereby rejected assesses claim. Tribunal held that on date of sale of long term assets meant complete residential house and would not include shared interest in a residential house. On appeal by the Revenue before this Court, it was held that co-owner is the owner of a house in which he has share and that his right, title and interest is exclusive to that extent of his share and that he is the owner of the entire undivided house till it is partitioned. The right of a person, may be one half, in the residential house cannot be taken away without due process of law or it continues till there is a partition of such residential house. With great respect, this judgment would not be of any assistance to the Revenue to deny the benefit to the assessee since there is no such co-ownership or share in the property of Domlur house by the assessee. Even Section 27 of the Act could be of little assistance to the Department since the said definition contemplated is only for the purposes of Section 22 to 26 of the Act. Thus, we cannot subscribe to the findings of the Tribunal confirming the order of the Authorities on this point.

Issues Involved:
1. Eligibility of exemption under Section 54 for repayment of housing loan.
2. Allowability of exemption under Section 54F if the assessee is in possession of a residential house on the date of transfer of the original asset.
3. Relevance of the gift of a residential house to the assessee's wife and son for exemption under Section 54F.
4. Denial of exemption under Section 54F based on the investment in the name of the assessee's wife.

Detailed Analysis:

1. Eligibility of Exemption under Section 54 for Repayment of Housing Loan:
The Tribunal remanded the issue of eligibility of exemption under Section 54 to the CIT (A) for further examination of the repayment of housing loan of ?60 lakhs and ?90 lakhs by the appellant. The Tribunal did not provide a conclusive finding on this matter, leading to the remand for detailed verification by the Commissioner of Income Tax (Appeals).

2. Allowability of Exemption under Section 54F if the Assessee is in Possession of a Residential House on the Date of Transfer:
The Tribunal's finding that exemption under Section 54F is not allowable if the assessee is in possession of a residential house on the date of transfer of the original asset was challenged. The assessee argued that he was not the legal owner of the residential house at Kodihalli Extension, Bangalore, on the date of transfer (10.04.2012) as it was gifted to his wife and son on 03.01.2012. The High Court concluded that the assessee was not the owner of more than one residential house on the date of transfer, thus eligible for exemption under Section 54F.

3. Relevance of the Gift of a Residential House to the Assessee's Wife and Son for Exemption under Section 54F:
The Tribunal's reasoning that the assessee would still be considered in possession of the residential house gifted to his wife and son was found incorrect. The High Court emphasized that the assessee was no longer the legal owner of the property at Kodihalli Extension, Bangalore, on the transfer date of the original asset, thus eligible for exemption under Section 54F.

4. Denial of Exemption under Section 54F Based on the Investment in the Name of the Assessee's Wife:
The Tribunal's denial of exemption under Section 54F based on the investment in the name of the assessee's wife was challenged. The High Court referred to the case of DIT v. Mrs. Jennifer Bhide, which held that the investment need not be in the name of the assessee alone for exemption under Section 54. The Court concluded that the residential house purchased in the name of the assessee's wife could not be construed as property owned by the assessee for the purpose of Section 54F, thus allowing the exemption.

Conclusion:
The High Court allowed the appeal in part, answering substantial questions of law 2 to 4 in favor of the assessee and against the revenue, while question 1 was answered against the assessee. The assessee was entitled to the exemption under Section 54F subject to fulfilling other conditions, and the Assessing Officer was directed to re-compute the income accordingly.

← Previous Next →