Commissioner of Income Tax vs Ravinder Kumar Arora

A.K. Sikri, J.—The sole issue raised in this appeal is that whether the exemption u/s 54F of the Income Tax Act, 1961 (hereinafter referred

to as ""the Act"") is extendable to the assessee for the total consideration paid by him, for the purchase of the new asset (the residential property) in

the joint name or the exemption would be limited to the extent of the share of the assessee in the said purchased property. This has arisen in the

following circumstances:

The assessee filed his return for the Assessment Year 2007-08 showing total income of Rs. 64,32,220/-. In the assessment proceedings, it was

noticed by the AO that the assessee is proprietor of M/s. Arora Service Station and is running a petrol pump. During the relevant year, the

assessee has shown long term capital gain of Rs. 45,49,045/- on sale of plot of land bearing Khasra No. 526/1, Min and Old No. 526, MIN

Khasra No. 552 and Old Khasra No. 37 situated at Mohuddinpur Kanwani, Tehsil Dadrai, District Gautam Budh Nagar, UP. This plot of land

was purchased by the assessee in his name on 27.1.1989. As per the details filed by the assessee, it was noticed by the AO that this land was sold

for a sale consideration of Rs. 4,33,00,000/- to M/s. Nirala Developers Pvt. Ltd. vide sale deed dated 01.7.2006. Out of total gain arising from

sale of land, the assessee claimed exemption of capital gain to the extent of Rs. 3,18,59,276/- u/s 54F of the Act on account of purchase of a new

house property. The assessee vide reply dated 19.11.2009 field a copy of the purchase deed through which a residential house bearing No. 8,

Block No. 7, situated in layout plan of Safdarjung Enclave, New Delhi was purchased on 01.3.2007 for a total consideration of Rs. 3,28,15,000/-

and claimed exemption u/s 54F of the Act for Rs. 3,18,59,276/-.

On going through the purchase deed of the above residential house, it was noticed by the AO that the purchase deed was made jointly in the

names of the assessee and his wife Smt. Manju Arora. The assessee had claimed exemption u/s 54F of the Act with reference to the whole amount

invested in the said house property. The AO vide questionnaire dated 04.12.2009 asked the assessee to explain his claim of exemption u/s 54F of

the Act with reference to the whole amount invested in the said house inasmuch as the property was purchased jointly with his wife. The assessee

vide reply dated 15.12.2009 submitted that wife''s name was only included in the sale deed just to avoid any litigation after his death though all the

funds invested in the said house were provided by the assessee himself as was clear and evident from the Bank Statement. The assessee, therefore,

submitted before the AO that the exemption u/s 54F of the Act is to be allowed with reference to the full amount of purchase consideration paid by

him for the aforesaid residential house.

The assessee''s submission was considered by the AO. The AO noted that though all the payments were made by the assessee, the residential

house was purchased jointly in the names of the assessee and his wife. The AO then referred to Section 54F of the Act only to the extent of his

right in the new residential house purchased jointly with his wife. The AO, therefore, allowed 50% of the exemption claimed u/s 54F of the Act as

against total claim of Rs. 3,18,59,276/- made by the assessee. The AO allowed claim only to the extent of Rs. 1,59,29,638/- and the balance

50% being Rs. 1,59,29,638/- was disallowed.

Aggrieved by that order, the assessee filed the appeal before the CIT (A), which was also dismissed. However, in further appeal before the

Income Tax Appellate Tribunal (hereinafter referred to as ""the Tribunal""), the assessee has succeeded there as the Tribunal has held that the

assessee is entitled for benefit of Section 54F of the Act with reference to the total investment of Rs. 3,28,15,000/-.

In these circumstances, the instant appeal is filed by the Revenue u/s 260A of the Act, which we have admitted on the following substantial

question of law:

Whether the ITAT was correct in law in granting the exemption u/s 54F of the Income Tax Act, 1961, to the assessee for the whole consideration

of Rs. 3,28,15,000/- for the purpose of the new asset (the residential property) in the joint name of the assessee and his wife, and not to the extent

of 50% share of the assessee in the new asset?

With the consent of the Learned Counsel for the parties, we have heard the matter finally at this stage itself and in our opinion, the question of

law is to be decided in favour of the assessee and against the Revenue. Section 54F(1) of the Act needs to be noted:

Section 54F. CAPITAL GAIN ON TRANSFER OF CERTAIN CAPITAL ASSETS NOT TO BE CHARGED IN CASE OF

INVESTMENT IN RESIDENTIAL HOUSE.

(1) Subject to the provisions of sub-section (4), where in the case of an assessee being an individual or a Hindu undivided family, the capital gain

arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and

the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period

of three years after that date constructed 842a, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be

dealt with in accordance with the following provisions of this section, that is to say, -

(a) If the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be

charged u/s 45;

(b) If the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of

the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged u/s 45 :

Provided that nothing contained in this sub-section shall apply where -

(a) the assessee, -

(i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or

(ii) purchases any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; or

(iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and

(b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable

under the head ""Income from house property"".

Explanation : For the purposes of this section, - ""Net consideration"", in relation to the transfer of a capital asset, means the full value of the

consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in

connection with such transfer.

Plain reading of the aforesaid provision indicates that in order to get benefit of this Section, the assessee should, inter alia, ""purchase"" a house.

As per the Revenue, this house has to be purchased in the name of the assessee only and benefit is not given if it is purchased by the assessee

jointly with his wife.

At the outset, important factual findings recorded by the Tribunal in this case are that it was the assessee who independently invested in the

purchase of new residential house though in his own name but along with the name of his wife also and that it was the assessee who paid stamp

duty and corporation tax at the time of the registration of the sale deed of the house so purchased and has also paid commission and legal expenses

in connection with the purchase of the house. The Tribunal further records that whole of the purchase consideration has been paid by the assessee

and not even a single penny has been contributed by the wife in the purchase of the house. The Tribunal also noted the argument that the property

was purchased by the assessee in the joint name with his wife for ""shagun"" purpose and because of the fact that the assessee was physically

handicapped. The Tribunal further concludes that as a matter of fact, the assessee was the real owner of the residential house in question.

On the aforesaid facts, we are of the view that the conditions stipulated in Section 54F stand fulfilled. It would be treated as the property

purchased by the assessee in his name and merely because he has included the name of his wife and the property purchased in the joint names

would not make any difference. Such a conduct has to be, rather, encouraged which gives empowerment to women. There are various schemes

floated by the Government itself permitting joint ownership with wife. If the view of the Assessing Officer (AO) or the contention of the Revenue is

accepted, it would be a derogatory step.

Even when we look into the matter from another angle, facts remain that the assessee is the actual and constructive owner of the house. In

Commissioner of Income Tax, Bombay etc. Vs. M/s. Podar Cement Pvt. Ltd. etc., the Supreme Court has also accepted the theory of

constructive ownership. Moreover, Section 54F mandates that the house should be purchased by the assessee and it does not stipulate that the

house should be purchased in the name of the assessee only. Here is a case where the house was purchased by the assessee and that too in his

name and wife''s name was also included additionally. Such inclusion of the name of the wife for the above-stated peculiar factual reason should

not stand in the way of the deduction legitimately accruing to the assessee. Objective of Section 54F and the like provision such as Section 54 is to

provide impetus to the house construction and so long as the purpose of house construction is achieved, such hyper technicality should not impede

the way of deduction which the legislature has allowed. Purposive construction is to be preferred as against the literal construction, more so when

even literal construction also does not say that the house should be purchased in the name of the assessee only. Section 54F of the Act is the

beneficial provision which should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied

on hyper technical ground. Andhra Pradesh High Court in the case of Late Gulam Ali Khan Vs. Commissioner of Income Tax, has held that the

object of granting exemption u/s 54 of the Act is that an assessee who sells a residential house for purchasing another house must be given

exemption so far as capital gains are concerned. The word ""assessee"" must be given wide and liberal interpretation so as to include his legal heirs

also. There is no warrant for giving too strict an interpretation to the word ""assessee"" as that would frustrate the object of granting exemption.

We also find judgments of other High Courts giving benefit of Section 54F(1) of the Act when the house of the assessee is purchased jointly

with his wife. In the case of CIT Vs. Natrajan, (2007) 287 ITR 271 (Mad), though this case was decided in relation to Section 54 of the Act, the

said Section is pari materia of Section 54F(1) of the Act. Likewise, the Punjab & Haryana High Court in the case of Commissioner of Income Tax

Vs. Gurnam Singh, took the same view while discussing the provisions of Section 54 of the Act which is again pari materia of Section 54F(1) of

the Act. We, thus, answer the question in favour of the assessee and dismiss this appeal with cost quantified @ Rs. 10,000/-.