July 2019

CO-OWNERSHIP AND EXEMPTION UNDER SECTION 54F

Pradip Kapasi|Gautam Nayak|Bhadresh Doshi
Chartered Accountants

ISSUE FOR CONSIDERATION

An assessee, whether an individual or an HUF, is exempted from payment of income tax on capital gains arising from the transfer of any long-term capital asset, not being a residential house, u/s. 54F of the Income-tax Act on the purchase or construction of a residential house within the specified period. This exemption from tax is subject to fulfilment of the other conditions specified in section 54F. One of the important conditions required to be satisfied in order to be eligible for claiming exemption u/s. 54F is about the ownership of another residential house, other than the one in respect of which the assessee intends to claim the exemption, as on the date of transfer of the asset.

 

This limitation on ownership of another house is placed in the Proviso to section 54F(1). Till the assessment year 2000-01, the condition was that the assessee should not own any other residential house on the date of transfer other than the new house in respect of which the assessee intends to claim the exemption. Thereafter, the rigours of the Proviso to section 54F(1) were relaxed by amending the same by the Finance Act, 2000 w.e.f. 1st April, 2001 so as to provide that the assessee owning one residential house as on the date of transfer of the original asset, other than the new house, is also eligible to claim the exemption u/s. 54F. This condition prescribed by item (i) of clause (a) of the Proviso to section 54F(1) reads as under: “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...”

 

Therefore, ownership of more than one residential house, on the date of transfer, is fatal to the claim of exemption u/s. 54F.

 

In respect of this condition, the controversy has arisen in cases where the assessee is a co-owner of a house besides owning one house on the date of the transfer. The question that has arisen is whether the residential house which is not owned by the assessee exclusively but is co-owned jointly with some other person should also be considered while ascertaining the number of houses owned by the assessee as on the date of transfer of the original asset. The issue involves the interpretation of the terms ‘owns’ and ‘more than one residential hou

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