July 2019

Section 54 – Condition of not owning more than a residential house on the date of transfer of the original asset would mean absolute ownership and does not cover within its sweep a case where the assessee jointly owns residential house together with someone else

Jagdish T.Punjabi|Devendra Jain | Tejaswini Ghag
Chartered Accountants

16[2019] 105 taxmann.com 204 (Mum) Ashok G. Chauhan vs. ACIT ITA No. 1309/Mum/2016 A.Y.: 2010-11 Date of order: 12th April, 2019

 

Section 54 – Condition of not owning more than a residential house on the date of transfer of the original asset would mean absolute ownership and does not cover within its sweep a case where the assessee jointly owns residential house together with someone else

 

FACTS

The assessee, an individual, filed his return of income after claiming deduction u/s. 54F of the Income-tax Act, 1961 (“the Act”) in respect of capital gains arising from transfer of tenancy rights. In the course of re-assessment proceedings, the Assessing Officer (AO) observed that the assessee was owner of two residential houses, one of which was jointly held by him with his wife. The AO rejected the claim for deduction u/s. 54F on the ground that the assessee owned two flats on the date of transfer of tenancy rights.

 

Aggrieved, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals) who upheld the order passed by the AO.

 

HELD

The Tribunal observed that the Legislature has used the word ‘a’ before the words ‘residential house’ and held that what was meant was a complete residential house and not shared interest in a residential house. It held that joint ownership is different from absolute ownership and that ownership of residential house means ownership to the exclusion of all others. The Tribunal relied on the judgement of the Supreme Court in the case of Seth Banarasi Dass Gupta vs. CIT [(1987) 166 ITR 783] wherein it is held that a fractional ownership was not sufficient for claiming even fractional depreciation u/s. 32 of the Act.

 

The Tribunal noted that because of this judgement, the Legislature had to amend section 32 with effect from 1st April, 1997 by using the expression ‘owned wholly or partly’. But while the Legislature amended section 32 it chose not to amend section 54F. The Tribunal held that since section 54F has not been amended the word 'own' in section 54F would include only the case where a residential house is fully and wholly owned by the assessee and consequently would not include a residential house owned by more than one person.

 

Hence it was held that the claim for exemption u/s. 54F could not be denied. The appeal filed by the assessee was allowed.

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