(1) Section 54F — Exemption of long-term capital gains where sales consideration is invested in purchase of a house — Whether purchase of house jointly with spouse is eligible — Held, Yes. (2) Section 94(7) — Purchase of units and sale thereof at loss after earning dividend — If date of tender of cheque for purchase of shares was considered as the date of purchase, then the sale was not within three months of purchase — Whether the provisions of section 94(7) attracted — Held, No.

Section 94(7) — Purchase of units and sale thereof at loss after earning dividend — If date of tender of cheque for purchase of shares was considered as the date of purchase, then the sale was not within three months of purchase
— Whether the provisions of section 94(7) attracted — Held, No.

(1) The assessee had made long-term capital gain on sale of shares. The sales proceeds were invested in purchase of row house and exemption u/s.54F was claimed. One of the grounds on which the exemption was denied by the AO was that the house purchased by the assessee was in the joint name of his wife.

(2) The assessee had purchased units of mutual funds of Rs.3 crore on 26-12-2003. On the very same date, the assessee received a dividend of Rs.1.16 crore. On 29-3-2004, the assessee redeemed the units for Rs.1.7 crore and thereby booked a shortterm capital loss of Rs.1.3 crore. The AO found that the cheque of Rs.3 crore for the purchase of units was actually realised on 30-12-2003 and therefore, according to him, the period of holding before the redemption of the said units on 29-3-2004 was only 88 days i.e., less than 3 months. Therefore, according to him, the transaction was hit by the provisions of section 94(7) of the Act. The AO was also of the view that the entire transaction of sale and purchase of mutual fund units was nothing but a colourable device for setting off of the capital gains arising on sale of shares. Accordingly, the set off of short term capital loss claimed by the assessee was denied. On appeal the CIT(A) confirmed the denial of exemption u/s.54F. While on the issue regarding applicability of section 94(7) he noted that the provisions of section 94(7) lays down three cumulative conditions, the non-fulfilment of any one of the conditions would result into non applicability of section 94(7). Thus, if the date of the purchase as claimed by the AO was 30-12-2003, then it cannot be said that the units were purchased within three months prior to the record date because the record date was 26-12-2003 when the dividend was declared. Thus, one of the conditions essential for application of section 94(7) is not fulfilled. Secondly, the CIT(A) noted that the mutual fund had accepted 26-12-2003 as the date on which the units were allotted to the assessee. Based on the said date, the second conditions viz. that the units are sold within a period of three months was also not fulfilled. Accordingly, it was held that the provisions of section 94(7) were not applicable. As regards the point raised by the AO that the entire transaction was a colourable device, the CIT(A) relying on the decision of the Bombay High Court in the case of CIT v. Walfort Share & Stock Brokers Pvt. Ltd., Appeal No. 18 of 2006 held that as the conditions of section 94(7) have not been fulfilled, no disallowance was permissible.

Held:

(1) The Tribunal noted that the total consideration for the house had been met by the assessee. According to it the assessee had added the name of his wife only for the sake of convenience. It also drew support from the provisions of section 45 of the Transfer of Property Act which provides that the share in the property will depend on the amount contributed towards the purchase consideration. Further, relying on the decisions listed below, the Tribunal held that since the total consideration for the house had been paid by the assessee, the exemption cannot be denied on this ground.

• The decisions relied on are as under:  ITO v. Arvind T. Thakkar in ITA No. 7338/Mum./2005 vide order dated 29-4-2011;
•  Ravinder Kumar Arora v. ACIT in ITA No. 4998/ Del./2010 vide order dated 11-3-2011; and
•  DIT v. Mrs. Jennifer Bhide, (2011) 15 Taxmann 82 (Kar.). (2) As regards section 94(7) The Tribunal noted that the whole issue revolved around the date of purchase of units. The Tribunal agreed with the findings of the CIT(A) and the appeal filed by the Revenue was dismissed.