It is an admitted fact that
after the disintegration of joint families, we are becoming more and more
individualistic. Nevertheless, even today, although in a nuclear form, the
family system is still surviving. The social and legal systems still recognise
the concepts of family members, close relatives and particularly, the sanctity
of relationship between husband
and wife.
Even today, the family and
especially men feel a psychological comfort by having a residential house in
their wife’s name or at least, add her as a joint holder. It is a different
matter that such holding by the wife is often used for so-called tax-planning,
in a crude manner.
Even the provisions of the
Benami Transactions (Prohibition) Act, 1988, protect the holding of property in
a spouse’s name [refer S. 3(2)]. The Income-tax Act also expressly protects
certain transactions from taxability (e.g., S. 56 — gift from relative) or
indirectly recognises the importance of close relations (in a negative way) in
terms of S. 64, S. 27, S. 40A(2), etc. Needless to state that in
‘jurisprudence’, ‘custom’ is regarded as a primary source of law.
Against this background, it
is a matter of grave concern that the Income Tax Department is now denying
exemption u/s.54/54F merely on grounds that the new house is purchased in joint
name with the spouse !
The unfairness :
In a typical case, the asset
sold is in the single name of the husband. He invests the sale proceeds in a
residential house and in the agreement to purchase, he adds his wife’s name as a
joint-purchaser.
The money flow of sale
proceeds and purchase price can easily be traced and established. The husband
shows the house in his balance sheet as his asset. He declares income from house
property, in his return of income only. No part of the house or income is
included in the return of wealth or income of the wife. Yet, the Income Tax
Department raises an objection that since a joint interest is created, the
condition that the ‘assessee should purchase a residential house’ is not
satisfied!
Not only this, but the
exemption is denied even for the purchase of a part of the house.
The relevant cases are
discussed in the succeeding paragraphs.
Case Law :
Readers may be aware that in
the past, the judiciary was very much favourable to assessees in this regard.
There are decisions that not only the joint name, but even purchase in the
exclusive name of the wife would also be eligible for exemption u/s.54 or
u/s.54F.
At the same time, the
extreme view that the purchase even in a stranger’s name would also be eligible
is difficult to digest. It is too legalistic an interpretation that the Section
merely says ‘purchases or constructs’; and is silent about the name in which it
should be acquired.
The Mumbai Tribunal has held
it against the assessee (case of ITO v. Shri Niranjan Singh Bajaj, ITA
No. 2040/Mum./2006). The Members have placed reliance on a Bombay High Court
decision in the case of Prakash s/o Timaji Dhanjode v. ITO, 312 ITR 40.
However, the facts in the
Bombay High Court decisions were materially different. There, an 86-year-old man
purchased the house in his major stepson’s name with an express intention of
giving the house to the son. This cannot be equated with a purchase of a house
in the joint name with wife. The reasons are obvious :
(i) In terms of S. 27(i),
the assessee (husband) alone is deemed to be the owner of the house.
(ii) The Department’s
objection that at the time of sale, wife’s signature will be required and she
will be entitled to a half share is also taken care of by S. 64. The capital
gains will be taxed in the hands of the husband only.
(iii) There are many other
judicial decisions granting exemption and approbating purchase in joint names.
And with respect, it can be seen that even the Bombay High Court decision (312
ITR 40) is also based on the particular facts of that case.
It would be unjust and
unfair to generalise the decision.
The Punjab & Haryana High
Court in the case of CIT v. Gurnam Singh, 327 ITR 278 has also taken a
favourable view recently.
In the following decisions
also, exemption has been allowed to the assessee for investment in the
sole/joint name with wife :
(1) CIT v. V. Natrajan,
287 ITR 271 (Mad.)
(2) ITO v. Smt. Saraswati
Ramanathan, 116 ITD 234 (Del.)
(3) JCIT v. Smt. Armeda K.
Bhaya, 95 ITD 313 (Mum.)
Suggestions :
In the context of S. 27, S.
64 and having regard to the social custom, and also considering the fact that
the Bombay High Court gave the decision in a different context, the exemption
u/s.54/54F should not be denied merely because the purchase is in joint name
with spouse. Law should be clarified or the CBDT should issue a Circular to
avoid unnecessary and avoidable litigation.
