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

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 1^st 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.