In a recent case, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has allowed the Long-Term Capital Gain (LTCG) tax exemption of Rs. 1.3 Crore granted to the husband and wife despite considering the sale of the 2 properties, which ultimately was for the purchasing of joint property.
Tejal Kaushal Shah, the appellant/assessee, is an individual who filed her income return, stating her complete income. After the assessee’s case was chosen for review, the assessee received the appropriate notices. After claiming the benefit of indexation, the assessee sold immovable property and showed a long-term capital gain (LTCG) of Rs. 1,30,30,729, according to the Assessing Officer. The assessee also claimed an exemption under section 54 of the Income Tax Act for the new property acquired through a deed of transfer.
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The assessee paid Rs. 1,76,00,000 and her husband, Kaushal Anil Shah, paid Rs. 55,00,000 of the Rs. 2,31,00,000 total consideration for the purchase of the new property. The assessee and her husband were alleged to be co-owners of the new residential home they had bought.
The AO also noticed from the assessee’s husband’s income return that he had sold another property and made a capital gain from it. He also claimed a deduction under section 54 of the Act for the new property that the assessee and her husband jointly bought.
The AO denied the assessee’s claim of exemption in her case because she and her husband had each separately claimed an exemption under Section 54 for their contributions to the purchase of a new residential home. In addition, the AO determined that the new property had been acquired by transferring two residential homes, which was against Section 54’s requirements.
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The assessee claims that there was a mistake in the registered agreement because the assessee’s name is only listed as the “Second Owner” in the purchase agreement of the old property that the assessee sold, while the assessee’s husband’s name is listed as the “First Owner,” according to the AO.
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An addition/disallowance was made by the AO. In accordance with section 23(1) of the Income Tax Act, the AO also added Rs. 10,43,158 to the annual letout value of the office space at Juhu Lane. This was done after taking into account the neighbourhood office’s fair rental value, which can be found on www.magicbricks.com, and calculating the assessee’s total income, which came to Rs. 1,46,19,990.
The assessee argued that the requirements of Section 54 had been met and that the sole change was that the modified clause now states that “one” residential dwelling in “India” had been “purchased” or “constructed,” rather than “a residential house,” which was only effective as of April 1, 2015.
When the assessee and her husband invested in a single residential property, the department argued that the assessee had breached the terms of Section 54 by claiming an exemption against the sale of two residential dwellings. Although it is clear from the sale agreement that the assessee’s husband’s name appears first as the purchaser, the assessee has not proven that the old property that was sold was bought by the assessee.
The two-member bench of Renu Jauhri, an accountant, and Kavitha Rajagopal, a judicial member, has noted that the benefit under section 54 of the Income Tax Act cannot be denied simply because the property was bought jointly in the names of the assessee and her husband. In the case of jointly held property, the capital gain will be determined for each owner based on the funding and distribution of shares of the house properties for the purpose of claiming tax benefits.
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The bench ordered the AO to confirm that the assessee and her husband had not claimed a double deduction for the capital gain from the sale of the property they had claimed, and to permit the deduction under Section 54 of the Income Tax Act up to the amount of money the assessee had invested in the acquisition of the new property.
The tribunal found no explicit prohibition on the assessee claiming the deduction on a jointly purchased property. The ITAT ruled that courts have adopted a liberal stance regarding the assertion that Sections 54 and 54F are advantageous provisions that should be construed broadly in the assessee’s favor and that deductions shouldn’t be arbitrarily rejected on the basis of excessive technicality.
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