A Co-Owner is Entitled to get full Benefit of S. 54F when Entire Cost of New Property was borne by him: ITAT Mumbai

sale of property - GPA - Property Tax - ITAT

ITAT also held that Assessee cannot be subjected to Capital Gain Tax when the property was co-owned with his wife and she had paid capital gain separately for her share of the house.

In Jithendra V Faria v. ITO, the Mumbai ITAT has held that AO cannot deny exemption under Section 54F of the Income Tax Act to the assessee when the entire cost of new property was borne by him though the property is in the joint name with his brother.

The Single Member bench also held that the assessee is not liable to pay tax for the entire capital gain on sale of old property when 50% of the old house was owned by his wife and she had paid capital gain separately for her share of the house.

The assessee owned a property along with his wife. On sale of the property, the assessee got 50% of the sale consideration and invested the same in purchasing another property along with his brother. Assessee claimed that entire cost of purchase had been borne by him and therefore, he is entitled to get full deduction under section 54F of the Income Tax Act. However, the assessing officer rejected the claim and allowed only 50% deduction to the assessee since he is entitled to only 50% of the investment so made in the new property purchased. At the same time, the Officer observed that the entire capital gain on share of old property is taxable in the hands of assessee. The appeal filed against the above order was dismissed by the first appellate authority. Aggrieved by the orders, the assessee preferred a second appeal before the ITAT.

The Single Member found that the wife has already offered her share of capital gains in her return of income filed  with the Department and therefore, the view of the Assessing Officer that the entire sale consideration in taxable in the hands of the assessee is not sustainable.

With regard to the claim of s. 54F, the bench said that there is no justification in the AO’s  action, in so far entire investment was made by the assessee and only for  the safety reason he has included the name of his brother. I found that in the assessment order itself at page 2, the AO has observed that entire cost  of new property was borne by the assessee though the property is in the  joint name with his brother. “Under these facts and circumstances, there is no justification for giving  50% benefit of investment in the new house. The issue is also covered by  the decision of hon’ble Delhi High Court in the case of CIT v Ravinder Kumar Arora (2012) 342 ITR 38 (Del) wherein High Court held that the  assessee was entitled to full exemption u/s. 54F when the full amount was  invested by the assessee even though the property was purchased in the  joint names of the assessee and his wife. It may be appreciated that even in the case before the hon’ble Delhi High Court, the AO had allowed  exemption only to the extent of 50%.

Read the full text of the Order below.