The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), allowed capital gain exemption on assessee who is not exclusive owner of multiple residential properties occupied by other family members.
The appellant/assessee, Zainul Abedin Ghaswala, is an individual who filed a return of income declaring total income. The return of income filed by the assessee was selected for scrutiny, and statutory notices under the Income Tax Act were issued and complied with. In the assessment completed under Section 143(3) of the Income Tax Act, the Assessing Officer (AO) disallowed the claim of the assessee for deduction under Section 54F of the Income Tax Act against the capital gain on the transfer of a long-term capital asset.
The AO noted that the assessee owned an interest in more than one residential property, and therefore, he was not entitled to a deduction under Section 54F of the Income Tax Act. The point of consideration before the Tribunal was whether the co-ownership of the assessee in more than one residential property could make the assessee liable for non-eligibility of deduction under Section 54F of the Income Tax Act.
The Assessing Officer rejected the submission of the assessee and held that since the assessee owned six residential house properties, though jointly, the conditions mentioned in Section 54F of the Income Tax Act were not fulfilled. Hence, the assessee is not eligible for exemption under Section 54F of the Income Tax Act.
The Counsel for the assessee contended that even if the assessee co-owner owns more than one house, fractional ownership of a property does not amount to violating the conditions laid down under Section 54 of the Income Tax Act and hence the assessee is entitled to capital gain exemption.
A two-Member Bench of the Tribunal comprising Kavitha Rajagopal, Judicial Member and Om Prakash Kant Accountant Member, observed that “The claim of deduction under Section 54 of the Income Tax Act need to be allowed, as there is no material to show that assessee is exclusively owner of the other five residential properties/flats which are occupied by the other family members.”
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