In a recent ruling, the Income Tax Appellate Tribunal (ITAT) Pune Bench held that full deduction claim under Section 54F of the Income Tax Act 1961 (ITA) is allowable on capital gains reinvestment with proforma purchaser.
The primary issue in the case was whether the appellant/assessee was entitled to a full deduction, given that the new property was registered in both his and his son’s names.
The appellant/assessee, Sambhaji Maruti, a senior citizen, sold a capital asset on October 27, 2020, for ₹7.81 crore, generating long-term capital gains of ₹5.42 crore.
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In accordance with Section 54F of ITA, which provides for tax relief if the gains are reinvested in a residential property, the appellant reinvested the capital gains in a new house for ₹5.72 crore. However, as the property was jointly purchased with his son, the Assessing Officer (AO) restricted the Section 54F deduction of ITA to 50%, citing the Bombay High Court ruling in Prakash vs ITO (2008), which limited such deductions when the property was not solely owned by the taxpayer.
Aggrieved, the appellant approached the Commissioner of Income Tax (Appeals) [CIT(A)] against the order.
Before CIT(A) , the appellant contested the AO’s decision, arguing that his son was a mere proforma purchaser, and that his name was included solely for succession purposes, as he intended for his son to inherit the property without legal complications. It was further asserted that since the full amount for the purchase came from the appellant’s own funds, he should be entitled to the entire deduction. In support, he cited several favorable rulings from other High Courts, including Ravinder Kumar Arora and Kamal Wahal, which interpreted Section 54F of the tax statute liberally to allow full deductions even when properties were jointly owned or in the name of a spouse.
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The CIT(A) after hearing the arguments sided with the appellant, allowing the full deduction. It rejected the AO’s reliance on Prakash vs ITO, noting that in the appellant’s case, there was no distinction in ownership shares between the father and son, and the funds for the purchase had come entirely from the appellant. It was held that joint ownership, in this case, was for convenience, and did not preclude the taxpayer from claiming the full deduction.
Aggrieved, the Revenue appealed before the ITAT against the CIT(A)’s decision.
Before the tribunal, both sides maintained their previous arguments.
The bench of Mr Rama Kanta Panda and Mr Satbeer Singh Godara, after considering both the Revenue and the appellant’s cross-objections, upheld the CIT(A)’s decision to allow the full 54F deduction under the tax legislature.
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Thus, the tribunal confirmed that the joint purchase did not bar the appellant from claiming the entire deduction, given that the investment had come from his own funds. In result, the Revenue’s ground was rejected.
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