Sharing of Cost b/w Husband and Wife Irrelevant for S. 54F: ITAT Denies Capital Gain Exemption to Wife since Husband is Legal Owner as per Sale Deed [Read Order]

While hearing the case between Raghuram P Nambyar and Assistant Commissioner of Income Tax, Bangalore bench of Income Tax Appellate Tribunal (ITAT) recently held that sharing of cost between husband and wife is not a ground to allow capital gain exemption under section 54F of the Income Tax Act 1961 to both of them upon transfer of jointly owned property. The bench further denied the benefit of the provision to the wife as the sale deed recognizes only Husband as the legal owner of the transferred property.

The assessee in the instant case Mr.Raghuram P Nambyar had purchased a vacant site in his name. During the financial year 1991-92, a residential property was constructed and the Assessee and his wife resided therein.

Thereafter, the property was sold to S. Venkata Ramanan vide registered sale deed for a consideration of Rs. 6,00,90,049. However long-term capital gain at Rs.3,00,45,025 in the hands of both the Assessee and his wife Veena Nambiar. Both of them reinvested the capital gain by the purchase of new properties and also claimed exemption under section 54EC of the Income Tax Act 1961 on account of long-term capital gain.

During the course of assessment proceedings, the Assessing Officer (AO) noticed that the Long Term Capital Gain on sale of the said property is exigible to tax fully in the hands of Raghuram P Nambyar only and not in the hands of Veena Nambyar and accordingly he denied her claim of exemption by holding that the taxability of the income from LTCG in the hands of Veena Nambyar does not arise at all, since the assessee has no share in the ownership of the said property. On the other hand, in the case of Raghuram Nambyar, the AO observed that according to the sales deed he is the only owner of the property, therefore the entire LTCG on sale of the aforesaid property would be taxable in the hands of the Assessee and the assessment was completed accordingly.

Thereafter, the Assessee carried the matter before the CIT(A) and counsel for the Assessee have submitted that both of them have equal contribution in the aforesaid property, hence both husband and wife are eligible to get capital gain exemption under the said section. The authority refused to accept the contention of the Assessee and also upheld the findings of the AO by holding that assessee was the sole and absolute owner of the aforesaid property and therefore the entire LTCG arising on sale of the aforesaid property and the same is exigible to tax in the hands of the assessee alone.

After considering the rival submissions and analyzing the facts and circumstances of the case, the Tribunal bench comprising of Judicial Member Jason P Boaz and Accountant Member Sunil Kumar Yadav observed that “certain amounts have been transferred from her account to that of her husband  Raghuram P Nambyar and others; but that the said transfers were for the purpose of construction of the residence, is not supported or corroborated by any bills to prove the assessee's claim that they were utilized for construction. No documentary evidence in this regard has been placed either before the authorities below or before the bench. This being the factual position that Veena Nambyar is not the owner of the said property, and the authorities below have rightly rejected her claim for exemption under section 54F and 54EC of the Act and correctly brought the entire LTCG arising on sale of the said property in the hands of the assessee  Raghuram P Nambyar”.

While concluding the issue the division bench further held that benefit of section 54F and 54EC of the Act on account of capital gain cannot be allowed since the Assessee (Wife) has failed to prove ownership of the property and the sales deed recognizes only one of them as the legal owner.

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