(This story originally appeared in on Apr 08, 2024)

MUMBAI: It is quite common to include the name of a spouse in the ownership of a flat. A recent decision of the Mumbai-bench of the Income-tax Appellate Tribunal (ITAT) will prove useful to many. The ITAT has held that such joint-ownership will not impact the spouse’s eligibility to claim tax benefits under section 54-F of the Income-tax (I-T) Act, relating to long-term capital gains, when he/she sells another asset (say land, shares etc) and reinvests the sale proceeds in another flat.

When a taxpayer earns long-term capital gains from sale of any asset (other than a house property), the tax arising on the gains can be saved by investing the net sale proceeds in a residential property. The quantum of exemption depends on the amount invested in the new house. If the amount invested is less than the net sale consideration then the exemption is proportional.

To claim this exemption certain conditions need to be met. One of which is that the taxpayer must not own more than one residential house (other than the new house in which the investment is being made), on the date of sale of the original asset.

Recently in the case of S. Singh, the ITAT held: “Joint ownership in two residential properties at the time of sale of the original asset does not disentitle the taxpayer to claim a deduction under section 54F of the Income-tax (I-T) Act.”

In this case the taxpayer had sold agricultural land (ie: the original asset) in Bhopal and earned long-term capital gains of Rs. 61.6 lakh during the financial year 2012-13. Owing to investment in a new house within the prescribed time frame, she claimed an exemption under section 54F.

Her case came up for scrutiny and details submitted by her showed that she held two residential properties as on the date of sale of this land. Both properties were jointly held, one with her husband and other with her father’s HUF. As she held more than one house, the I-T officer denied the deduction of Rs. 61.6 lakh claimed by her.Singh submitted that the residential property in which she was residing with her husband, was jointly owned with the loan being repaid by her husband. As regards the ownership in the HUF-held property, she explained she was again just the joint owner and at the time of sale of the agricultural land.While divergent high court decisions existed, the ITAT held that the Supreme Court had laid down a principle that if two views are possible, the one more favourable to the taxpayer must be adopted. Accordingly, it was held that Singh could claim this tax benefit.

According to Amarpal Singh-Chadha, tax partner at EY-India, this issue is contentious. “Given that there are contrary rulings also on the matter, such as that of the Karnataka high court, I-T authorities may not allow the deduction claimed by a taxpayer.”

He advises that, “Taxpayers in a similar situation, falling within a jurisdictional tribunal or court which is holding a favourable view, may rely on the favourable decision to support their claim. Also, to avoid any penalty risk, taxpayers should provide complete disclosure in their tax return and in their responses to tax notices,”



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