When assessee purchases property in wife's name


Dear sir,

I would like to have the opinion of your experts in the following matter with thabks in advance

My client has sold his agricultural land and from out of part of the the proceeds he wants to construct a house in the name of his wife. Will he get concession for capital gains tax in this case?

Section 54F states that the assessee should utilise the net consideration in the purchase or construction of residential property but it does not say that the residential property shoud be purchased in the name of the assessee and it states that the income from the new asset should be chargeable to tax under "income from house property"  and that also not in the name of the assesee only.

According to the strict wording of the section, on the faceof it,  it appears that the the residential property need not be purchased in the name of the assessee only but the gain should be invested somehow. Perhaps some case law if any, in the matter also will be helpful

 
Reply   
 

First of all the agricultural land as per the defintion of the income tax act has a different character and you must be aware of it.

If it's an agricultural land covered under the definition under the income tax act, then the question of taxing it does not arise.

If it's not covered under the definition then the sale would be chargeable to tax. 

In order to avail the benefits U/s. 54F you shall have to invest the sales consideration less the selling expenses i.e. brokerage or other sales exp. for buying the residential house. Do remember, AS PER THE PROVISIONS OF SECTION 54F IS CONCERNED YOUR CLIENT MUST OWN ONLY ONE HOUSE PROPERTY PRIOR TO THE PURCHASE OF THIS NEW HOUSE PROPERTY, taking the total to two houses including the new house property. 

However the following case laws may help you to provide a clarity with respect to purchase a HP in joint name with your wife but not in wife's name individually.

Here are a few case laws for your reference

 

The Punjab & Haryana High Court in the case of CIT v. Gurnam Singh, 327 ITR 278.

In the following decisions also, exemption has been allowed to the assessee for investment in the sole/joint name with wife :

(1) CIT v. V. Natrajan, 287 ITR 271 (Mad.)

(2) ITO v. Smt. Saraswati Ramanathan, 116 ITD 234 (Del.)

(3) JCIT v. Smt. Armeda K. Bhaya, 95 ITD 313 (Mum.)

 

4) HIGH COURT OF DELHI, ITA No.1106 of 2011, Decision Delivered On: 27th September, 2011,Commissioner Of Income Tax Versus Ravinder Kumar Arora

 

 

 

5) CIT Vs. Podar Cements (P) Ltd. & Ors., (1997) 226 ITR 625 (SC), the Supreme Court has also accepted the theory of constructive ownership. Moreover, Section 54F mandates that the house should be purchased by the assessee and it does not stipulate that the house should be purchased in the name of the assessee only. Here is a case where the house was purchased by the assessee and that too in his name and wifes name was also included additionally. Such inclusion of the name of the wife for the above-stated peculiar factual reason should not stand in the way of the deduction legitimately accruing to the assessee. Objective of Section 54F and the like provision such as Section 54 is to provide impetus to the house construction and so long as the purpose of house construction is achieved, such hyper technicality should not impede the way of deduction which the legislature has allowed. Purposive construction is to be preferred as against the literal construction, more so when even literal construction also does not say that the house should be purchased in the name of the assessee only. Section 54F of the Act is the beneficial provision which should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied on hyper technical ground. Andhra Pradesh High Court in the case of Late Mir Gulam Ali Khan Vs. CIT, (1987) 165 ITR 228 (AP) has held that the object of granting exemption under Section 54 of the Act is that an assessee who sells a residential house for purchasing another house must be given exemption so far as capital gains are concerned. The word “assessee” must be given wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word “assessee” as that would frustrate the object of granting exemption.

We also find judgments of other High Courts giving benefit of Section 54F(1) of the Act when the house of the assessee is purchased jointly with his wife. In the case of CIT Vs. Natrajan, (2007) 287 ITR 271 (Mad), though this case was decided in relation to Section 54 of the Act, the said Section is pari materia of Section 54F(1) of the Act. Likewise, the Punjab & Haryana High Court in the case of CIT Vs. Gurnam Singh, (2010) 327 ITR 278 took the same view while discussing the provisions of Section 54 of the Act which is again pari materia of Section 54F(1) of the Act.

 

BUT THE SALES CONSIDERATION MUST FLOW FROM THE ACCOUNT OF YOUR CLIENT AND THE CLUBBING PROVISION WOULD ALSO BE ATTRACTED OVER HERE. DO REMEMBER TO CONSIDER THE RENTAL INCOME IN THE SOLE NAME OF YOUR CLIENT AND NOT HIS WIFE AND INTEREST DEDUCTION UNDER HOUSE PROPERTY, IF ANY, SHOULD BE RESTRICTED TO YOUR CLIENT'S ACCOUNT.

BUT STILL, THERE ARE MANY COMPLEXITIES SORROUNDING THIS ISSUE. HOPE THIS WOULD HELP YOU A LITTLE. DO LOOK FOR MORE DECISIONS BEFORE ADIVICING.

 
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THE OPEN PLOT WHEREIN THE CONSTRUCTION IS BE CARRIED OUT MUST HAVE BEEN PURCHASED BY YOUR OWN FUNDS.

 
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Director

To sum up, if the new hosue is constructed under exclusive ownership of wife, husband will not get any exemption u/s 54F.

 

He can make her joint owner and fund the entire investment from his own account as per scheme of section 54F.

 
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ADVOCATE

Please see: 

CIT v. Ravindra Kumar Arora

 

Month-Year :

May - 2012

Author/s :

342 ITR 38 (Del.) [BCAJ]

Title :

CIT v. Ravindra Kumar Arora

 

Details :

The assessee sold a land being a long-term capital asset and invested the sale proceeds in a residential house which was purchased in the joint  name of the assessee and his wife. His wife had not made any contribution. The assessee’s claim for deduction u/s.54F of the Income-tax Act, 1961 was rejected by the Assessing Officer on the ground that the house had been purchased in the joint names of the assessee and his wife. The Tribunal allowed the assessee’s claim. On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:

“(i) Section 54F of the Income-tax Act, 1961, is a beneficial provision which should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied on a hyper-technical ground.

(ii) The condition stipulated in section 54F stood fulfilled. It would be treated as the property purchased by the assessee in his name and merely because he had included the name of his wife and the property purchased in the joint names would not make any difference. The assessee was entitled to exemption u/s.54F.”

On the basis of this decision you may make the investment in your joint names & claim relief under S 54F.

 
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Dear Sir, I need your advice on paying service tax on my new flat which is still under construction. The Flat was booked on Dec 2011. By June 2012 , I paid 15 lakh and paid rest anther 15 lakh till now. Now builder is asking for more money since the service tax is increased and charging on all the amount paid till date. I have below questions on this.

1. Do I have to pay the increased tax on whole amount or the amount paid after July 12.

2. Is service tax is payble on car parking / Registration value / STP / KEB etc etc or only on the Flat value.

 
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ADVOCATE

I regret my inability to give an opinion on a subject other than income tax.

 
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Hi

A similar question to the one above. What if the mother sells her property and purchases another one from the proceeds in her son's name only (and not her name).

The reason is to avoid any litigation post her death when other children may claim mother's share in the new property as well.

Will she be liable to pay capital gains tax in such a case where new property is not registered in her name but the source of funds are from her old property sale?

Also is there a limitation on number of houses that one owns for this exemption? The son already owns 1 house and this one would be his 2nd house

 
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Dear Sir,

My father decided to give property to me as executing settlement deed. My husband is planning to construct house in that plot by selling his 2 residential plots in it.

Is my husband is eligible under 54F of income tax for the capital gain?

I want some case laws also.

thanks in advance

Sumathi

 
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