Capital Gain exemption u/s 54 denied for investment not out of sale proceeds

Capital Gain exemption u/s 54 denied for investment not out of sale proceeds

ABCAUS Case Law Citation
ABCAUS 3646 (2023) (01) ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of Assessing Officer (AO) in restricting capital gain exemption u/s 54 of the Income Tax Act, 1961 (the Act) to 50 percent on the ground that the new property in which the amount of capital gain was invested was in joint name of the assessee and her son and payments had been made out of the earnings / contribution of her son.

Before the CIT(A), it was the specific case of the assessee that as per the provision of Section 54 of the Act, if a person within a period of one year before two years after the date of transfer of the old house acquires another residential house or constructs a residential house within a period of three years from the date of transfer of the old house, he is eligible for exemption u/s 54 of the Act.  Thus, it was not specifically required under law that the house should be purchased in the name of the assessee only.

The Tribunal observed that the part payment by the appellant assessee for purchase of the new house/flat was made on the date(s) which were prior to the sale of the old property.

The Tribunal further observed that the assessee did not have any source of income and there were no deposit from the assessee and the only deposit came after sale of property.

The Tribunal noted that the said part payment was made by the son of the assessee for purchase of new Flat.  

In view of the above facts, the Tribunal held that since the assessee and her son jointly invested the house property and were the joint owners of the house property having 50% right the Assessing Officer was correct in restricting the claim of the assessee.

Accordingly, the appeal of the assessee was dismissed.

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ABCAUS Note:
The above view taken by the ITAT is contrary to the view taken by Coordinate Benches of the Tribunal and Hon’ble High Courts that Section 54 Exemption does not require utilisation of sale proceeds of original capital asset only Read More >>

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