Deduction u/s 54 allowed for property purchased from wife by General Power of Attorney

Deduction u/s 54 allowed for property purchased from wife by General Power of Attorney as transfer of immovable property by a General Power of Attorney constitute transfer of capital asset.

ABCAUS Case Law Citation:
ABCAUS 2594 (2018) (10) ITAT

The appellant assessee’s appeal was directed against the order passed by the CIT (Appeals) wherein he had dismissed the assessee’s appeal against the consequential assessment order passed u/s 143(3) of the Income Tax Act, 1961 (the Act) subsequent to the proceedings u/s 263 of the Act.

The case if the assessee was selected for scrutiny under CASS and the original assessment was completed after making inter alia addition on account of unexplained cash credit u/s 68 of the Act. Subsequently, the CIT initiated proceedings u/s 263 of the Act on the ground that the assessee had claimed deduction u/s 54 of the Act although, as per the CIT, the assessee was not eligible for such deduction as the assessee was not the legal owner of the property for which he had claimed deduction u/s 54 of the Act.

The CIT observed that while claiming the benefit of exemption u/s 54, the assessee had claimed benefit of exemption of property purchased from his wife which was transferred to the assessee by his wife by a General Power of Attorney instead of a sale deed.

After issuing show cause notice and taking the submissions of the assessee on record, the CIT reached the conclusion that the case required a deeper investigation by the Assessing Officer. He, accordingly, set aside the file to the office of the Assessing Officer with the direction to re-examine the entire matter.

Thereafter, the Assessing Officer completed the assessment u/s 143(3) r/w section 263 by making an addition by holding that the assessee’s claim u/s 54 of the Act was not allowable.

The assessee’s appeal against this assessment was dismissed by the CIT (A).

The assessee submitted that the only ground for reopening the assessment u/s 263 of the Act was that the impugned property was not transferred by sale deed but by a General Power of Attorney which did not make the assessee a full legal owner of the property.

It was further submitted that the assessee had submitted various documents to support the purchase transaction like payment receipt, agreement to sell possession letter and also copy of the bank statement of the wife to demonstrate that payment had, in fact, been made for the purchase of property.

It was also submitted that the General Power of Attorney was duly registered. That the transfer was covered under the definition of transfer as envisaged in section 2(47)(v) of the Act.

Placing reliance on judicial precedents, it was contended that the disallowance of claim made u/s 54 had been incorrectly made by the Assessing Officer and incorrectly upheld by the CIT (A).

The Tribunal observed that the issue was squarely covered in favour of the assessee by the judgment of the Hon’ble jurisdictional High Court which while referring to section 2(47) of the Act, held that conveyance of immoveable property by a General Power of Attorney constituted transfer of capital asset.

The Hon’ble High Court also held that the Circular directing Registrars not to register conveyance of immoveable property by a General Power of Attorney was contrary to the observation of the Hon’ble Apex Court and was liable to be set aside.

The Tribunal observed that in the instant case, the only objection of the various authorities to allowing the benefit of claim made u/s 54 of the Act was that the property was transferred by a General Power of Attorney.

The Tribunal noted that the payment had been made from the husband to the wife for purchase of property was undisputed and was evidenced by the bank statement of the assessee’s wife. Further, possession letter was also on record.

The Tribunal opined that in view of the binding judgment of the Hon’ble High Court the findings of the lower authorities could not be accepted.

Accordingly, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to allow benefit of exemption u/s 54 of the Act to the assessee.

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