Exemption u/s 54F can not be denied for merely making wife & son as co-owners of property

Exemption u/s 54F can not be denied merely making wife & son as co-owners of property 

In a recent judgment, Hon’ble High Court of Punjab and Haryana has held that merely mentioning the names of his wife and son as joint-owners of the property, would not dis-entitle assessee to claim exemption under Section 54F of the Income Tax Act.

ABCAUS Case Law Citation:
ABCAUS 4113 (2024) (06) HC

In the instant case, the Income Tax Department had challenged the order passed by the ITAT in allowing exemption for long term capital gain under Section 54F of the Income Tax Act, 1961 (the Act).

The assessee had declared income under the heads “Salaries” and “Income from Other Sources after claiming capital gain exemption u/s 54F of the Act. The return of the assessee was accepted by the Assessing Officer (AO).

Thereafter, during proceedings under Section 263 of the Act, the Principal Commissioner of Income Tax (PCIT) observed that the assessee had claimed exemption u/s 54F towards purchase of a residential house jointly in his name and in the name of his wife & son.

The PCIT held that the assessee was co-owner of the house to the extent of only 1/3rd share, therefore he could claim only 1/3^rd exemption under Section 54F of the Income Tax Act, but the assessee had claimed exemption for the full investment.

Accordingly, the PCIT set aside the order of the Assessing Officer on the ground that the AO had failed to examine the assessee’s eligibility under Section 54F of the Act. The Assessing Officer was directed to pass a fresh order.

The Tribunal observed that the assessee was a retired pensioner and had produced the bank statements before the Assessing Officer as well the Revisional Authority. The son of the assessee, had taken a house loan and this fact had been ignored by the Revisional Authority.

The Tribunal noted that total price paid (which included the loan taken by the son) for the property purchased was much higher than the sale consideration of the plot sold. Apart from the said loan, the assessee too had invested the entire Long Term Capital Gain in purchasing the new house.

Since the entire amount had been invested in the property, which was not disputed by the Revenue, the Tribunal held that there was no evidence to support the conclusion that only 1/3rd share was belonging to the assessee.

The Tribunal held that when the assessee had invested the entire amount for purchasing the property and his son had also contributed in the same after taking loan from the bank. In that situation, merely mentioning the name of his wife and son as co-owners of the property, would not dis-entitle the assessee to claim exemption.

The Tribunal also clarified that the judgment passed by the Hon’ble High Court referred to by the Revenue, will not be applicable to the facts of the case, as in that case, the assessee had invested money in the property exclusively in the name of his wife and in this background, he could not claim exemption for long term capital gain under Section 54F of the Act. However, in the present case, the assessee had invested the entire money in buying a house and his son had also borrowed a loan for purchasing the said property. Merely mentioning the names of his wife and son as co-owners of the property, would not dis-entitle the assessee to claim exemption under Section 54F of the Act.

Before the Hon’ble High Court the Revenue contended that the matter should have been remanded to the Assessing Officer, but was rejected on the ground that the assessee was a retired pensioner and the fact regarding sale of his plot and thereafter, purchase of a house was not being disputed by the Revenue.

The Hon’ble High Court opined that since after selling his plot, the assessee had invested his entire sale proceed in purchasing a house, therefore, the Tribunal had rightly held him entitled to seek exemption under Section 54F of the Act.

Accordingly, the appeal was dismissed being no substantial question of law arose for consideration

Download Full Judgment Click Here >>

• Penalty u/s 270A deleted as assessee filed revised computation during scrutiny
• Penalty u/s 271B for unfilled column 40 in Tax Audit Report Form 3CD deleted by ITAT
• Merely ex-parte rectifying computation without amending assessment order not make it nullity- ITAT
• Once assessee discharges primary onus, it shifts to AO to bring evidence to contrary – ITAT
• Cost Inflation Index for FY/Tax Year 2026-27 notified by CBDT. See Up-to-date Table of CII