Payment made by family member for purchase of new property no bar for exemption u/s 54F – ITAT

Payment made by family member for purchase of new property not a bar to assessee in claiming exemption u/s 54F. No one to one co-relation is essential and investment in the name of assessee made within stipulated time is entitled to exemption – ITAT

ABCAUS Case Law Citation:
ABCAUS 3700 (2023) (04) ITAT

Important Case Laws relied upon by parties:
Neelam Handa vs. 1TO (ITAT-Delhi)  
ITO vs K.C Gopalan; (1999) 107 Taxman 591 (Ker)  
Sunil Sachdeva vs. ACIT (ITAT Delhi)
CIT vs. Kapil Kumar Agarwal & Ors. (2016) 382 ITR 56 (P&H)

In the instant case, the Revenue had challenged the order passed by the CIT(A) in allowing the exemption u/s 54F of the Income Tax Act, 1961 (the Act) towards purchase of new property where payments for investment had been made by the family members of the assessee. 

In the instant case, the payment for the purchase of new property was made by the family members along with assessee.

The Assessing Officer (AO) was of the view that in order to claim exemption u/s 54F, the investment is required to be made out of sales of the old property on which capital gain is derived. Whereas, the payments for purchase of new property had been made by the spouse of the assessee on individual capacity and on the capacity of Karta of HUF and the son.  

Before CIT(A), the assessee relied upon several judgments to support his case that there is no provision that in order to avail benefit of Section 54F of the Act, the assessee has to utilize the amount received by him on sale of original capital asset for the purposes of meeting the cost of the new asset.

The CIT(A) allowed the claim of the assessee.

Before the Tribunal, the assessee submitted that payment towards purchase of the new property were made by the husband of the assessee and her son and nothing has been paid by any outsider.

The assessee relied upon the judgment of Hon’ble High Court and submitted that no one to one co-relation is essential between the capital gain arising out of the sale of the old property and utilisation thereof for purchase of new residential property in order to claim the benefit of exemption under section 54F of the Act.

The Tribunal noted that the sole reason for disallowance of the exemption by the AO was that the assessee did not utilise the sale consideration of the old property towards purchase of the new property.

The Tribunal opined that once the new property is purchased and investment is made in the name of the assessee, the condition precedent for claiming exemption under section 54F stands fulfilled.

The ITAT observed that as held by Hon’ble Bombay High Court, for qualifying for the exemption under section 54F it is necessary and obligatory to have the investment made in residential house in the name of the assessee only. This criteria was fulfilled in the case of the assessee.

Further, the ITAT observed that the Hon’ble Punjab & Haryana High Court, section 54F nowhere envisages that the sale consideration obtained by the assessee from original capital asset is mandatorily required to be utilised for purposes of meeting cost  of  new  asset.

In view of the above, the ITAT opined that where investment made by the assessee, although not entirely sourced from capital gain, but was within stipulated time and more than capital gain earned by him, the assessee was entitled to exemption under section 54F.

The ITAT held that objection that sale consideration obtained from the old property has not been utilised by the assessee has no legal basis and cannot be a hindrance to the assessee for claiming exemption under section 54F of the Act.

Accordingly, the ground of the Revenue was dismissed.

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