If you have purchased a property (Plot of Land or House) in joint name with your spouse (Husband or Wife), you can now claim full exemption from LTCG Tax (Long Term Capital Gain Tax) when you sell it.
Delhi High Court recently held that full exemption under Section 54 F of the Indian Income Tax Act, 1961, should be allowed even if the new house is purchased in joint name, if the tax-payer was the real owner, that is, if he/she has funded the entire cost of the house.
50% Only..!
The ruling was given on a case filed by a tax-payer who sold a plot of land to Nirala Developers for about Rs. 4.3 crore and earned LTCG of nearly Rs. 46 lakh. Out of the total LTCG earned, the tax-payer purchased a new house and claimed an exemption under Section 54 F of the income tax for financial year 2006-07.
The Income tax assessing officer noticed that the purchase deed was made jointly in the names of the tax-payer and his wife (spouse) and the officer also noticed that the tax-payer had claimed exemption under Section 54 F of the Act with reference to the whole amount invested in the new house.
Income tax the assessing officer sought reasons from the tax-payer to explain his claim of exemption under the Section. The tax-payer submitted that spouse's name was included in the sale deed only to avoid any litigation after his death and all the funds invested in the new house were borne by him.
But, Income tax assessing officer passed an order allowing only 50% (Fifty percent) of the exemption claimed under Section 54 F of the Indian Income Act, as against a total claim of Rs. 3.19 crore made by the tax-payer.
Appeal and appeal..!
Not satisfied, the tax-payer filed an appeal before the Commissioner of Income Tax (Appeals), which was disallowed. The tax-payer then filed an appeal before the Income Tax Appellate Tribunal (ITAT), which ruled in the favour of the tax-payer.
The ITAT cited that the tax-payer was the real owner of the residential house and was entitled for benefit of Section 54 F of the Act. The Income tax department filed an appeal before the high court.
In fact, Section 54 F of IT Act exempts tax on LTCG arising from transfer of any long-term capital asset, invested in a residential house. It also says that this exemption can't be availed if there is a house in existence on the date of transfer. The high court actually relied on the Supreme Court ruling, which held that Section 54 F mandates that the house should be purchased by the tax-payer and it does not stipulate that the house should be purchased in the name of the tax-payer only.
Important Ruling..!
The court also ruled that the basic objective of Section 54 F of the Act is to provide impetus to 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. The high court held that the conditions stipulated in Section 54 F of the Act was fulfilled by the tax-payer and he was entitled for benefit of Section 54 F of the Income Tax Act.
Mr. Sanjiv Chaudhary & Parizad Sirwalla, Partners, KPMG said,''This is an important ruling by the high court, which highlights that the exemption under Section 54 F of the Income Tax Act should not be restricted to the share in the house property purchased in joint name. Actual and constructive owner of the house should be looked into while determining the exemption under Section 54 F of the Act based on contribution to cost of property,
Source: FE
Delhi High Court recently held that full exemption under Section 54 F of the Indian Income Tax Act, 1961, should be allowed even if the new house is purchased in joint name, if the tax-payer was the real owner, that is, if he/she has funded the entire cost of the house.
50% Only..!
The ruling was given on a case filed by a tax-payer who sold a plot of land to Nirala Developers for about Rs. 4.3 crore and earned LTCG of nearly Rs. 46 lakh. Out of the total LTCG earned, the tax-payer purchased a new house and claimed an exemption under Section 54 F of the income tax for financial year 2006-07.
The Income tax assessing officer noticed that the purchase deed was made jointly in the names of the tax-payer and his wife (spouse) and the officer also noticed that the tax-payer had claimed exemption under Section 54 F of the Act with reference to the whole amount invested in the new house.
Income tax the assessing officer sought reasons from the tax-payer to explain his claim of exemption under the Section. The tax-payer submitted that spouse's name was included in the sale deed only to avoid any litigation after his death and all the funds invested in the new house were borne by him.
But, Income tax assessing officer passed an order allowing only 50% (Fifty percent) of the exemption claimed under Section 54 F of the Indian Income Act, as against a total claim of Rs. 3.19 crore made by the tax-payer.
Appeal and appeal..!
Not satisfied, the tax-payer filed an appeal before the Commissioner of Income Tax (Appeals), which was disallowed. The tax-payer then filed an appeal before the Income Tax Appellate Tribunal (ITAT), which ruled in the favour of the tax-payer.
The ITAT cited that the tax-payer was the real owner of the residential house and was entitled for benefit of Section 54 F of the Act. The Income tax department filed an appeal before the high court.
In fact, Section 54 F of IT Act exempts tax on LTCG arising from transfer of any long-term capital asset, invested in a residential house. It also says that this exemption can't be availed if there is a house in existence on the date of transfer. The high court actually relied on the Supreme Court ruling, which held that Section 54 F mandates that the house should be purchased by the tax-payer and it does not stipulate that the house should be purchased in the name of the tax-payer only.
Important Ruling..!
The court also ruled that the basic objective of Section 54 F of the Act is to provide impetus to 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. The high court held that the conditions stipulated in Section 54 F of the Act was fulfilled by the tax-payer and he was entitled for benefit of Section 54 F of the Income Tax Act.
Mr. Sanjiv Chaudhary & Parizad Sirwalla, Partners, KPMG said,''This is an important ruling by the high court, which highlights that the exemption under Section 54 F of the Income Tax Act should not be restricted to the share in the house property purchased in joint name. Actual and constructive owner of the house should be looked into while determining the exemption under Section 54 F of the Act based on contribution to cost of property,
Source: FE
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