Section 54 of Income Tax Act gives relief to a taxpayer who sells own residential house and from the sale proceeds acquires another residential house.
The Mumbai bench of Income Tax Appellate Tribunal (ITAT) in a recent order ruled that because the name of a close relative has been added to a newly-purchased property (or in other words, the new property is jointly held), it should not result in dilution of the income tax benefits for the purchaser. The case relates to J Faria of Mumbai incurring capital gains of around Rs. 43 lakh on sale of a residential house. He then reinvested around Rs. 42.65 lakh in a new residential house and claimed this amount as exempt under Section 54 of the Income Tax Act.
Section 54 of Income Tax Act gives relief to a taxpayer who sells his or her residential house and from the sale proceeds he or she acquires another residential house. Mr Faria on the balance of around Rs. 35,000, paid capital gains tax amounting to Rs. 7,376.
"This judgment of Mumbai Tribunal is clarificatory in nature as it is well-settled principle in Income-tax laws that once it is established that the person who is claiming the exemption has actually spent the amount and found to be genuine, such a claim cannot be denied merely on the pretext that it was done in the name of some relative, unless otherwise stated," said Sandeep Sehgal, director for tax and regulatory at Ashok Maheshwary & Associates LLP.
The income tax assessing officer in this case held that since the new house was purchased in the name of two persons (J Faria and his brother K Faira), the exemption claimed by J Faria will be restricted to 50 per cent despite the fact that the assessee giving in writing that the name of the his brother was included for the sake of convenience and the entire amount was paid by the assessee.
The assessee said that the name of his brother was added in the agreement of new property so purchased for the sake of convenience. And the entire investment for the purchase of new property, along with stamp duty and registration charges, was paid by him.
The tribunal said that since the entire investment was made by the assessee and it was only for the purpose of safety that he has included the name of his brother, there is no justification for giving just 50 per cent tax benefit of investment in the new house.