2011 (9) TMI 343 - HC - Income Tax

Full Section 54F exemption allowed where assessee alone paid for residential property despite joint registration with spouse

HC held that where the assessee alone paid the entire purchase consideration for a residential property that was registered jointly with the spouse, the ... Whether the exemption under Section 54F is extendable to the assessee for the total consideration paid by him, for the purchase of the new asset (the residential property) in the joint name or the exemption would be limited to the extent of the share of the assessee in the said purchased property - Held that:- When whole of the purchase consideration has been paid by the assessee and not even a single penny has been contributed by the wife in the purchase of the house, the assessee is entitled to full exemption. In CIT v. Podar Cement (P.) Ltd.[1997 (5) TMI 2 - SUPREME COURT], the Supreme Court has also accepted the theory of constructive ownership. Moreover, Section 54F mandates that the house should be purchased by the assessee and it does not stipulate that the house should be purchased in the name of the assessee only. - decided in favour of assessee. Issues:1. Interpretation of exemption under Section 54F of the Income Tax Act, 1961 for the purchase of a new residential property in joint names.Analysis:The appeal raised the issue of whether the exemption under Section 54F of the Income Tax Act, 1961 could be extended to the assessee for the total consideration paid for the purchase of a new asset (residential property) in joint names, or if the exemption should be limited to the share of the assessee in the property. The assessee claimed exemption for the total consideration paid for a residential property purchased jointly with his wife. The Assessing Officer (AO) allowed only 50% of the exemption claimed, leading to an appeal by the assessee. The Tribunal ruled in favor of the assessee, granting exemption for the total investment. The Revenue filed an appeal under Section 260A of the Act, questioning the Tribunal's decision.The High Court examined Section 54F(1) of the Act, which requires the assessee to 'purchase' a house to qualify for the exemption. The Revenue argued that the house must be purchased solely in the name of the assessee to qualify for the benefit. However, the Tribunal found that the assessee independently invested in the property, paid all expenses, and was the true owner despite the joint registration with his wife. The Court noted that the assessee fulfilled the conditions of Section 54F, emphasizing that the property was effectively purchased by the assessee, even though jointly registered.The Court emphasized the constructive ownership theory, citing precedents that support a liberal interpretation of tax provisions like Section 54F to encourage house construction. It rejected the Revenue's hyper-technical argument, stating that the objective of the provision should prevail over strict literal interpretations. Referring to judgments by other High Courts, the Court highlighted cases where joint ownership with a spouse qualified for exemption under similar provisions. The Court concluded that the assessee was entitled to the benefit under Section 54F(1) for the total consideration paid, dismissing the Revenue's appeal and awarding costs to the assessee.