2013 (1) TMI 401 - HC - Income Tax

Assessee entitled to deduction under Section 54F even though new property registered in wife's name; purchase funded by assessee

COMMISSIONER OF INCOME TAX-XII Versus SHRI KAMAL WAHAL

HC allowed deduction under section 54F, holding that the assessee was entitled to relief despite the new residential property being registered in his ... Deduction u/s 54F - disallowance as residential house purchased in the name of his wife - assessee inherited 50% share in a residential house from his father - both the brothers jointly sold the property - sale proceeds invested in the acquisition of a vacant plot for Rs.31,25,100/- and the purchase of a residential house for Rs.34,35,700/- in the name of his wife - Held that:- Following the decision of CIT Vs. V. Natarajan [2006 (2) TMI 136 - MADRAS HIGH COURT], Late Gulam Ali Khan Vs. CIT [1984 (12) TMI 9 - ANDHRA PRADESH HIGH COURT], adopting the rule laid down in CIT Vs. Vegetable Products Ltd.[1973 (1) TMI 1 - SUPREME COURT], which says that if a statutory provision is capable of more than one view, then the view which favours the tax payer should be preferred. Also that Section 54F being a beneficial provision enacted for encouraging investment in residential houses should be liberally interpreted. The entire purchase consideration was paid only by the assessee and not a single penny was contributed by the assessee’s wife. As a matter of fact, Section 54F in terms does not require that the new residential property shall be purchased in the name of the assessee; it merely says that the assessee should have purchased/constructed “a residential house”. See CIT Vs. Gurnam Singh [2008 (4) TMI 28 - PUNJAB AND HARYANA HIGH COURT] - in favour of the assessee. Issues:Interpretation of Section 54F of the Income Tax Act 1961 regarding deduction eligibility for investment in residential property in the name of the assessee's wife.Analysis:The case involved an appeal by the Commissioner of Income Tax-XII, New Delhi against the Income Tax Appellate Tribunal's order concerning the deduction claimed by an individual assessee under Section 54F of the Income Tax Act 1961 for the assessment year 2008-2009. The assessee, a retired individual, inherited a residential property and subsequently sold it, reinvesting the proceeds in a vacant plot and a residential house in his wife's name. The assessing officer disallowed the deduction, stating that the property should have been purchased in the assessee's name. However, the CIT (Appeal) and the Tribunal ruled in favor of the assessee, citing judgments from various High Courts supporting the liberal interpretation of Section 54F to encourage investment in residential properties.The Tribunal, following the precedents of the Madras, Andhra Pradesh, and Karnataka High Courts, emphasized the need to interpret Section 54F liberally, favoring the taxpayer when multiple interpretations are possible. It also referenced the Supreme Court's principle that beneficial provisions should be construed in favor of the taxpayer. The High Court concurred with the Tribunal's decision, highlighting a previous case where a similar issue under Section 54F was resolved in favor of the assessee, emphasizing that the property was acquired using funds solely from the assessee, even though it was in the joint name with the spouse.The High Court further noted that the requirement under Section 54F is the purchase of 'a residential house,' not specifically in the name of the assessee. It referenced judgments from various High Courts, including Punjab and Haryana, supporting the view that the property need not be exclusively in the assessee's name for claiming the deduction. The Court emphasized the purposive construction of the provision and the objective of Section 54F to encourage investment in residential properties. As the new house was purchased in the name of the assessee's wife with no contribution from her, the Court upheld the Tribunal's decision, dismissing the appeal in favor of the assessee.In conclusion, the High Court affirmed the liberal interpretation of Section 54F, allowing the deduction for investment in a residential property in the name of the assessee's wife. The judgment emphasized the purposive construction of tax provisions and the need to encourage investment in residential properties, ultimately ruling in favor of the assessee and against the revenue department.