2024 (1) TMI 271 - AT - Income Tax

Section 54 deduction allowed for residential property purchased in spouse's name, following purposive construction over literal interpretation

ITAT Delhi allowed the appeal where deduction under section 54 was initially denied because the residential house was registered in the spouse's name ... LTCG - Deduction u/s 54 - claim denied as residential house in which the investment was made by the Assessee, was registered in the name of her spouse and not in the name of the Assessee - HELD THAT:- We find that the Hon'ble Jurisdictional Delhi High Court in the cases of CIT vs. Kamal Wahal [2013 (1) TMI 401 - DELHI HIGH COURT] and CIT vs. Ravinder Kumar Arora [2011 (9) TMI 343 - DELHI HIGH COURT] has held that new house purchased in the name of the spouse of the assessee was eligible for claiming deduction under section 54F. The provisions of section 54F are pari-materia with the provisions of section 54 of the Act and thus, the principle derived equally applies to section 54 as well. The Hon'ble Jurisdictional High Court has also held in the various judgments that Purposive construction is to be preferred as against the literal construction, more so when even literal construction also does not say that the house should be purchased in the name of the assessee only. Section 54F/54 of the Act are the beneficial provisions which should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied. Since, the sale proceeds have been duly invested in acquisition of new property within the due time allowed, the assessee is eligible for claim of deduction u/s 54F. Appeal of the assessee is allowed. Issues: The judgment involves the following issues: 1. Allowability of deduction u/s 54 of the Income Tax Act, 1961 when the property is registered in the name of the spouse of the assessee. 2. Validity of penalty proceedings u/s 270A(9)(a) for underreporting of income due to misreporting of income.Issue 1: Allowability of Deduction u/s 54: The appeal was filed against an order disallowing deduction u/s 54 of the Act amounting to INR 93,46,404, as the residential property was registered in the name of the spouse of the assessee. The assessee had sold a property in New Delhi and reinvested the proceeds in a new residential house in Hyderabad, registered in the name of her spouse. The ITAT considered various precedents where deductions were allowed for properties registered in the name of spouses or jointly with spouses. The ITAT held that since the sale proceeds were reinvested in the new property within the allowed time, the assessee was eligible for the deduction u/s 54.Issue 2: Validity of Penalty Proceedings: The AO proposed penalty proceedings u/s 270A(9)(a) for underreporting of income due to misreporting, without providing reasons for satisfaction on what facts were misrepresented or suppressed. The ITAT did not find any merit in the penalty proceedings as the assessee had furnished all details of the investment in the new property and the deduction claimed. The ITAT allowed the appeal of the assessee, emphasizing that the provisions of section 54F/54 should be interpreted liberally in favor of the taxpayer, and deductions should not be denied.Conclusion: The ITAT allowed the appeal of the assessee, ruling in favor of the assessee on the issue of deduction u/s 54 and dismissing the penalty proceedings initiated u/s 270A(9)(a) for underreporting of income due to misreporting. The judgment highlighted the importance of interpreting beneficial provisions liberally in favor of taxpayers and ensuring that deductions are not unjustly denied.