Section 54F deduction allowed for LTCG investment in residential property despite house being in husband's name

ITAT Surat allowed deduction u/s 54F for LTCG investment in residential property despite the constructed house being in the assessee's husband's name rather than the assessee's name. The tribunal held that Section 54F should be interpreted liberally as a beneficial provision, and "ownership" has a wide connotation that includes possession and dominion over property even without formal registration. The court emphasized purposive construction over literal interpretation, ruling that the word "assessee" should include legal heirs and that deduction should not be denied on hyper-technical grounds. The AO was directed to allow the claimed deduction.

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Issues:
Interpretation of Section 54F of the Income Tax Act regarding deduction claim for investment in residential property not solely owned by the assessee.

Detailed Analysis:

Issue 1: Claim of Deduction under Section 54F
The appeal was against the disallowance of a deduction of Rs. 9,61,49,283 under Section 54F of the Income Tax Act for the Assessment Year 2020-21. The assessee, an individual, had sold ancestral property and invested in constructing a residential property with her husband. The Assessing Officer disallowed the deduction as the property was solely in the husband's name.

Issue 2: Assessment and Appeal
The Assessing Officer issued a show cause notice questioning the deduction claim under Section 54F. The assessee's reply cited legal precedents and argued that the investment met the conditions of the Act. The CIT(A) upheld the disallowance, finding the facts of cited cases not applicable. The assessee then appealed to the Tribunal.

Issue 3: Tribunal's Analysis
The Tribunal heard arguments from both sides. The assessee's representative highlighted the Karnataka High Court's decision in a similar case and argued for a liberal interpretation of Section 54F. The Tribunal noted that the source of capital gain was not disputed, focusing on the property ownership issue. It cited legal precedents to support the assessee's claim for deduction despite the property being in the husband's name.

Issue 4: Legal Precedents and Interpretation
The Tribunal referenced various court decisions, including the Karnataka High Court and Delhi High Court rulings, emphasizing a purposive and liberal interpretation of Section 54F. It highlighted that the objective was to promote house construction and that technicalities should not hinder legitimate deductions. The Supreme Court's stance on ownership and the broader meaning of the term "owned" were also considered.

Conclusion
The Tribunal ruled in favor of the assessee, allowing the appeal and directing the Assessing Officer to permit the deduction under Section 54F. The judgment emphasized the broader interpretation of ownership and the legislative intent behind the provision. The decision was announced on 30th August 2024.

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