2024 (11) TMI 419 - AT - Income Tax

Joint ownership requires separate capital gains computation at 50% share for each spouse owner

ITAT Mumbai held that where original asset was jointly owned by assessee and wife, capital gains should be computed separately in each owner's hands at ... LTCG - exemption u/s 54F - “original asset” ownership - HELD THAT:- In an ordinary sense, property is something that a person exclusively owns and something peculiar to a person. Property is ownership of something, thus, giving an exclusive and unrestricted right - The “original asset” was in ownership of assessee and his wife. Both are the eligible owners of the “original asset”. In the case of McAlister v. Pritchard Hon’ble Supreme Court of Missouri, Division One, held that the term ‘property’ is believed to be extended to every category of valuable rights and interests. Thus, anything that a person owns can be considered to be a person’s property. Here, the assessee and his wife both are the beneficial owners of property and the income levied from this property will be taxed in the individual hands of both the parties. So there is no question of estoppels in the statute. By selling of original asset, both the assessee and his wife gained the capital gain and the income will be distributed in both the hands, but not in assessee’s hand alone. AO has taken a view that the assessee’s wife has no existence in case of ownership right. But it was taken from the different judicial pronouncement and as per the Transfer of Property Act, both the assessee and his wife has equal right on the ownership. So tax will be computed in specific hands. Whether exemption u/s 54F will be applicable or not if the assessee has invested in new property with his son? - If we look back quickly in section 54F, the criteria should be fulfilled with the time limits for purchasing new property, the assessee should invest through selling the original property and assessee should be the owner of new property. Amount assessee invested Rs. 46 lakhs from the bank account where the assessee received the sale consideration of “original asset”. The assessee is also the owner of flat No.508B. Considering this, we respectfully rely on the order of Jennifer Bhide [2011 (9) TMI 161 - KARNATAKA HIGH COURT] So addition of son is not affecting the claim of deduction under section 54F of the Act. Considering the additional ground of the assessee, the income should be taken 50% of Rs. 1,30,00,000/- which works out to Rs. 65 lakhs on assessee’s hand. The assessee will be eligible for indexation of the property and the claim of deduction under section 54F of the Act, Rs. 46 lakhs and the stamp duty value, i.e. Rs. 2,12,600/-. The total amount works out to Rs. 48,12, 600/-. The income of the assessee only should be restricted on assessee’s income considering the order of Hon’ble Apex Court in case of CH Atchaiah [1995 (12) TMI 1 - SUPREME COURT] Accordingly, the additional ground of the assessee is allowed. Issues Involved:1. Jurisdiction and time-barred notice under Section 147.2. Denial of exemption under Section 54 due to the property not being in the assessee's name.3. Confirmation of addition of long-term capital gain by CIT(A).4. Entitlement to full exemption of long-term capital gain under Section 54.5. Assessment of capital gain in the hands of the correct person.Issue-Wise Detailed Analysis:1. Jurisdiction and Time-Barred Notice Under Section 147:The assessee contended that the notice under Section 147 was time-barred as the alleged escaped income was below Rs. 50 lakhs. The tribunal did not explicitly address this issue in the judgment, indicating reliance on the procedural aspects of tax law without delving into the specifics of the time-barred argument.2. Denial of Exemption Under Section 54:The Assessing Officer (AO) denied the exemption under Section 54 on the grounds that the new residential property was not purchased in the assessee's name but in the names of his spouse and relatives. The tribunal considered judicial precedents, emphasizing that the exemption under Section 54 does not require the property to be solely in the taxpayer's name, provided the capital gains were reinvested in a residential property.3. Confirmation of Addition of Long-Term Capital Gain by CIT(A):The CIT(A) upheld the AO's assessment, confirming the addition of Rs. 51,10,050/- as long-term capital gain. The tribunal reviewed this decision, considering the joint ownership of the original property and the reinvestment of capital gains in new properties. The tribunal found that the CIT(A) erred in not considering the joint ownership and the rightful claim of exemption under Section 54.4. Entitlement to Full Exemption of Long-Term Capital Gain Under Section 54:The assessee argued for full exemption under Section 54, contending that the entire capital gain was reinvested in new residential properties. The tribunal acknowledged the joint ownership of the original property and the reinvestment of proceeds, allowing the exemption claim. The tribunal relied on judicial precedents, including the case of Jennifer Bhide, to support the assessee's entitlement to the exemption, even when the new property was purchased in joint names.5. Assessment of Capital Gain in the Hands of the Correct Person:The additional ground raised was that the capital gain should be assessed in the hands of both the deceased assessee and his wife, given the joint ownership of the original property. The tribunal accepted this ground, noting that the income should be assessed in the hands of the rightful owners. The tribunal relied on the Supreme Court's decision in CIT vs Poddar Cements Pvt Ltd, emphasizing that ownership for tax purposes includes beneficial ownership. Consequently, the tribunal directed that the capital gain be split equally between the assessee and his wife, allowing the exemption under Section 54 for the assessee's share.Conclusion:The tribunal set aside the CIT(A)'s order, quashing the addition of Rs. 51,10,026/- as capital gain. The appeal was allowed, recognizing the joint ownership of the original property and the reinvestment of capital gains, thereby granting the exemption under Section 54. The tribunal's decision underscores the importance of assessing income in the hands of the rightful owners and interpreting tax exemptions in light of beneficial ownership and judicial precedents.