2025 (4) TMI 404 - AT - Income Tax

Property Investment Deduction Upheld: Section 54 Allows Spousal Transfer and Renovation Expenses for Tax Relief

The Income Tax Appellate Tribunal (ITAT) ruled in favor of the assessee, allowing a deduction under Section 54 for a property purchased in the spouse's ... Disallowing assessee’s claim of deduction u/s. 54 -house has been purchased by the assessee in the name of his spouse - HELD THAT:- As decided in Kamal Wahal [2013 (1) TMI 401 - DELHI HIGH COURT] and Ravinder Kumar Arora [2011 (9) TMI 343 - DELHI HIGH COURT] has held that wherein new house is purchased in the name of spouse of the assessee, the assessee is eligible for claiming deduction u/s. 54F of the Act. The provisions of section 54F of the Act are pari materia with the provisions of section 54 of the Act. Thus, the law expounded by Hon’ble Jurisdictional High Court in respect of section 54F of the Act, would equally hold good for deduction claimed u/s. 54 of the Act. It is a well settled legal preposition that purposive construction is to be preferred as against literal construction, more so when literal construction does not restrict that the house be purchased in name of assessee only. The provisions of section 54 of the Act are beneficial provisions which should be interpreted liberally in favour of the assessee, once the basic conditions for claiming the deduction are satisfied. Assessee has further claimed that the assessee has incurred expenditure on renovation/repairs of the new asset to make it leviable - no documentary evidences to substantiate this claim has been furnished by the assessee. Considering the fact that some expenditure must have been incurred by the assessee towards the renovation/repairs of the house to make it leviable, to meet the ends of justice, expenditure on renovation and repairs is estimated at Rs. 8,00,000/-. Thus, the assessee gets the benefit of deduction to the extent of Rs. 26,72,000/- (Rs.18,72,000/- +Rs.8,00,000/-) u/s. 54 of the Act. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are as follows:1. Whether the appeal filed by the assessee was time-barred and if it was filed within the limitation period.2. Whether the assessee is entitled to claim a deduction under Section 54 of the Income Tax Act, 1961, when the new residential property was purchased in the name of the assessee's spouse.3. Whether the assessee can claim the entire Long Term Capital Gain as a deduction under Section 54, including expenditure claimed for renovation and repairs of the new asset.ISSUE-WISE DETAILED ANALYSIS1. Timeliness of the Appeal FilingThe Registry initially noted that the appeal was time-barred by 912 days. The assessee contended that the appeal was filed within the limitation period, as the appeal was submitted through the Tribunal's e-portal on 15.11.2021, well within the permissible time frame after the order was served on 01.10.2021. The Tribunal accepted the assessee's explanation, supported by a screenshot from the Tribunal's official portal, and concluded that the appeal was indeed filed within the limitation period.2. Eligibility for Deduction under Section 54The relevant legal framework involves Section 54 of the Income Tax Act, which allows for a deduction on capital gains if the gains are reinvested in a new residential property. The CIT(A) disallowed the deduction on the grounds that the new property was purchased in the name of the assessee's spouse, referencing decisions from the Punjab and Haryana High Court and Andhra Pradesh High Court.The Tribunal, however, referenced the Delhi High Court's rulings in CIT vs. Kamal Wahal and CIT vs. Ravinder Kumar Arora, which held that purchasing a new house in the name of the spouse does not preclude the assessee from claiming a deduction under Section 54F. The provisions of Section 54F are considered analogous to Section 54, and thus, the Tribunal applied the same reasoning, favoring a purposive interpretation over a literal one. The Tribunal emphasized that the beneficial provisions of Section 54 should be interpreted liberally once the basic conditions are met.3. Claim for Entire Long Term Capital Gain DeductionThe assessee claimed the entire Long Term Capital Gain for deduction, including an amount purportedly spent on renovations and repairs. The AO had limited the deduction to the amount actually utilized for purchasing the new asset, as there was no documentary evidence for the additional claimed expenses. The Tribunal acknowledged that while no evidence was provided, it is reasonable to assume some expenditure for making the house habitable. Therefore, the Tribunal estimated the renovation and repair costs at Rs. 8,00,000/-, allowing the deduction to this extent, totaling Rs. 26,72,000/-.SIGNIFICANT HOLDINGSThe Tribunal held that:'The CIT(A) has erred in coming to the conclusion that the benefit of deduction u/s. 54 of the Act is not admissible to the assessee as the house has been purchased by the assessee in the name of his spouse.'The Tribunal established the principle that the provisions of Section 54 should be interpreted liberally in favor of the assessee, aligning with the purposive construction approach. The Tribunal modified the impugned order, allowing the appeal to the extent of Rs. 26,72,000/- as a deduction under Section 54.