Where assessee had invested sale consideration on transfer of Capital Asset in purchasing a new residential property in name of his married widowed daughter, Assessing Officer to grant exemption under section 54F on such amount invested in his daughter’s name. Vide Decision of Income Tax Appellate Tribunal of Bangalore in Krishnappa Jayaramaiah Vs. Income Tax Officer, Ward 6(3)(4), Bangalore

Facts of the case:

1. The assessee filed Return of Income declaring total income at Rs. 2,96,430 under the head ‘house property’, ‘income from capital gain’ and ‘income from other sources’. 2. The assessee claimed deduction u/s 54F of the Act for the investment made in a residential property, in the name of his widowed daughter Smt. J. Shylaja. 3. The assessee submitted before the A.O. that the property under question was received by inheritance by way of partition. The legal heirs of the property are the assessee, his wife, son and widowed daughter. All legal heirs have executed sale deed dated 15-10-2015 in favour of the purchaser. 4. The entire sale consideration received was invested in residential house property in the name of his widowed daughter. The assessee claimed deduction u/s 54F of the Act on the capital gains in his return. 5. The A.O. denied the claim of deduction and determined the total assessed income at Rs. 2,07,75,230. Further the assessee claimed an expenditure of Rs. 12 lakhs towards the cost of transfer of capital assets. This was disallowed by the lower authorities on the reason that no evidence produced to show that it is a part of improvement of land or no break up has been furnished by the assessee. 6. The learned Authorised Representative submitted that the assessee has sold the property for a consideration of Rs. 2,60,46,754 vide Sale Deed dated 15-10-2015. 7. Further it was submitted that all the legal heirs including his widowed daughter, in whose name the investment is made for claiming the exemption u/s. 54F of the Income-tax Act, 1961 (‘the Act’), were party to sale deed. 8. The assessee and other family members are the sole owners of the property which is sold and the Capital Gain arising out of the sale of the said property was declared in individual name using their PAN. The other family members do not have any other sources of income. 9. The assessee invested the sale consideration received on the sale of Capital Assets in purchase of residential property in the name of his married widow daughter Smt. Shailaja J, her husband was expired on 20-12-2017. She along with her children are staying with the assessee and she is having no independent source of income, being a widow daughter. 10. The residential site purchased in her name and constructed residential house so as to secure her life. The assessee invested entire sale consideration in the land and residential house in widowed daughter’s name and claimed exemption u/s. 54F of the Act on the Capital Gain arising out of said sale of property. 11. The entire sale consideration having been invested by the assessee in the residential site and construction of residential house through banking channels and there is nexus between the sale consideration and investment made in the residential house property. 12. However, the sale consideration received by the assessee was invested in his married widowed daughter on which the assessee claimed exemption u/s. 54F of the Act which is not permitted. According to ld. DR, the investment shall be made in the name of assessee himself, not in the name of his married widowed daughter. 13. According to the ld. DR, the Income-tax Act needs to be given legal interpretation not a liberal interpretation. If the word ‘assessee’ used in the Income-tax Act is to be given liberal interpretation, it would be tantamount to giving free hand to the assessee and its legal heirs, it shall curtail the revenue of the Government, which the law does not permits. 14. On the other hand, the contention of the learned Authorised Representative is that the assessee has not made investment in the name of any unknown person. It was made in the name of his dependent married widowed daughter who is the legal heir of the assessee. Admittedly, in this case purchase consideration for purchase of new residential house was paid by the assessee out of sale consideration of property. 15. Section 54F of the Act 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”. 16. In the case of CIT v. Natarajan [(2007) 287 ITR 271 (Mad.)] wherein it was held that the assessee has purchased a property in the name of his wife, the Hon’ble Court held that the assessee will be eligible for exemption u/s. 54F of the Act.

Judgement: The Income Tax Appellate Tribunal of Bangalore held the case as follows:

  1. The Tribunal opined that the statute should be construed liberally; since the provisions permit economic growth has to be interpreted liberally, restriction on it too has to be construed so as to advance the objective of the provisions not to frustrate it. 2. the assessee has invested the sale consideration on transfer of Capital Asset in purchasing a new residential property in the name of Smt. Shailaja J who is being married widowed dependent daughter of the assessee and also legal heir of the assessee.
  2. Accordingly, the tribunal directed the Officer to grant exemption u/s. 54F of the Act on the amount invested in purchase of residential house in his daughter’s name.
  3. The tribunal however disallowed the selling expense w.r.t the capital asset as the assessee has not furnished details relating to selling expenses.

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