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Mumbai: The Income Tax Appellate Tribunal ,it on), the Mumbai bench has held that co-ownership of more than one residential house will not prevent a taxpayer from claiming tax exemption on long-term capital gains. This decision, given in terms of section 54F of the Income Tax (IT) Act, will benefit many taxpayers, as investments are generally held in joint names in large families.
On sale of capital asset (other than house property), jewelery or sale of shares, the taxpayer can claim tax exemption on the resulting ‘long-term’ capital gain under section 54F. If the entire net sale consideration is invested in the purchase or construction of house property within the specified period, no tax liability arises. If only a part of the sale consideration is invested in a house property, tax exemption is given proportionately.
One of the eligibility conditions prescribed under section 54F is that the taxpayer should not own more than one residential house as on the date of sale of the long-term capital asset. In other words, the house can be owned only by the person who has brought or built it and against which the exemption is being claimed.
In Zainul Ghaswala’s case, decided by the ITAT, the IT officer had denied a substantial exemption claim made by the taxpayer under this section.
In this particular case, the taxpayer’s father along with five other family members had inherited land on which six flats were built. Ghaswala submitted to the IT officer that each of the members was the owner of one flat each and was occupying the same. He submitted electricity bills and confirmation letters from the owners of other flats that none of them had any right/interest in each other’s flat. These submissions were ignored by the IT officer, who stated that since Ghaswala jointly owned six residential properties, the conditions prescribed in section 54F were not met.
The ITAT bench had to decide whether co-ownership of more than one residential property would result in the taxpayer being ineligible to claim tax benefits under section 54F.
The Madras High Court in the case of Dr PK Vasanthi Rangarajan held that joint ownership would not stand in the way of claiming exemption under section 54F. In the absence of any adverse decision by the jurisdictional (i.e. Bombay) High Court, the ITAT Bench relied on this order and ruled in favor of the taxpayer.
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