Taxpayer co-owning more than one home can claim benefit: ITAT

June 11, 2023

MUMBAI: The Income-tax Appellate Tribunal (ITAT), Mumbai bench, has held that co-ownership in more than one residential house will not debar the taxpayer from claiming tax exemption on long-term capital gains. This decision, given in the context of Section 54F of the Income-tax (I-T) Act, will benefit several taxpayers, as typically in large families investments are made in joint names.

On sale of capital assets (other than a house property), say sale of jewellery or shares, the taxpayer can claim a tax exemption on the resultant ‘long-term’ capital gains under Section 54F. If the entire net sale consideration is invested in purchase or construction of a house property within the specified period, no tax liability arises. If only part of the sale consideration is invested in a house property, the tax exemption is allowed 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 only house that can be owned is the one brought or constructed and against which the exemption is being claimed.

In the case of Zainul Ghaswala, adjudicated by the ITAT, the I-T official had denied a significant exemption claim made by the taxpayer under this section.

In this particular case, the taxpayer’s father together with five other family members had inherited land on which six flats were constructed. Ghaswala submitted to the I-T officer that each member was owning and occupying one flat each. He submitted electricity bills and confirmation letters from the owners of other flats that none of them had any rights/interest in each other’s flats. These submissions were disregarded by the I-T officer, who held that since Ghaswala jointly owned six residential properties, the conditions prescribed in Section 54F were not met.

The ITAT bench had to decide on whether co-ownership in more than one residential property would result in a taxpayer being ineligible to claim the tax benefit under Section 54F.

The Madras high court, in the case of Dr P K Vasanthi Rangarajan, had 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 placed reliance on this order and passed a verdict in favour of the taxpayer.

  • Published On Jun 11, 2023 at 02:52 PM IST

Join the community of 2M+ industry professionals

Subscribe to our newsletter to get latest insights & analysis.

Download ETRealty App

  • Get Realtime updates
  • Save your favourite articles

Scan to download App

Leave a Comment