Kindly let me know if the capital gain from an old property can be utilised for constructing a house on new land held in a joint name. The old property is in the wife’s name. The new property is in the joint name of the husband and wife.
Venkataramana T S
Reply by CA (Dr.) Suresh Surana
In this case, as the wife would be the joint owner of the new property purchased along with her husband, the benefit of section 54 would be available to her, subject to fulfilment of the conditions specified in section 54 of the Income-Tax Act (“Act”). In fact, there have been few judicial precedents, wherein it was held that the object of granting exemption under Section 54 of the Act is that an assessee who sells a residential house for purchasing another house must be given exemption so far as capital gains are concerned. The court ruled that, the word “assessee” must be given wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word “assessee” as that would frustrate the object of granting exemption. Please note that the income-tax authorities may not completely agree to this and the probability of any litigation cannot be completely ruled out.
Relevant extract of the judgement in the case of Honorable Delhi High Court in CIT v. Ravinder Kumar Arora [2011] 15 taxmann.com 307 (Delhi) is reproduced below for reference:
“The objective of Section 54F and the like provisions such as Section 54 is to provide impetus to the house construction and so long as the purpose of house construction is achieved, such hyper technicality should not impede the way of deduction which the legislature has allowed. Purposive construction is to be preferred as against the literal construction, more so when even literal construction also does not say that the house should be purchased in the name of the assessee only. Section 54F of the Act is the beneficial provision that should be interpreted liberally in favour of the exemption/deduction to the taxpayer and deduction should not be denied on hyper-technical ground. Andhra Pradesh High Court in the case of Mir Gulam Ali Khan v. CIT [1987] 165 ITR 228 /[1986] 28 Taxman 572 has held that the object of granting exemption under Section 54 of the Act is that an assessee who sells a residential house for purchasing another house must be given exemption so far as capital gains are concerned. The word “assessee” must be given wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving too strict an interpretation to the word “assessee” as that would frustrate the object of granting exemption.”
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