Can section 54F be claimed for co-ownership between spouses after applying Section 64(1)(iv)

This query is : Resolved

Shweta (Querist)
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02 May 2023 Mr A and Mrs are husband and wife.
Mr A gifted shares to Mrs A worth Rs 5,00,000 in 2010-11
Expecting the shares to be sold in current financial year, Mr A and Mrs purchased a house property (joint ownership between Mr A and Mrs A) for Rs 50 Lakhs in March 2022. Mr A provided Rs 20 Lakhs From his personal funds and Rs 30 Lakhs through joint home loan.
Mrs A sold the shares in June 2022 for Rs 50 Lakhs which is also the long-term capital gain for her. The sale consideration from shares was credited in her account and the home loan was disposed off.
Income from sale of shares is to be shown in the ITR of Mr A after application of clubbing provisions of section 64(1)(iv) in Mr A ITR.
Mr A wants to claim exemption under section 54 F for investment done by both Mr A and Mrs A, in purchase of joint property, as Mr A provided Rs 20 Lakhs from his personal funds and Rs 30 Lakhs through joint home loan which was disposed from sale consideration of shares (the money was credited in bank account of Mrs A and loan was disposed through check)

Query - Whether or not eligibility claim of Section 54 F will be accepted by the Income Tax department regarding joint investment / joint ownership of residential house with both Mr A (transferor) and Mrs A (transferee) eligible to claim section 54F on sale of shares.

Please support with relevant case laws, if any.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 Under Section 54F of the Income Tax Act, an individual can claim exemption from capital gains tax on the sale of a long-term capital asset (other than a residential house) if the capital gains are invested in purchasing a residential house within a specified period. Here’s the analysis based on the scenario provided:

### Scenario Recap:
1. **Gift of Shares**: Mr A gifted shares worth Rs 5,00,000 to Mrs A in 2010-11.

2. **Purchase of House**: In March 2022, Mr A and Mrs A jointly purchased a house for Rs 50 Lakhs. Mr A contributed Rs 20 Lakhs from his personal funds, and Rs 30 Lakhs was funded through a joint home loan.

3. **Sale of Shares**: Mrs A sold the shares in June 2022 for Rs 50 Lakhs, resulting in long-term capital gains.

### Section 54F Eligibility:
- **Ownership and Investment**: Section 54F allows exemption if the entire sale consideration (excluding the cost of the new asset) is invested in a new residential house. The exemption is available if the new house is purchased within one year before or two years after the date of transfer of the original asset, or constructed within three years after the date of transfer.

- **Joint Ownership**: The property purchased in March 2022 is jointly owned by Mr A and Mrs A. Section 54F allows exemption if the investment in the new residential house is made by the individual who has incurred the capital gains. In this case, since Mrs A received the sale proceeds of the shares, she would typically be required to invest the entire capital gains to claim exemption under Section 54F.

- **Clubbing Provisions**: Under Section 64(1)(iv), income arising from assets transferred to a spouse is clubbed with the income of the transferor (Mr A in this case). However, the investment for claiming Section 54F exemption needs to be made by the individual who incurred the capital gains, which is Mrs A in this scenario.

### Conclusion:
- **Eligibility for Section 54F**: Based on the information provided, Mrs A sold the shares and received the sale consideration. To claim exemption under Section 54F, Mrs A should invest the entire capital gains amount in the new residential house.

- **Case Law**: While specific case laws are not mentioned here, the interpretation of Section 54F generally requires the individual who receives the capital gains to reinvest it in the new residential house to claim exemption. Joint ownership of the house does not affect the claim under Section 54F, provided Mrs A, as the transferee of the shares and recipient of the capital gains, fulfills the investment criteria.

It’s recommended to consult with a qualified tax advisor or chartered accountant to ensure compliance with tax laws and proper documentation of the transaction for claiming exemption under Section 54F.