02 May 2023
Mr A and Mrs are husband and wife. Mr A gifted shares to Mrs A worth Rs 50,000 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 5 Lakhs in March 2022. Mr A provided Rs 2 Lakhs From his personal funds and Rs 3 Lakhs through joint home loan. Mrs A sold the shares in June 2022 for Rs 5 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) Mr A and Mrs A want to opt for co-ownership in proportion to their investment and also claim 54F for both Mr A (transferor) and Mrs A (transferee) investment. i.e., 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, (Mr A provided Rs 2 Lakhs from his personal funds and Rs 3 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.
11 July 2024
The eligibility to claim exemption under Section 54F of the Income Tax Act, 1961 in the scenario where Mr. A (transferor) and Mrs. A (transferee) jointly invest in and own a residential house, needs careful consideration of the provisions and relevant judicial precedents. Here’s a detailed analysis:
### Understanding Section 54F:
- **Section 54F**: This section provides for exemption of long-term capital gains arising from the sale of any asset other than a residential house, if the net consideration is invested in the purchase or construction of a residential house property.
- **Conditions**: To claim exemption under Section 54F, the key conditions typically include: 1. The asset sold should not be a residential house. 2. The taxpayer should purchase or construct a residential house within the stipulated time frames. 3. The taxpayer should not own more than one residential house, other than the new one, on the date of transfer of the original asset.
### Application to the Scenario:
1. **Joint Ownership and Investment**: Mr. A and Mrs. A jointly purchased a residential house using the sale proceeds from the shares (consideration of Rs 5 Lakhs), where Mr. A contributed Rs 2 Lakhs from personal funds and Rs 3 Lakhs through a joint home loan.
2. **Claiming Exemption under Section 54F**: - Mr. A is the transferor of the shares and Mrs. A is the transferee. - Both Mr. A and Mrs. A are joint owners of the new residential house property. - The entire consideration from the sale of shares (Rs 5 Lakhs) has been utilized towards the purchase of the house.
3. **Legal Interpretation**: - Section 54F does not explicitly require that the new residential house should be solely owned by the transferor (Mr. A in this case). It allows for exemption if the proceeds are invested in a residential house, subject to other conditions. - The joint ownership by Mr. A and Mrs. A of the residential house does not necessarily preclude the application of Section 54F, as long as the entire sale consideration from the shares is invested in the property.
4. **Case Laws and Precedents**: - While there are no specific case laws directly addressing this exact scenario, courts generally interpret tax provisions in a manner that promotes the legislative intent of providing relief for reinvestment in residential properties. - Case laws such as those involving joint ownership and claims for exemptions under similar provisions (like Section 54 or Section 54F) have upheld exemptions where the investment criteria are met.
### Conclusion:
Based on the facts presented: - Mr. A can potentially claim exemption under Section 54F for the long-term capital gains arising from the sale of shares, considering the entire sale proceeds have been invested in the residential house jointly owned with Mrs. A. - The joint investment and joint ownership should not inherently disqualify the claim under Section 54F, given that both Mr. A (transferor) and Mrs. A (transferee) are owners of the new residential property funded by the sale proceeds.
However, it’s crucial to seek specific advice from a qualified tax consultant or lawyer who can provide personalized guidance considering all details of the transaction and any recent judicial interpretations or rulings that may impact the claim under Section 54F. This ensures compliance with applicable tax laws and maximization of available exemptions.
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