Deduction u/s 54 should not be denied merely because the name of assessee's son is mentioned in the purchase document, when the entire purchase consideration has flown from the assessee.

SUBBALAKSHMI KURADA VS ASSISTANT COMMISSIONER OF INCOME TAX -(ITAT)

Held Identical issue has been considered by the co-ordinate bench in the case of Shri Bhatkal Ramarao Prakash vs. ITO (ITA No.2692/Bang/2018 dated 04.01.2019). In the above said case, the assessee therein had purchased new residential house in his name, his wife and son. The AO restricted the claim made u/s 54F to 1/3 of the cost of new house property. The co-ordinate bench followed the decision rendered by Karnataka High Court in the case of DIT(Intl.) vs. Mrs. Jennifer Bhida and held that the assessee is entitled to full deduction u/s 54F. (Para 3) Entire consideration towards purchase of new residential house has flown from the bank account of the assessee. The Karnataka High Court has held in the case of Mrs. Jennifer Bhide that deduction u/s 54 should not be denied merely because the name of assessee's husband is mentioned in the purchase document, when the entire purchase consideration has flown from the assessee. Accordingly, following the decision rendered by Karnataka High Court in the case of Mrs. Jennifer Bhide (supra) and the decision rendered by the co-ordinate bench in the case of Shri Bhatkal Ramarao Prakash (supra), court hold that the assessee is entitled to full deduction u/s 54 . Accordingly, court set aside the order passed by CIT(A) on this issue and direct the AO to allow deduction u/s 54 as claimed by the assessee. (para 5)

The appeal filed by the assessee is directed against the order dated 25.11.2019 passed by Ld CIT(Appeals)-3, Bengaluru and it relates to the assessment year 2016-17. The assessee is aggrieved by the decision of Ld CIT(A) in restricting the deduction claimed u/s 54 of the Act to 50% of the claim made on the reasoning that the new residential house has been purchased in the name of assessee and his son.

2. We heard the parties and perused the record. During the year under consideration, the assessee sold a residential house property for a sum of Rs.12.75 crores on 06-11-2015. She purchased another residential house property on 17-02-2016 for Rs.11.02 crores. The new house property was purchased in the joint name of the assessee and her son Shri Kurada Sagar Chakravarthy. The assessee claimed deduction of Rs.8.47 crores u/s 54 of the Act towards the cost of new residential house property against the long term capital gain arising on sale of original house property. Since the new residential house property has been purchased in the name of assessee and her son, the AO restricted the deduction u/s 54 of the Act to 50%, i.e., he allowed deduction to the extent of Rs.4.23 crores only. The Ld CIT(A) also confirmed the same and hence the assessee has filed this appeal.

3. We notice that an identical issue has been considered by the co- ordinate bench in the case of Shri Bhatkal Ramarao Prakash vs. ITO (ITA No.2692/Bang/2018 dated 04.01.2019). In the above said case, the assessee therein had purchased new residential house in his name, his wife and son. The AO restricted the claim made u/s 54F of the Act to 1/3rd of the cost of new house property. The co-ordinate bench followed the decision rendered by Hon’ble Karnataka High Court in the case of DIT(Intl.) vs. Mrs. Jennifer Bhida (2011)(15 taxmann.com 82)(Kar.) and held that the assessee is entitled to full deduction u/s 54F of the Act. The relevant observations made by the co-ordinate bench in the case of Shri Bhatkal Ramarao Prakash (supra) are extracted below:-

“22. The next issue is as to whether the deduction u/s.54F of the Act has to be restricted to only 1/3rd of the cost of acquisition of the new asset for the reason that the Assessee purchased the property along with the name of his wife and son shown as purchaser in the document under which the property was purchased.

23. The stand of the Revenue is that to claim deduction u/s.54F of the Act, the purchase of the new asset should be only in the name of the transferor i.e., the Assessee. To the extent the capital gain is invested in the joint name of the Assessee’s wife and son, the deduction cannot be allowed. On such reasoning the revenue authorities took the view that even assuming the deduction u/s.54F of the Act has to be allowed to the Assessee, such deduction should be restricted to 1/3rd of the cost of the new asset. The stand of the Assessee on the other hand is that Sec.54F mandates that the new asset should be purchased by the Assessee and it does not stipulate that the house should be purchased in the name of the Assessee only.

24. The view of the revenue finds support in the decision of the Hon’ble Bombay High Court in the case of Prakash Vs. ITO 312 ITR 40 (Bom) wherein it was held that to claim deduction u/s.54F of the Act, it is necessary and obligatory to have investment made in residential house in the name of the Assessee only and not in the name of any other person. The view of the Assessee finds support in the decision of Hon’ble Karnataka High Court in the case of DIT (Intl.) Vs. Mrs. Jennifer Bhide (2011) 15 taxmann.com 82 (Karn.) wherein it was held that there is no requirement that investment u/s.54EC should be in the name of Assessee only. In that case new asset was purchased in the name of the Assessee and her husband. The AO allowed deduction u/s.54EC only to the extent of 50% on the reasoning that deduction will be allowed only to the extent of investment made in the name of the Assessee. The Hon’ble Karnataka High Court held that the entire consideration had flow from Assessee and no consideration had flown from her husband. Merely because the husband’s name is also mentioned in the purchase document, the Assessee could not be denied the benefit of deduction. Similar view has been taken in the case of CIT Vs. Kamal Wahal (2013)

30 taxmann 34 (Delhi), Laxmi Narayan Vs. CIT (2018) 89 Taxmann 334 (Raj.) & CIT Vs. Gurnam Singh (2008) 170 Taxman 160 (P & H).

25. The law is well settled that where two views are possible on an issue, the view favourable to the Assessee should be followed. Moreover, the decision of the Hon’ble Karnataka High Court in the case of Mrs. Jennifer Bhide (supra) is in favour of the Assessee. Following the said decisions, we hold that the Assessee should be entitled to the benefit of deduction u/s.54F of the Act, to the whole extent of investment in purchase of new asset, even though the property has been purchased in the joint names of Assessee, his wife and son. We hold accordingly.”

4. Before us, the Ld A.R furnished a statement showing the manner of payment of consideration for purchase of new residential house. He submitted that the entire sale consideration on sale of original house was received in the bank account of the assessee on 28-09-2015, 01-10-2015 and 06.11.2015. The assessee initially made fixed deposits out of those proceeds to the tune of Rs.11.50 crores. Subsequently, those fixed deposits were encashed on 08-02-2016 and the maturity proceeds were credited in the very same bank account. The assessee has made entire payment for purchase of new house property from her bank account on the following dates:-

08-02-2016 Reinvestment in new property 20,00,000

08-02-2016 “ “ “ “ 20,00,000

08-02-2016 “ “ “ “ “ 20,00,000

15-02-2016 Stamp duty, Transfer duty and fee 66,15,200

16.02.2016 Reinvestment in new property 1,98,29,500

16.02.2016 “ “ “ “ 3,32,80,000

16.02.2016 TDS u/s 194IA 1,76,40,000

11,66,44,700

The assessee has also furnished copy of bank statement and the Ld A.R submitted that the above said payments are duly reflected in the bank account of the assessee. Accordingly, the Ld A.R submitted that the entire purchase consideration has flown from the assessee only. Accordingly he submitted that the decision rendered by Hon’ble Karnataka High Court in the case of Mrs. Jennifer Bhide (supra), which was followed in the case of Shri Bhatkal Ramarao Prakash (supra) shall squarely to the facts of the present case.

5. The Ld D.R, on the contrary, supported the order passed by Ld CIT(A). We have noticed that the entire consideration towards purchase of new residential house has flown from the bank account of the assessee. The Hon’ble Karnataka High Court has held in the case of Mrs. Jennifer Bhide that the deduction u/s 54 of the Act should not be denied merely because the name of assessee’s husband is mentioned in the purchase document, when the entire purchase consideration has flown from the assessee. Accordingly, following the decision rendered by Hon’ble Karnataka High Court in the case of Mrs. Jennifer Bhide (supra) and the decision rendered by the co-ordinate bench in the case of Shri Bhatkal Ramarao Prakash (supra), we hold that the assessee is entitled to full deduction u/s 54 of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to allow deduction u/s 54 of the Act as claimed by the assessee.

6. In the result, the appeal of the assessee is allowed. Pronounced in the open court on this 8th day of May, 2020.

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Section - 54, Profit on sale of property used for residence (IT Act, 1961)

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Deduction u/s 54 should not be denied merely because the name of assessee's son is mentioned in the purchase document, when the entire purchase consideration has flown from the assessee.

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Held

Identical issue has been considered by the co-ordinate bench in the case of Shri Bhatkal Ramarao Prakash vs. ITO (ITA No.2692/Bang/2018 dated 04.01.2019). In the above said case, the assessee therein had purchased new residential house in his name, his wife and son. The AO restricted the claim made u/s 54F to 1/3 of the cost of new house property. The co-ordinate bench followed the decision rendered by Karnataka High Court in the case of DIT(Intl.) vs. Mrs. Jennifer Bhida and held that the assessee is entitled to full deduction u/s 54F.

(Para 3)

Entire consideration towards purchase of new residential house has flown from the bank account of the assessee. The Karnataka High Court has held in the case of Mrs. Jennifer Bhide that deduction u/s 54
should not be denied merely because the name of assessee's husband is mentioned in the purchase document, when the entire purchase consideration has flown from the assessee. Accordingly, following
the decision rendered by Karnataka High Court in the case of Mrs. Jennifer Bhide (supra) and the decision rendered by the co-ordinate bench in the case of Shri Bhatkal Ramarao Prakash (supra), court hold that the assessee is entitled to full deduction u/s 54 . Accordingly, court set aside the order passed by CIT(A) on this issue and direct the AO to allow deduction u/s 54 as claimed by the assessee.

(para 5)

The appeal filed by the assessee is directed against the order dated
25.11.2019 passed by Ld CIT(Appeals)-3, Bengaluru and it relates to the
assessment year 2016-17. The assessee is aggrieved by the decision of
Ld CIT(A) in restricting the deduction claimed u/s 54 of the Act to 50% of
the claim made on the reasoning that the new residential house has been
purchased in the name of assessee and his son.

2. We heard the parties and perused the record. During the year under
consideration, the assessee sold a residential house property for a sum of
Rs.12.75 crores on 06-11-2015. She purchased another residential house
property on 17-02-2016 for Rs.11.02 crores. The new house property was
purchased in the joint name of the assessee and her son Shri Kurada
Sagar Chakravarthy. The assessee claimed deduction of Rs.8.47 crores
u/s 54 of the Act towards the cost of new residential house property against
the long term capital gain arising on sale of original house property. Since
the new residential house property has been purchased in the name of
assessee and her son, the AO restricted the deduction u/s 54 of the Act to
50%, i.e., he allowed deduction to the extent of Rs.4.23 crores only. The
Ld CIT(A) also confirmed the same and hence the assessee has filed this
appeal.

3. We notice that an identical issue has been considered by the co-
ordinate bench in the case of Shri Bhatkal Ramarao Prakash vs. ITO (ITA
No.2692/Bang/2018 dated 04.01.2019). In the above said case, the
assessee therein had purchased new residential house in his name, his
wife and son. The AO restricted the claim made u/s 54F of the Act to 1/3rd
of the cost of new house property. The co-ordinate bench followed the
decision rendered by Hon’ble Karnataka High Court in the case of DIT(Intl.)
vs. Mrs. Jennifer Bhida (2011)(15 taxmann.com 82)(Kar.) and held that the
assessee is entitled to full deduction u/s 54F of the Act. The relevant
observations made by the co-ordinate bench in the case of Shri Bhatkal
Ramarao Prakash (supra) are extracted below:-
 “22. The next issue is as to whether the deduction u/s.54F of
the Act has to be restricted to only 1/3rd of the cost of acquisition
of the new asset for the reason that the Assessee purchased the
property along with the name of his wife and son shown as
purchaser in the document under which the property was
purchased.

23. The stand of the Revenue is that to claim deduction
u/s.54F of the Act, the purchase of the new asset should be only
in the name of the transferor i.e., the Assessee. To the extent the
capital gain is invested in the joint name of the Assessee’s wife
and son, the deduction cannot be allowed. On such reasoning the
revenue authorities took the view that even assuming the
deduction u/s.54F of the Act has to be allowed to the Assessee,
such deduction should be restricted to 1/3rd of the cost of the new
asset. The stand of the Assessee on the other hand is that Sec.54F
mandates that the new asset should be purchased by the Assessee
and it does not stipulate that the house should be purchased in the
name of the Assessee only.
 24. The view of the revenue finds support in the decision of
the Hon’ble Bombay High Court in the case of Prakash Vs. ITO
312 ITR 40 (Bom) wherein it was held that to claim deduction
u/s.54F of the Act, it is necessary and obligatory to have
investment made in residential house in the name of the Assessee
only and not in the name of any other person. The view of the
Assessee finds support in the decision of Hon’ble Karnataka High
Court in the case of DIT (Intl.) Vs. Mrs. Jennifer Bhide (2011) 15
taxmann.com 82 (Karn.) wherein it was held that there is no
requirement that investment u/s.54EC should be in the name of
Assessee only. In that case new asset was purchased in the name
of the Assessee and her husband. The AO allowed deduction
u/s.54EC only to the extent of 50% on the reasoning that
deduction will be allowed only to the extent of investment made
in the name of the Assessee. The Hon’ble Karnataka High Court
held that the entire consideration had flow from Assessee and no
consideration had flown from her husband. Merely because the
husband’s name is also mentioned in the purchase document, the
Assessee could not be denied the benefit of deduction. Similar
view has been taken in the case of CIT Vs. Kamal Wahal (2013)
30 taxmann 34 (Delhi), Laxmi Narayan Vs. CIT (2018) 89
Taxmann 334 (Raj.) &amp; CIT Vs. Gurnam Singh (2008) 170
Taxman 160 (P &amp; H).
 25. The law is well settled that where two views are possible
on an issue, the view favourable to the Assessee should be
followed. Moreover, the decision of the Hon’ble Karnataka High
Court in the case of Mrs. Jennifer Bhide (supra) is in favour of
the Assessee. Following the said decisions, we hold that the
Assessee should be entitled to the benefit of deduction u/s.54F of
the Act, to the whole extent of investment in purchase of new
asset, even though the property has been purchased in the joint
names of Assessee, his wife and son. We hold accordingly.”

4. Before us, the Ld A.R furnished a statement showing the manner of
payment of consideration for purchase of new residential house. He
submitted that the entire sale consideration on sale of original house was
received in the bank account of the assessee on 28-09-2015, 01-10-2015
and 06.11.2015. The assessee initially made fixed deposits out of those
proceeds to the tune of Rs.11.50 crores. Subsequently, those fixed
deposits were encashed on 08-02-2016 and the maturity proceeds were
credited in the very same bank account. The assessee has made entire
payment for purchase of new house property from her bank account on the
following dates:-
 08-02-2016 Reinvestment in new property 20,00,000
 08-02-2016 “ “ “ “ 20,00,000
 08-02-2016 “ “ “ “ “ 20,00,000
 15-02-2016 Stamp duty, Transfer duty and fee 66,15,200
 16.02.2016 Reinvestment in new property 1,98,29,500
 16.02.2016 “ “ “ “ 3,32,80,000
 16.02.2016 “ “ “ “ 3,32,80,000
 16.02.2016 TDS u/s 194IA 1,76,40,000
 11,66,44,700

 The assessee has also furnished copy of bank statement and the Ld A.R
submitted that the above said payments are duly reflected in the bank
account of the assessee. Accordingly, the Ld A.R submitted that the entire
purchase consideration has flown from the assessee only. Accordingly he
submitted that the decision rendered by Hon’ble Karnataka High Court in
the case of Mrs. Jennifer Bhide (supra), which was followed in the case of
Shri Bhatkal Ramarao Prakash (supra) shall squarely to the facts of the
present case.
 5. The Ld D.R, on the contrary, supported the order passed by Ld
CIT(A). We have noticed that the entire consideration towards purchase of
new residential house has flown from the bank account of the assessee.
The Hon’ble Karnataka High Court has held in the case of Mrs. Jennifer
Bhide that the deduction u/s 54 of the Act should not be denied merely
because the name of assessee’s husband is mentioned in the purchase
document, when the entire purchase consideration has flown from the
assessee. Accordingly, following the decision rendered by Hon’ble
Karnataka High Court in the case of Mrs. Jennifer Bhide (supra) and the
decision rendered by the co-ordinate bench in the case of Shri Bhatkal
Ramarao Prakash (supra), we hold that the assessee is entitled to full
deduction u/s 54 of the Act. Accordingly, we set aside the order passed by
Ld CIT(A) on this issue and direct the AO to allow deduction u/s 54 of the
Act as claimed by the assessee.
 6. In the result, the appeal of the assessee is allowed.
Pronounced in the open court on this 8th day of May, 2020.

23. The stand of the Revenue is that to claim deduction
u/s.54F of the Act, the purchase of the new asset should be only
in the name of the transferor i.e., the Assessee. To the extent the
capital gain is invested in the joint name of the Assessee’s wife
and son, the deduction cannot be allowed. On such reasoning the
revenue authorities took the view that even assuming the
deduction u/s.54F of the Act has to be allowed to the Assessee,
such deduction should be restricted to 1/3rd of the cost of the new
asset. The stand of the Assessee on the other hand is that Sec.54F
mandates that the new asset should be purchased by the Assessee
and it does not stipulate that the house should be purchased in the
name of the Assessee only.
 24. The view of the revenue finds support in the decision of
the Hon’ble Bombay High Court in the case of Prakash Vs. ITO
312 ITR 40 (Bom) wherein it was held that to claim deduction
u/s.54F of the Act, it is necessary and obligatory to have
investment made in residential house in the name of the Assessee
only and not in the name of any other person. The view of the
Assessee finds support in the decision of Hon’ble Karnataka High
Court in the case of DIT (Intl.) Vs. Mrs. Jennifer Bhide (2011) 15
taxmann.com 82 (Karn.) wherein it was held that there is no
requirement that investment u/s.54EC should be in the name of
Assessee only. In that case new asset was purchased in the name
of the Assessee and her husband. The AO allowed deduction
u/s.54EC only to the extent of 50% on the reasoning that
deduction will be allowed only to the extent of investment made
in the name of the Assessee. The Hon’ble Karnataka High Court
held that the entire consideration had flow from Assessee and no
consideration had flown from her husband. Merely because the
husband’s name is also mentioned in the purchase document, the
Assessee could not be denied the benefit of deduction. Similar
view has been taken in the case of CIT Vs. Kamal Wahal (2013)
30 taxmann 34 (Delhi), Laxmi Narayan Vs. CIT (2018) 89
Taxmann 334 (Raj.) & CIT Vs. Gurnam Singh (2008) 170
Taxman 160 (P & H).
 25. The law is well settled that where two views are possible
on an issue, the view favourable to the Assessee should be
followed. Moreover, the decision of the Hon’ble Karnataka High
Court in the case of Mrs. Jennifer Bhide (supra) is in favour of
the Assessee. Following the said decisions, we hold that the
Assessee should be entitled to the benefit of deduction u/s.54F of
the Act, to the whole extent of investment in purchase of new
asset, even though the property has been purchased in the joint
names of Assessee, his wife and son. We hold accordingly.”

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Section - 54, Profit on sale of property used for residence (IT Act, 1961)

Deduction u/s 54 should not be denied merely because the name of assessee's son is mentioned in the purchase document, when the entire purchase consideration has flown from the assessee.