The Income-Tax Appellate Tribunal (Mumbai) bench has granted a tax deduction of nearly Rs 99 lakh for a taxpayer who invested in a residential house registered in his wife's name. This decision sets a precedent for taxpayers to claim deductions under Section 54, even if the new property is in their spouse's name. Section 54 of the Income-tax(1T) act provides that any long-term capital gains arising to an individual on the sale of a residential property shall be exempt to the extent that such capital gain is invested in the purchase of a residential property within one year before or two years after such sale.
Alternatively, the new residential property can be constructed within three years from the date of sale of the original property. This decision serves as a significant precedent, reaffirming the rights of taxpayers in claiming deductions under Section 54, even when the new house properties are registered in the names of their spouses.
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As GP Shetry, the taxpayer had sold two residential properties and funded the purchase of the new house. During the financial year 2015-16, he claimed a deduction under Section 54. However, this claim was denied by the I-T officer on the grounds that the new residential property was registered in the name of his wife.
The taxpayer contended that there were genuine reasons for registering the property in his wife's name, citing legal complexities in the transaction process. The new residential house property was purchased from a company, in which the taxpayer was a director. He was entitled to enter into a sale agreement on behalf of this company. Thus, based on the legal advice received, he was of the view that he could not execute a valid agreement for the sale of the property in his capacity as a director as well as a purchaser in his individual capacity. Therefore, the new residential property was purchased by him in the name of his wife.
The ITAT bench noted that a precedent was set by the Delhi High Court in 2013 in the case of Kamal Wahal, which had allowed a deduction under similar circumstances. The Mumbai bench of ITAT emphasized that the primary consideration should be the source of funds for the purchase, rather than the name in which the property is registered, and granted the deduction claimed by Shetty.