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* IN THE HIGH COURT OF DELHI AT NEW DELHI

+ ITA No.1106 of 2011

% Decision Delivered On: 27th September, 2011

COMMISSIONER OF INCOME TAX . . . APPELLANT

Through: Mr. Abhishek Maratha, Sr.

Standing Counsel.

VERSUS

RAVINDER KUMAR ARORA . . .RESPONDENT

Through: Dr. Rakesh Gupta, Advocate.

CORAM :-
HON’BLE MR. JUSTICE A.K. SIKRI
HON’BLE MR. JUSTICE M.L. MEHTA

1. Whether Reporters of Local newspapers may be allowed

to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?

A.K. SIKRI, J. (ORAL)

1. The sole issue raised in this appeal is that whether the

exemption under Section 54F of the Income Tax Act, 1961

(hereinafter referred to as „the Act‟) is extendable to the

assessee for the total consideration paid by him, for the

purchase of the new asset (the residential property) in the

joint name or the exemption would be limited to the extent

of the share of the assessee in the said purchased property.

This has arisen in the following circumstances:

ITA No.1106 of 2011 Page 1 of 10

 The assessee filed his return for the Assessment Year

2007-08 showing total income of `64,32,220/-. In the

assessment proceedings, it was noticed by the AO that the

assessee is proprietor of M/s. Arora Service Station and is

running a petrol pump. During the relevant year, the

assessee has shown long term capital gain of `45,49,045/-

on sale of plot of land bearing Khasra No.526/1, Min and Old

No.526, MIN Khasra No.552 and Old Khasra No.37 situated

at Mohuddinpur Kanwani, Tehsil Dadrai, District Gautam

Budh Nagar, UP. This plot of land was purchased by the

assessee in his name on 27.1.1989. As per the details filed

by the assessee, it was noticed by the AO that this land was

sold for a sale consideration of `4,33,00,000/- to M/s. Nirala

Developers Pvt. Ltd. vide sale deed dated 01.7.2006. Out of

total gain arising from sale of land, the assessee claimed

exemption of capital gain to the extent of `3,18,59,276/-

under Section 54F of the Act on account of purchase of a

new house property. The assessee vide reply dated

19.11.2009 field a copy of the purchase deed through which

a residential house bearing No.8, Block No.7, situated in

layout plan of Safdarjung Enclave, New Delhi was purchased

on 01.3.2007 for a total consideration of `3,28,15,000/- and

ITA No.1106 of 2011 Page 2 of 10

 claimed exemption under Section 54F of the Act for

`3,18,59,276/-.

2. On going through the purchase deed of the above residential

house, it was noticed by the AO that the purchase deed was

made jointly in the names of the assessee and his wife Smt.

Manju Arora. The assessee had claimed exemption under

Section 54F of the Act with reference to the whole amount

invested in the said house property. The AO vide

questionnaire dated 04.12.2009 asked the assessee to

explain his claim of exemption under Section 54F of the Act

with reference to the whole amount invested in the said

house inasmuch as the property was purchased jointly with

his wife. The assessee vide reply dated 15.12.2009

submitted that wife‟s name was only included in the sale

deed just to avoid any litigation after his death though all

the funds invested in the said house were provided by the

assessee himself as was clear and evident from the Bank

Statement. The assessee, therefore, submitted before the

AO that the exemption under Section 54F of the Act is to be

allowed with reference to the full amount of purchase

consideration paid by him for the aforesaid residential house.

ITA No.1106 of 2011 Page 3 of 10

3. The assessee‟s submission was considered by the AO. The

AO noted that though all the payments were made by the

assessee, the residential house was purchased jointly in the

names of the assessee and his wife. The AO then referred to

Section 54F of the Act only to the extent of his right in the

new residential house purchased jointly with his wife. The

AO, therefore, allowed 50% of the exemption claimed under

Section 54F of the Act as against total claim of

`3,18,59,276/- made by the assessee. The AO allowed

claim only to the extent of `1,59,29,638/- and the balance

50% being `1,59,29,638/- was disallowed.

4. Aggrieved by that order, the assessee filed the appeal before

the CIT (A), which was also dismissed. However, in further

appeal before the Income Tax Appellate Tribunal (hereinafter

referred to as „the Tribunal‟), the assessee has succeeded

there as the Tribunal has held that the assessee is entitled

for benefit of Section 54F of the Act with reference to the

total investment of `3,28,15,000/-.

5. In these circumstances, the instant appeal is filed by the

Revenue under Section 260A of the Act, which we have

admitted on the following substantial question of law:

ITA No.1106 of 2011 Page 4 of 10

 “Whether the ITAT was correct in law in granting the
exemption u/s 54F of the Income Tax Act, 1961, to the
assessee for the whole consideration of
Rs.3,28,15,000/- for the purpose of the new asset (the
residential property) in the joint name of the assessee
and his wife, and not to the extent of 50% share of the
assessee in the new asset?”

6. With the consent of the learned counsel for the parties, we

have heard the matter finally at this stage itself and in our

opinion, the question of law is to be decided in favour of the

assessee and against the Revenue. Section 54F(1) of the

Act needs to be noted:

“Section 54F. CAPITAL GAIN ON TRANSFER OF

CERTAIN CAPITAL ASSETS NOT TO BE CHARGED
IN CASE OF INVESTMENT IN RESIDENTIAL
HOUSE.

(1) Subject to the provisions of sub-section (4), where

in the case of an assessee being an individual or a
Hindu undivided family, the capital gain arises from the
transfer of any long-term capital asset, not being a
residential house (hereafter in this section referred to
as the original asset), and the assessee has, within a
period of one year before or two years after the date
on which the transfer took place purchased, or has
within a period of three years after that date
constructed 842a , a residential house (hereafter in this
section referred to as the new asset), the capital gain
shall be dealt with in accordance with the following
provisions of this section, that is to say, -

(a) If the cost of the new asset is not less than

the net consideration in respect of the original
asset, the whole of such capital gain shall not be
charged under section 45;

(b) If the cost of the new asset is less than the

net consideration in respect of the original asset,
so much of the capital gain as bears to the whole
of the capital gain the same proportion as the

ITA No.1106 of 2011 Page 5 of 10

 cost of the new asset bears to the net
consideration, shall not be charged under section
45 :

Provided that nothing contained in this sub-section

shall apply where –

(a) the assessee, -

(i) owns more than one residential house,

other than the new asset, on the date of
transfer of the original asset; or

(ii) purchases any residential house, other

than the new asset, within a period of
three years after the date of transfer of the
original asset; or

(iii) constructs any residential house, other

than the new asset, within a period of
three years after the date of transfer of the
original asset; and

(b) the income from such residential house, other

than the one residential house owned on the
date of transfer of the original asset, is
chargeable under the head “Income from house
property”.

Explanation : For the purposes of this section, - "Net

consideration", in relation to the transfer of a capital
asset, means the full value of the consideration
received or accruing as a result of the transfer of the
capital asset as reduced by any expenditure incurred
wholly and exclusively in connection with such
transfer.”

7. Plain reading of the aforesaid provision indicates that in

order to get benefit of this Section, the assessee should,

inter alia, “purchase” a house. As per the Revenue, this

house has to be purchased in the name of the assessee only

ITA No.1106 of 2011 Page 6 of 10

 and benefit is not given if it is purchased by the assessee

jointly with his wife.

8. At the outset, important factual findings recorded by the

Tribunal in this case are that it was the assessee who

independently invested in the purchase of new residential

house though in his own name but along with the name of

his wife also and that it was the assessee who paid stamp

duty and corporation tax at the time of the registration of

the sale deed of the house so purchased and has also paid

commission and legal expenses in connection with the

purchase of the house. The Tribunal further records that

whole of the purchase consideration has been paid by the

assessee and not even a single penny has been contributed

by the wife in the purchase of the house. The Tribunal also

noted the argument that the property was purchased by the

assessee in the joint name with his wife for „shagun‟ purpose

and because of the fact that the assessee was physically

handicapped. The Tribunal further concludes that as a

matter of fact, the assessee was the real owner of the

residential house in question.

9. On the aforesaid facts, we are of the view that the conditions

stipulated in Section 54F stand fulfilled. It would be treated

ITA No.1106 of 2011 Page 7 of 10

 as the property purchased by the assessee in his name and

merely because he has included the name of his wife and the

property purchased in the joint names would not make any

difference. Such a conduct has to be, rather, encouraged

which gives empowerment to women. There are various

schemes floated by the Government itself permitting joint

ownership with wife. If the view of the Assessing Officer

(AO) or the contention of the Revenue is accepted, it would

be a derogatory step.

10. Even when we look into the matter from another angle, facts

remain that the assessee is the actual and constructive

owner of the house. In CIT Vs. Podar Cements (P) Ltd. &

Ors., (1997) 226 ITR 625 (SC), the Supreme Court has also

accepted the theory of constructive ownership. Moreover,

Section 54F mandates that the house should be purchased

by the assessee and it does not stipulate that the house

should be purchased in the name of the assessee only. Here

is a case where the house was purchased by the assessee

and that too in his name and wife‟s name was also included

additionally. Such inclusion of the name of the wife for the

above-stated peculiar factual reason should not stand in the

way of the deduction legitimately accruing to the assessee.

ITA No.1106 of 2011 Page 8 of 10

 Objective of Section 54F and the like provision 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 which 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 Late Mir Gulam

Ali Khan Vs. CIT, (1987) 165 ITR 228 (AP) 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.

ITA No.1106 of 2011 Page 9 of 10

11. We also find judgments of other High Courts giving benefit

of Section 54F(1) of the Act when the house of the assessee

is purchased jointly with his wife. In the case of CIT Vs.

Natrajan, (2007) 287 ITR 271 (Mad), though this case was

decided in relation to Section 54 of the Act, the said Section

is pari materia of Section 54F(1) of the Act. Likewise, the

Punjab & Haryana High Court in the case of CIT Vs.

Gurnam Singh, (2010) 327 ITR 278 took the same view

while discussing the provisions of Section 54 of the Act

which is again pari materia of Section 54F(1) of the Act.

12. We, thus, answer the question in favour of the assessee and

dismiss this appeal with cost quantified @ `10,000/-.

(A.K. SIKRI)
JUDGE

(M.L. MEHTA)
JUDGE
SEPTEMBER 27, 2011
pmc

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