Joint Ownership Of The Property Is No Bar In Claiming Exemption Under Section 54F Of The Income Tax Act: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has allowed the deduction under Section 54F of the Income Tax Act on the grounds that the assessee is not the exclusive owner of multiple residential properties occupied by other family members.

The bench of Kavitha Rajagopal (Judicial Member) and Om Prakash Kant (Accountant Member) has observed that the joint ownership of the property would not stand in the way of claiming exemption under Section 54F of the Income Tax Act.

The appellant/assessee is an individual who filed a return of income declaring total income. The return of income filed by the assessee was selected for scrutiny, and statutory notices under the Income Tax Act, 1961, were issued and complied with. In the assessment completed under Section 143(3), the Assessing Officer disallowed the claim of the assessee for deduction under Section 54F against the capital gain on the transfer of a long-term capital asset. The AO noted that the assessee owned an interest in more than one residential property, and therefore, he was not entitled to a deduction under Section 54F of the Income Tax Act.

The issue raised was whether the co-ownership of the assessee in more than one residential property could make the assessee liable for non-eligibility of deduction under Section 54F.

Under Section 54F of the Income Tax Act, 1961, a tax exemption is allowed on the long-term capital gains earned from selling any capital asset other than a house property.

The assessee contended that his father, the late Iqbal Ghaswala, along with other five family members, had inherited land on which all six members constructed six flats. All the members occupy one flat each, for which they have been paying electricity bills. The assessee claimed to have filed those electricity bills before the Assessing officer coupled with confirmation letters from the owners of the other flats, to the effect that none of them had any right or interest of whatever nature in each other’s flats.

However, the Assessing Officer disregarded the submission of the assessee and held that since the assessee owned six residential house properties, though jointly, the conditions mentioned in Section 54F of the Act were not fulfilled. Hence, the assessee is not eligible for exemption under Section 54F.

The assessee contended that even if the assessee co-owner owns more than one house, fractional ownership of a property does not amount to violating the conditions laid down under Section 54. The assessee is entitled to a deduction.

The tribunal allowed the appeal of the assessee and held that unless and until there are materials to show that the assessee is the exclusive owner of the residential property, the harshness of the proviso cannot be applied to the facts.

Case Title: Zainul Abedin Ghaswala Versus CIT(A), NFAC

Case No.: ITA No. 545/MUM/2023

Date: 22/05/2023

Counsel For Appellant: Sunil M. Makhija

Counsel For Respondent: A.N. Bhalekar

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