ITAT: Co-Ownership of More than One House Does Not Bar Deduction Under Section 54 of Income Tax Act, 1961

ITAT: Co-Ownership of More than One House Does Not Bar Deduction Under Section 54 of Income Tax Act, 1961

The Mumbai bench of Income Tax Appellate Tribunal (ITAT) has observed that co-ownership in more than one residential house does not debar the taxpayer from claiming tax exemption on long-term capital gains under Section 54F of the Income Tax Act, 1961.

Zainul Abedin Ghaswala, the appellant/assessee an individual, filed return of income for the year under consideration on 23 March, 2017 declaring total income of Rs.11,84,37,909/. The return of income filed by the assessee selected for scrutiny and statutory notices under the Income Tax Act, 1961 (in short ‘the Act’) were issued and complied with.

In the assessment completed under Section 143(3) of the Act on 31 December, 2018, the Ld. Assessing Officer disallowed the claim of the assessee for deduction under Section 54F of the Act against the capital gain on transfer of long-term capital asset, on the ground that the assessee owned interest in more than one residential properties and therefore, he was entitled for deduction under Section 54 of the Act.

On further appeal, the Ld. Commissioner of Income Tax (Appeals) upheld the finding of the Assessing Officer (AO).

The issue in dispute before the ITAT was whether the co-ownership of the assessee in more than residential properties could make assessee liable for non-eligibility of deduction under Section 54F of the fact.

It was submitted that the assessee’s father together with five other family members had inherited land on which six flats were constructed. Assessee further submitted that each member was owning and occupying one flat each. He submitted electricity bills and confirmation letters from the owners of other flats that none of them had any rights/interest in each other’s flats. These submissions were disregarded by the AO, who held that since assessee jointly owned six residential properties, the conditions prescribed in Section 54F were not met.

The division-member bench of Kavitha Rajagopal (Judicial Member) and Om Prakash Kant (Accountant Member) referred to the decision passed in the case of Dr. P.K. Vasanthi Rangarajan vs. CIT (2012) by the Madras High Court and observed that joint ownership would not stand in the way of claiming exemption under Section 54F.

The ITAT observed that, “the claim of deduction under Section 54 is allowed, as there is no material to show that assessee is exclusively owner of the other five residential properties/flats which are occupied by the other family members.”