Joint ownership does not bar Section 54F deduction; 50% share is not “exclusive ownership”

“12. A reading of the provisions contained in Section 54F(1), as it stood at the relevant point of time, shows that exemption from payment of tax on the capital gains arising on the transfer of any long-term capital asset not being a residential house is available to an assessee being a Hindu Undivided Family or an individual, if the long-term capital gain is invested in purchasing a residential house or constructing the residential house within the time stipulated therein. Proviso to sub section (1) states that the exemption contemplated under sub section (1) would not be available where an assessee owns a residential house as on the date of the transfer and that the income from the residential house is chargeable under the head “income from house property”. The Finance Act, 2001 amended the proviso with effect from 2001-02 to permit exemption under Section 54F, even if the asessee has owned one residential house as on the date of transfer, other than the new asset, or purchase in investments any residential house other than the new asset within a period of one year or three years as the case may be, but after the date of transfer of the original asset and the income from such residential house other than the one owned on the date of transfer of the original asset is chargeable under the head “income from house property”

13. As far as the present case is concerned, contrary to the contention of the assessee, the assessee as well as her husband had offered 50% share each in the clinic in the income tax assessment and had claimed depreciation thereon. So too 50% share in the property in the wealth tax proceedings is offered by the assessee and her husband. The note submitted to the Assistant Commissioner of Income Tax, City Circle 5(1), Madras, by the assessee discloses that the assessee owned 50% of the 6 ITA No. 2835/Mum/2024 AY 2018-19 Sheriar Phirojsha Irani property in 828, Poonamallee High Road, Chennai, for use as residential property and 50% as clinic; so too for the property at Door No.828A, Poonamallee High Road, Chennai. The facts thus reveal that as joint owners of the property, the assessee and her husband had shown 50% share with reference to the clinic and the residential portion in their respective returns. Thus, it is clear that as on the date of the transfer, the assessee did not own a residential house in her name only, the income from which was chargeable under the head “income from house property”, to bring into operation, the proviso to Section 54F. The rejection of the claim for exemption would arise if only the property stands in the name of the assessee, namely, individual or HUF. Given the fact that the assessee had not owned the property in her name only to the exclusion of anybody else including the husband, but in joint name with her husband, we agree with the submission of the learned senior counsel appearing for the assessee herein 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 herein. Apart from that, 50% ownership is with reference to the clinic situated in the ground floor. As such, the entire property is not an exclusive residential property. Hence, we are inclined to agree with the assessee’s contention that the joint ownership of the property would not stand in the way of claiming exemption under Section 54F.”

“17. We have given our thoughtful consideration to rival contention. We have perused case file as well as paper books furnished by assessee. We note that assessee claimed deduction u/s 54F of the Act to the tune of Rs. 48,96,993/- on the ground that assessee owns only one house at the Oberoi Palace Housing Society in this name at the time of the sale. It is the contention of the assessee that the other two properties are owned jointly with others and therefore it is not required to be considered for the purpose of condition of section 54F of the Act. The assessing officer relied on the order of the Hon’ble Supreme Court in the case of M. J. Siwani v. CIT where the SLP filed by the taxpayer was dismissed. The Id Counsel stated that by way of the SLP, the Hon’ble Supreme Court did not concur with the finding of the Hon’ble Karnataka High Court in the case of CIT v. M. J. Siwani ITR 356. Mere dismissal of the SLP does not 7 ITA No. 2835/Mum/2024 AY 2018-19 Sheriar Phirojsha Irani constitute the judgment by the Supreme Court in the favour of the revenue. The Id Counsel placed reliance on the following judgments:

i. Khoday Distilleries Ltd. v. Mahadeshwara Sahakara Sakkare Karkhane Ltd.(SC) [Civil Appeal No. 2432/2019]

ii. Smt. Tej Kumari v. CIT ITR 210 (Patna) (FB)

18. The Id Counsel further submitted that Hon’ble Madras High Court in case of Dr. Smt. P. K. Vasanthi Rangarajan v. CIT wherein it was held that where the assessee held the property jointly with her husband in equal proportion, it cannot be said that she is the owner of the house property at the time of the sale for availing the deduction u/s 54F of the Act. It is to be noted that w.e.f. 1-4-2001, there was the amendment in section 54F to the effect that assessee could be owner of one house at the time of the sale. Here in the case of the assessee he was sole owner of only one house and other houses under the joint ownership are not required to be considered as per the judgment of the Hon’ble Madras High Court in case of Dr: Smt. P. K. Vasanthi Rangarajan (supra).

19. We also note that on the identical facts, the Coordinate Bench of ITAT Mumbai, in the case of Ashok G. Chauhan v. Asstt. CIT ITD 717 held that where Assessing Officer rejected assessee’s claim for deduction under section 54F of the Act, on ground that at time of sale of capital asset, assessee was owner of more than one residential house properties, in view of fact that one residential property was co-jointly owned in name of assessee and his wife and he could not be treated as ‘absolute owner of said property, deduction under section 54F could not be denied to him. We note that Hon’ble Supreme Court in the case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 held that if two reasonable constructions of a taxing provision are possible that construction which favours the assessee must be adopted. Therefore, respectfully following the judgment of the Hon’ble Madras High Court in case of Dr. Smt. P. K. Vasanthi Rangarajan (supra). we allow ground No. 2 raised by the assessee.”

“4. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute before us is whether the co-ownership of the assessee in more than one residential properties could make assessee liable for non-eligibility of deduction u/s 54F of the Act. The fact of the case as culled out from orders of lower authorities and submissions of the assessee are that the assessee’s father late Shri Iqbal Ghaswala along with other five family members had inherited land being 142/148, Ghaswala Estate Jogeshwari (west), on which land, all the six members constructed 6 flats (ie one flat each on their own as per their requirements which were occupied by each owner namely Shri Mohd. Ali Suleman Ghaswalla (flat no. 201), Shri Sikander Suleman Ghaswalla (flat no. 202), Shri Abdul Rahim Ghaswalla (flat no. 301), Shri Munaf & Moinuddin Anwar Ghaswalla (legal heirs of late Shri Anwar Ghaswalla) (flat no. 302), Shri Ilyas & Zainul Ghaswalla (legal heirs of late Shri Iqbal Ghaswalla) (flat no. 401) and Shri Abdul Suttar Suleman Ghaswala (flat no. 402). According to assessee, all the members are owing/occupying 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 whatsoever 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, therefore the conditions mentioned in section 54F of the Act are not fulfilled in this case hence, the assessee is not eligible for exemption u/s 54F of the Act. The Ld. Assessing Officer relied on the decision of the Hon’ble Karnataka High Court in the case of M.J. Siwani (supra). The relevant facts of the case and the finding reproduced by the Assessing Officer is extracted as under:

“Further, the above issue is already a settled law in view of decision of Hon’ble Supreme Court of India in the case of M.J. Stwani v. Commissioner of Income-tax wherein upholding the order of Hon’ble Karnataka High Court, Hon’ble Supreme Court of India held that:

“Where assessee on date of sale of long-term capital asset owns more than one residential house even jointly with another person, benefit under section 54F in respect of capital gain arising from sale of asset was to be rejected.”

Facts of case M.J. Siwani v. Commissioner of Income-tax (2015) were as under:

1. During relevant assessment year, assessees sold their undivided interest in land. The assessee claimed deduction under sections 54 and 54F in respect of long-term capital gain arising from sale of land.

2. The revenue authorities finding that assessee had sold undivided share in land and not land plus residential house/apartments rejected assessee’s claim for deduction under section 54.

3. As regards deduction under section 54F, revenue authorities having found that assessees were having two residential houses having one half share each therein on date of sale of land, rejected assessee’s claim.

4. The Tribunal, however, allowed assessee’s claim for deduction under section 54F holding that ‘a residential house, on date of sale of long term asset as mentioned in said section meant complete residential house and would not include shared interest in residential house.

On revenue’s appeal to Hon’ble Karnataka High Court it was held as under:

“Section 54F provides that if the assessee has a residential house he cannot seek the benefit of long term capital gain. Under this provision, merely because, the words residential house are preceded by article ‘a’ would not exclude a house shared with any other person. Even if the residential house is shared by an assessee, his right and ownership in the house, to whatever extent, is exclusive and nobody can take away his right in the house without due process of law. In other words, co-owner is the owner of a house in which he has share and that his right, title and interest is exclusive to the extent of his share and that he is the owner of the entire undivided house till it is partitioned. The andlogy applied by the Tribunal based on the judgment of the Supreme Court in Banarsi Dass Gupta (supra), wherein, the Supreme Court considered the provisions contained in section 32 of the Act, would not apply to the faces of the present case. The right of a person, may be one half, in the residential house cannot be taken away without due process of law or it continues till there is a partition of such residential house. Thus, the view expressed by the Tribunal on this issue cannot be accepted.

Thus, the order passed by revenue authorities rejecting assessee’s claim was to be restored. Thus, High Court held that in terms of provisions of section 54F, where assessee on date of sale of long term capital asset owns a residential house even jointly with another person, his claim for deduction of capital gain arising from sale of asset has to be rejected.”

5. Before us, the Ld. Counsel of the assessee has relied on the following three decisions of the Tribunal, Mumbai Benches to support that even if the assessee co-owner is more than one house, since the fractional ownership in a property does not amounts to violating the conditions laid down u/s 54 of the Act, the assessee is entitled for deduction u/s 54 of the Act.:

1. Ashok G. Chauhan v. Asstt. CIT ITD 717 (ITAT Mumbai A Bench) [ITA No 1309/Mum/2016];

2. Dy. CIT v. Dawood Abdulhussain Gandhi [IT Appeal No 3788 (Mum) of 2016, dated 31-1-2018] (ITAT “F” Bench Mumbai)

3. ITO v. Rasiklal N Satra [2006] 98 ITD 335 [ITAT ‘A’ Bench Mumbai]

5.1. Further, the assessee also relied on the decision of the Hon’ble Madras High Court in the case of Dr. Smt. P.K. Vasanthi Rangarajan v. CIT (2012) 252 CTR 0336. The relevant finding of the Hon’ble Madras High Court is reproduced as under:

“12. A reading of the provisions contained in section 54F(1), as it stood at the relevant point of time, shows that exemption from payment of tax on the capital gains arising on the transfer of any long-term capital asset not being a residential house is available to an assessee being a Hindu Undivided Family or an individual, if the long-term capital gain is invested in purchasing a residential house or constructing the residential house within the time stipulated therein. Proviso to sub-section (1) states that the exemption contemplated under sub-section (1) would not be available where an assessee owns a residential house as on the date of the transfer and that the income from the residential house is chargeable under the head “income from house property”. The Finance Act, 2001 amended the proviso with effect from 2001-02 to permit exemption under section 54F, even if the assessee has owned one residential house as on the date of transfer, other than the new asset, or purchase in investments any residential house other than the new asset within a period of one year or three years as the case may be. but after the date of transfer of the original asset and the income from such residential house other than the one owned on the date of transfer of the original asset is chargeable under the head “income from house property”.

13. As far as the present case is concerned, contrary to the contention of the assessee, the assessee as well as her husband had offered 50% share each in the clinic in the income tax assessment and had claimed depreciation thereon. So too 50% share in the property in the wealth tax proceedings is offered by the assessee and her husband. The note submitted to the Assistant Commissioner of Income Tax, City Circle 5(1), Madras, by the assessee discloses that the assessee owned 50% of the property in 828, Poonamallee High Road, Chennai, for use as residential property and 50% as clinic, so too for the property at Door No. 828A, Poonamallee High Road, Chennai. The facts thus reveal that as joint owners of the property. the assessee and her husband had shown 50% share with reference to the clinic and the residential portion in their respective returns. Thus, it is clear that as on the date of the transfer, the assessee did not own a residential house in her name only, the income from which was chargeable under the head “income from house property”, to bring into operation, the proviso to section 54F. The rejection of the claim for exemption would arise if only the property stands in the name of the assessee, namely, individual or HUF. Given the fact that the assessee had not owned the property in her name only to the exclusion of anybody else including the husband, but in joint name with her husband, we agree with the submission of the learned senior counsel appearing for the assessee herein 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 herein. Apart from that, 50% ownership is with reference to the clinic situated in the ground floor. As such, the entire property is not an exclusive residential property. Hence, we are inclined to agree with the assessee’s contention that the joint ownership of the property would not stand in the way of claiming exemption under section 54F.”

5.2. Before us, the Ld. Counsel of the assessee submitted that where there are different views of non- jurisdictional High Court, then one favourable to the assessee has to be followed. The Ld. Counsel of the assessee relied on the decision of the Hon’ble Supreme Court in the case of CIT v. Vegetable Products Ltd. 119731 88 ITR 192. Further, the Tribunal in the case of ITO v. Upkar Retail (P.) Ltd.  ITD 626 ITAT ‘B’ Bench Ahmedabad [ITA No. 2237/Ahd/2014] relying on the decision of the Hon’ble Supreme Court in the case of Vegetable Products Ltd. (supra), which was followed by the Tribunal in the case of Tej International (P) Ltd. v. Dy. CIT [2000] 69 TTJ 650 (Delhi) held that in case of conflict in the decision of the non-jurisdictional High Court, the view which is favourable 11 ITA No. 2835/Mum/2024 AY 2018-19 Sheriar Phirojsha Irani to the assessee should be followed. The relevant finding of the Tribunal (supra) is reproduced as under:

“4. As to what should be the view to be taken in these circumstances, ie. when there are conflicting decisions of Hon’ble Courts above and when we do not have the benefit of the guidance by Hon’ble jurisdictional High Court, we find guidance from the decision of a co-ordinate bench in the case of Tej International Pvt Ltd. v. DCIT [(2000) 69 TTJ 650 (Del)] wherein the coordinate bench has, inter alia, observed as follows:-

“6. We have considered the rival submissions and perused the records. It is not in dispute that two High Courts, namely, Gauhati High Court and Karnataka High Court, have expressed conflicting views regarding levy of interest under sections 234B and 234C on deemed income under section 115J. Hon’ble Gauhati High Court has opined that when legal fiction is to be created for an obvious purpose, full effect to it should be given. Quoting Lord Asquith who said, “the statute says that you must imagine a certain state of affairs, it does not say that having done so, you must cause or permit your imagination to boggle when it comes to inevitable corollaries of that state of affairs”, Hon’ble Gauhati High Court has held that there is no statutory exception excluding the operations of section 115J of the Act. Hon’ble Karnataka High Court, on the other hand, has held that the words ‘for the purposes of this section’ in Explanation to section 115J(1A) are relevant and cannot be construed to extend beyond the computation of liability to tax. In the opinion of the Hon’ble Karnataka High Court, when a deeming fiction is brought under the statute, it is to be carried to its logical conclusions but without creating further deeming fiction so as to include other provisions of the Act which are not made specifically applicable. It is thus evident that views of these two High Courts are in direct conflict with each other. Clearly, therefore, there is no meeting ground between these two judgments and we are also usable to accept the suggestion that we can follow earlier decisions of this Tribunal, or such views, whichever seem more reasonable of one of these High Courts.

7. It may be mentioned that some Benches of the Tribunal have either taken independent view on the issue in this appeal or have later on followed Hon’ble Gauhati High Court, referred to above. However, with the latest judgment of Hon’ble Karnataka High Court in Kwality Biscuits Ltd.’s case (supra) the situation is materially different. In the hierarchical judicial system that we have, better wisdom of the this Tribunal has expressed an opinion on that issue, we are no longer at liberty to rely upon earlier decisions of this Tribunal even if we were a party to them. Such a High Court being a non-jurisdictional High Court does not alter the position as laid down by Hon’ble Bombay High Court in the matter of CIT v. Godavari Devi Saraf [1978) 113 ITR 589 (Bom.). Therefore, we do not consider it permissible to rely upon the earlier decisions of this Tribunal even if one of them is by a Special Bench. It will be wholly inappropriate to choose views of one of the High Courts based on our perceptions about reasonableness of the respective viewpoints as such an exercise will de facto amount to sitting in judgment over the views of the High Courts something diametrically opposed to the very basic principles of hierarchical judicial system. We have to, with our 12 ITA No. 2835/Mum/2024 AY 2018-19 Sheriar Phirojsha Irani highest respect of both the Hon’ble High Courts, adopt an objective criterion for deciding as to which of the Hon’ble High Court should be followed by us.

8. We find guidance from the judgment of Hon’ble Supreme Court in the matter of CIT v. Vegetable Products Ltd. [1973] CTR (SC) 177: [1972] 88 ITR 192 (SC)Hon’ble Supreme Court has laid down a principle that “if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This principle has been consistently followed by the various authorities as also by the Hon’ble Supreme Court itself. In another Supreme Court judgment, Petron Engg. Construction (P.) Ltd. & Anr. v. CBDT & Ors. [1988] 75 CTR (SC) 20: [1989] 175 ITR 523 (SC). it has been reiterated ITA No. 2237/Ahd/2014 Assessment Year: 201112 that the above principle of law is well established and there is no adopt about that. Hon’ble Supreme Court had, however, some occasion to deviate from this general principle of interpretation of taking statute which can be construed as exception to this general rule. It has been held that the rule of resolving ambiguities in favour of tax- payer does not apply to deductions, exemptions and exceptions which are allowable only when plainly authorised. This exception, laid down in Littman v. Barron 1952 (2) AIR 393 and followed by apex Court in Mangalore Chemicals & Fertilizers Lid. v. Dy. Commr. of CCT [1992] Suppl (1) SCC 21 and Novopa India Lad. v. CCE & C 1994 (73) ELT 769 (SC), has been summed up in the words of Lord Lohen, “in case of ambiguity, a taxing statute should be construed in favour of a tax payer does not apply to a provision giving tax payer relied in certain cases from a section clearly imposing liability”. This exception, in the present case, has no application. The rule of resolving ambiguity in favour of the assessee does not also apply where the interpretation in favour of assessee will have to treat the provisions unconstitutional, as held in the matter of State of M.P. v. Dadabhoy’s New ChirmiryPonri Hill Colliery Co. Ltd. AIR 1972 (SC) 614. Therefore, what follows is that in the peculiar circumstances of the case and looking to the nature of the provisions with which we are presently concerned, the view expressed by the Hon’ble Karnataka High Court in the case of Kwality Biscuits Ltd, case (supra), which is in favour of assessee, deserves to be followed by us. We, therefore, order the deletion of interest under sections 234B and 234C in this case.

5. In view of the above discussion, quite clearly, even when the decision of Hon’ble non-jurisdictional High Courts are in conflict with each other, the only objective criteria which followed by us is to take a view favourable to the assessee. Hon’ble Calcutta High Court’s decision in the case of Asian Financial Services Ltd. (supra), therefore, is required to be followed by us. Respectfully following the same, we uphold the conclusions arrived at by the learned CIT(A) and reject the grounds raised by the Revenue.”