Ankit Patel felt good. After having lived in rented apartments for over five years, he and his wife had finally bought their new apartment. Getting together the finances as well as the home loan had been challenging but at the end of the day, as he was relaxing in his newly decorated living room, he felt it was all well worth the effort. He had also included his wife’s name as the second holder in the property deed – so now she too would be able to claim the interest deduction and the Sec. 80C principal repayment deduction Though only Ankit had paid for the property, since it was bought in joint names, both he and his wife together would be able to claim the tax deductions. He patted himself for having been smart with the tax planning – or so he thought. Then came the scrutiny assessment which opened up a Pandora’s box. The tax officer claimed that the beneficial owner remained Ankit and all tax related rights, liabilities and legal obligations emanating from owning the house should ideally be his liability and not that of his wife’s.
This was precisely the issue that came up before the Delhi High Court in the case of Commissioner of Income Tax v. Ravinder Kumar Arora. The brief facts of the case were that the assessee had earned long-term capital gains from the sale of a plot of land and claimed exemption under section 54F by purchasing a new residential house property. Though all the payments were made by the assessee, the house was purchased jointly in the names of the assessee and his wife. Consequently, the Assessing Officer (AO), allowed only 50 pc of the exemption claimed under section 54F as against total claim made by the assessee. Aggrieved by the AO’s order, the assessee filed the appeal before the Commissioner (Appeals) CIT(A), who also dismissed the assessee’s claim. However, in further appeal before the Income Tax Appellate Tribunal, the assessee succeeded as the Tribunal held that the assessee is indeed entitled to the full benefit of Section 54F and not only to the extent of 50 pc. Now it was the Revenue’s turn to appeal to the High Court against the Tribunal’s order. The honourable High Court observed that though the new residential house was purchased by the assessee in his own name along with the name of his wife, it was the assessee who paid stamp duty and municipal tax at the time of the registration. Similarly, he had also himself paid commission and legal expenses in connection with the purchase of the house. Not even a single penny had been contributed by the wife in the purchase of the house. The property was purchased by the assessee jointly with his wife for ‘shagun’ purposes and also to avoid any litigation after his death. All the funds invested in the said house were provided by the assessee himself as was clear and evident from his bank statement. Therefore as a matter of fact, the assessee was the real owner of the residential house in question.
The Court was of the opinion that based on the aforesaid facts, the conditions stipulated in section 54F stand fulfilled. It would be treated as the property purchased by the assessee in his name and merely because he has included the name of his wife in the ownership of the property, it 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 AO or the contention of the Revenue is accepted, it would be a derogatory step. 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. Inclusion of the name of the wife should not stand in the way of the deduction legitimately accruing to the assessee. The objective of section 54F (and the like provision such as section 54) is to provide impetus to house construction and so long as the purpose of house construction is achieved, a 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 is a beneficial provision which should be interpreted liberally in favour of the exemption/deduction to the tax-payer and deduction should not be denied on hyper-technical ground.
The Court further went on to observe that 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. The Court pointed out that that there were judgments of other High Courts giving benefit of Section 54F of the Act when the house of the assessee is purchased jointly with his wife. In the case of CIT v. Natarajan [2006] 287 ITR 271/154 Taxman 399 (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 v. Gurnam Singh [2010] 327 ITR 278/[2008] 170 Taxman 160 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 In view of aforesaid discussion, the Court ruled that the exemption under section 54F 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 of himself and his wife. The appeal of the Revenue stood dismissed.
Conclusion
The key takeaway from the above account is that it doesn’t matter in whose name the property stand. It is only the person who has effectively paid for the property that will be eligible to and can claim the tax deductions on the same. Basically, it is the beneficial ownership that decides taxation and not merely what exists on paper. Coming back to Ankit’s case, just like Sec. 54F deduction is only available to the effective owner, even the interest deduction on the loan as well as Sec. 80C deduction on the loan installment will be available to beneficial owner only. In this case, Ankit’s wife will not be eligible for these tax deductions even though her name is included as the equal joint owner of the property. All prospective home buyers would do well to bear this in mind.
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