By TIOL News Service

MUMBAI, MAR 15, 2018: THE issue is - Whether even a partial or fractional ownership of a residential property disentitles a taxpayer from claiming benefits of Sec 54F. NO IS THE ANSWER.

Facts of the case:

The assessee is an Individual. Consequent to filing of return, his case was taken up for scrutiny, wheein the AO noticed that the assessee had received an amount of Rs. 1,00,00,000/- on surrender of tenancy rights in respect of a flat at Sylverton Building, Colaba, Mumbai. The assessee along with his wife Mrs. Nilofer Gandhi had made an investment of Rs. 1,84,91,350/- in a residential house with Oberoi Construction Pvt. Ltd and the capital gain arising there from was claimed by him as exempt u/s 54F of the Act. The AO noted that at the time of purchase of the new residential property, i.e. flat from Oberoi Constructions, assessee owned more than one house property, therefore, he stood disentitled for claim of deduction u/s 54F. The AO disallowed the claim of deduction raised by the assessee u/s 54F and brought the LTCG of Rs. 1,00,00,000/- arising on the surrender of the tenancy rights to tax in the hands of assessee. On appeal, CIT(A) held that the assessee was duly entitled for claim of deduction u/s 54F of Act.

Tribunal held that,

++ as the assessee was not the absolute owner of the properties, i.e. Tara Manzil and Noor Manzil, but was only a co-owner having fractional ownership in the said respective properties, therefore, the precondition of being the owner of more than one residential house, other than the new asset, on the date of transfer of the original asset was not satisfied. There was substantial force in the contention of assessee that as he was vested with fractional ownership on the date of making of an investment in a residential house with Oberoi Construction Pvt. Ltd., Mumbai, it can safely be concluded that he was not the owner of more than one residential house on the relevant date;

++ it is to be observed that the term "owns more than one residential house" used in the proviso of Sec. 54F(1) had to be strictly construed and accorded its literal meaning, which thus would not bring within its sweep a partial and fractional ownership of a property. It was noted that if the legislature in all its wisdom would had sought to even bring a partial or fractional ownership of a residential house also within the gamut of the disqualification contemplated under the aforesaid statutory provision, viz. Sec. 54F(1), then, it would had specifically provided for the same. However, as the partial or fractional ownership of a residential house does not find a place in the set of circumstances where an assessee is precluded from claiming deduction u/s 54F, therefore, going by the rule of strict literal interpretation, such a disqualification cannot be read in the said statutory provision.

(See 2018-TIOL-383-ITAT-MUM)