Queries are seen on the subject of Capital gains tax,investment in joint names of husband and wife.This article by a lerned Financial planner in Businesss standard is informative: Link Capital gains tax exemption for joint property also | Business Standard
Buying a home is usually a joint decision between a husband and wife. Or at least the investment is in joint names. Typically, the earning spouse is responsible for the entire financial investment including the repayment of the home loan; but the sale agreement and all other property papers record the joint ownership of the property. Any rentals or income earned from the property are also distributed between the two owners. However, if a new property is bought (in joint names) by a spouse using the sale proceeds of another flat in order to claim the capital gains tax exemption; will the investment done in other spouses name be entitled to exemption under the Income Tax Act?
In one of the recent situations that came up before the Delhi High Court; an individual had sold an inherited flat and earned some long term capital gains. At the time of filing his income tax returns, the tax payer had claimed a deduction under section 54F of the Income Tax Act (the Act) on the ground that the sale proceeds were invested in the acquisition of a residential home in the joint names of himself and his wife. Section 54F of the Act provides that if a tax payer invests the sale proceeds received from the sale of any capital asset for buying a residential property; the long-term capital gains on sale of the property would be exempt.
The income tax officer, during the course of assessment, took the view that under Section 54F, the investment in the residential house should be made in the tax payers name and in as much as the residential house was purchased by the assessee in the name of his wife, the deduction was not allowable. He reduced the deduction and computed the capital gains accordingly.
At the second appellate level; the authority admitted the tax payers claim and allowed the exemption from capital gains accordingly. However, the Income Tax department preferred an appeal before the Appellate Tribunal. The honourable Tribunal, while relying on various judgements, was also of the opinion that the exemption under section 54 should be available to the tax payer. It also observed that section 54F being a beneficial provision, enacted for encouraging investment in residential houses should be liberally interpreted to include investment done in the spouses name too.
On a further appeal with the High Court by the Department, the High Court also agreed to the view adopted by the Tribunal. The High Court noted that the entire purchase consideration was paid only by the assessee and not a single penny was contributed by his wife. It held that a purposive construction of the legal provisions is to be preferred as against a literal construction. Further, even if the provisions of section 54F are literally constructed, there is nothing in the section to show that the house should be purchased in the name of the tax payer only. The High Court observed that section 54F does not require that the new residential property should be purchased in the name of the tax payer; it merely says that the tax payer should have purchased / constructed a residential house.
Buying a home is usually a joint decision between a husband and wife. Or at least the investment is in joint names. Typically, the earning spouse is responsible for the entire financial investment including the repayment of the home loan; but the sale agreement and all other property papers record the joint ownership of the property. Any rentals or income earned from the property are also distributed between the two owners. However, if a new property is bought (in joint names) by a spouse using the sale proceeds of another flat in order to claim the capital gains tax exemption; will the investment done in other spouses name be entitled to exemption under the Income Tax Act?
In one of the recent situations that came up before the Delhi High Court; an individual had sold an inherited flat and earned some long term capital gains. At the time of filing his income tax returns, the tax payer had claimed a deduction under section 54F of the Income Tax Act (the Act) on the ground that the sale proceeds were invested in the acquisition of a residential home in the joint names of himself and his wife. Section 54F of the Act provides that if a tax payer invests the sale proceeds received from the sale of any capital asset for buying a residential property; the long-term capital gains on sale of the property would be exempt.
The income tax officer, during the course of assessment, took the view that under Section 54F, the investment in the residential house should be made in the tax payers name and in as much as the residential house was purchased by the assessee in the name of his wife, the deduction was not allowable. He reduced the deduction and computed the capital gains accordingly.
At the second appellate level; the authority admitted the tax payers claim and allowed the exemption from capital gains accordingly. However, the Income Tax department preferred an appeal before the Appellate Tribunal. The honourable Tribunal, while relying on various judgements, was also of the opinion that the exemption under section 54 should be available to the tax payer. It also observed that section 54F being a beneficial provision, enacted for encouraging investment in residential houses should be liberally interpreted to include investment done in the spouses name too.
On a further appeal with the High Court by the Department, the High Court also agreed to the view adopted by the Tribunal. The High Court noted that the entire purchase consideration was paid only by the assessee and not a single penny was contributed by his wife. It held that a purposive construction of the legal provisions is to be preferred as against a literal construction. Further, even if the provisions of section 54F are literally constructed, there is nothing in the section to show that the house should be purchased in the name of the tax payer only. The High Court observed that section 54F does not require that the new residential property should be purchased in the name of the tax payer; it merely says that the tax payer should have purchased / constructed a residential house.