Opinion Of Eminent Legal Luminaries On Controversial Issues

Can Legal Heir Claim Exemption From Capital Gains For New House U/s 54?

QUERY: The assessee sold residential house and planned to construct a new house for claiming exemption u/s. 54. The assessee expired in April, 2014. Can legal heir who has to file Return of Income can claim benefit u/s. 54 of the Act, and how?
ANSWER: This point has been decided by the Madras High Court in C.V. Ramanathan v. CIT [125 ITR 191], wherein the Court held that one of the concessions provided for persons deriving capital gains under the Income-tax Act is that where a person sells property used for his residence and substitutes another its place, then any capital gain derived by him would not be liable to assessment so long as the entire capital gain is reinvested in the newly acquired property. Section 54 of the Act, which gives the concession contemplates later events, i.e. substitution of property within one or two years to be taken into account. Hence, it is important to see if this condition is satisfied .

The legal representative cannot be differentiated from the assessee for this purpose. If the assessee were liable to pay capital gains tax, the benefit of section 54 which forms part of the scheme of taxation of capital gains cannot be denied because the latter condition of section 54 was fulfilled by his legal representative.

Similarly, in Late Mir Gulam Ali Khan v. CIT [165 ITR 228], the Andhra Pradesh High Court has held that the object of granting exemption under section 54 of the Act, is that a person who sells a residential house for the purpose of purchasing another convenient house must be given exemption so far as capital gains are concerned. The word ‘assessee’ in section 54 must be given wide and liberal interpretation so as to include his legal heirs also. There is no warrant for giving the strict interpretation to the word “assessee” as that would frustrate the object of granting exemption.

Thus, it is clear from the above judgments that legal heir steps in the shoes of deceased and entitled for deduction under section 54 of the Act.
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One comment on “Can Legal Heir Claim Exemption From Capital Gains For New House U/s 54?
  1. Mitali Shah says:

    hi
    i hv a query reg capital gains matter. The A.O. is not giving exemption just because the builder has not yet given me the allotment letter and the agreement though he has issued his demand invoice and official receipts for the payments that i hv made to him. and these two documents clearly mention my flat no. booked with him.

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