Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether Benefit Of Section 54F Is Available Of HUF Invest In The Name Of Co-parcener?

QUERY: A HUF was having a house property which was let out and rent was charged under the head ‘Income from House Property’ on which tax was paid. The said property was sold for Rs. 30/- lakhs which the HUF wants to invest in the name of coparcener (daughter). Whether HUF is entitled to get benefit under section 54F of the Income-tax Act, 1961 as coparcener is a part of the HUF?
ANSWER: According to me no benefit would be available to the HUF if it invests in the name of coparcener. Under section 2(31) read with section 4 the HUF as well as coparcener are separate assessable entities. This view is supported by the decision of Income Tax Appellate Tribunal, Nagpur Bench in ITO vs. Prakash Timaji Dhangode [258 ITR (AT) 114], where the Tribunal has held as under:

“That a plain reading of section 54F would show that it is the assessee who has to invest the capital gain in the new assets or construction of residential house in his name. The expression ‘the assessee has purchased or constructed a new assets’ in sub-section (1) would only mean that new asset has to be in the name of the assessee. The proviso to sub-section (1) makes the position very clear inasmuch as it says that the assessee shall not own any residential house on the date of transfer or purchase a residential house within one year of the transfer or construct a residential house within a period of three years, other than the new asset. Thus, a reading of sub-section (1) together with the proviso would show that the investment in the new asset by the assessee has to be in his own name and not in the name of any other person. The legal consequences of purchase of new assets by the assessee in the name of his son is to constitute his son as the beneficial owner of the new asset. The assessee has not made investment in his name therefore, he had rendered himself liable to pay tax on capital gain arising out of the transfer of the capital asset”.

Further, the aforesaid view has been affirmed by the Bombay High Court in Prakash vs. ITO [173 Taxman 311] The Court has observed as under:

“Section 54 refers to the assessee, being an individual or a Hindu undivided family, Importantly, both are different legal entities. As per the scheme of this section the assessee, who is the owner of the original asset, needs to, within a period of one year before or two years after the date on which the transfer took place, purchase or within a period of three years after that date, construct a residential house (new asset). The capital gain shall be dealt with in accordance with the other parts of the section.

The concepts of the ‘assessee’, ‘own’, ‘owned’. ‘owner’, ‘ownership’ ‘co-owner’, ‘owner of house property’ or ‘ownership of property’ as elaborated in sections 22 to 27 and 32, are very much inter-linked and connected for granting the benefit under the Act. An assessee must have a valid title legal conveyed to him after complying with the requirement of law or at least entitled to receive income from the property in his own right and have control and domain over the said property for all the legal purpose, which basically excludes a third person of any right over the said property. Therefore, all these concepts are inter-linked. The scheme and purpose for section 54F, which was inserted by the Finance Act, 1982 with effect from 1-4-1983, i.e. from assessment year 1983/84 is to encourage house construction. The object, therefore, is to give all benefits under the said section to the assessee on conditions as are elaborated in the section. No such benefit is available to a person other than the assessee. It also means that the assessee must comply with the conditions strictly as per the provisions in all aspects.

In the instant case, the deceased assessee, admittedly, though sold the property owned by him, yet purchased the new property in the name of his adopted son and paid consideration out of the sale proceeds in question, with clear intention to transfer the property to the adopted son. He, therefore, had utilized the sale proceeds to construct a house by transferring the property and submitting plan in the name of his only son. The intention was very clear from the day one to transfer the property even before the construction of residential house to the adopted son. He had transferred the property before the prescribed period as per the scheme of section, and the son had become the owner of the property for all the purposes. The deceased/assessee, admittedly had no domain and/or right whatsoever on the said property. That fact itself, therefore, had disentitled him to claim any exemption.

In view of the above reasons, the appellant did not qualify for the exemption under section 54F. For qualifying for the exemption under this section, it is necessary and obligatory to have the investment made in residential house in the name of the assessee only. Accordingly, the appeal was to be dismissed”.

Further, Vipin Malik (HUF) vs. CIT [183 Taxman 296] the Delhi High Court has held that to claim the benefit of section 54F, the residential house which is purchased or constructed, has to be of the same assessee whose agricultural land is sold. Where the agricultural land sold was of the HUF of the assessee but flat purchased in the co-operative society was not in the name of HUF but in the individual name of the assessee, along with his mother there was no question of applicability of section 54F in the aforesaid facts and circumstances.
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