It is an admitted
fact that after the disintegration of joint families, we are becoming more and
more individualistic. Nevertheless, even today, although in a nuclear form, the
family system is still surviving.The social and legal systems still recognise
the concepts of family members, close relatives and particularly, the sanctity
of relationship between husband and wife.
Even today, the family
and especially men feel a psychological comfort by having a residential house in
their wife’s name or at least, add her as a joint holder. It is a different
matter that such holding by the wife is often used for so-called tax-planning,
in a crude manner.
provisions of the Benami Transactions (Prohibition) Act, 1988, protect the
holding of property in a spouse’s name [refer S. 3(2)]. The Incometax Act also
expressly protects certain transactions from taxability (e.g., S. 56 — gift from
relative) or indirectly recognises the importance of close relations (in a
negative way) in terms of S. 64, S. 27, S. 40A(2), etc. Needless to state that
in ‘jurisprudence’, ‘custom’ is regarded as a primary source of law.
background, it is a matter of grave concern that the Income Tax Department is
now denying exemption u/s.54/54F merely on grounds that the new house is
purchased in joint name with the spouse !
The unfairness :
In a typical
case, the asset sold is in the single name of the husband. He invests the sale
proceeds in a residential house and in the agreement to purchase, he adds his
wife’s name as a joint-purchaser.
The money flow of
sale proceeds and purchase price can easily be traced and established. The
husband shows the house in his balance sheet as his asset. He declares income
from house property, in his return of income only. No part of the house or
income is included in the return of wealth or income of the wife. Yet, the
Income Tax Department raises an objection that since a joint interest is
created, the condition that the ‘assessee should purchase a residential house’
is not satisfied!
Not only this,
but the exemption is denied even for the purchase of a part of the house.
cases are discussed in the succeeding paragraphs.
Case Law :
Readers may be
aware that in the past, the judiciary was very much favourable to assessees in
this regard. There are decisions that not only the joint name, but even purchase
in the exclusive name of the wife would also be eligible for exemption u/s.54 or
At the same time,
the extreme view that the purchase even in a stranger’s name would also be
eligible is difficult to digest. It is too legalistic an interpretation that the
Section merely says ‘purchases or constructs’; and is silent about the name in
which it should be acquired.
Tribunal has held it against the assessee (case of ITO v. Shri Niranjan Singh
Bajaj, ITA No. 2040/Mum./2006). The Members have placed reliance on a Bombay
High Court decision in the case of
Prakash s/o Timaji Dhanjode v. ITO, 312 ITR
facts in the Bombay High Court decisions were materially different. There, an
86-yearold man purchased the house in his major stepson’s name with an express
intention of giving the house to the son. This cannot be equated with a purchase
of a house in the joint name with wife. The reasons are obvious :
(i) In terms of
S. 27(i), the assessee (husband) alone is deemed to be the owner of the house.
Department’s objection that at the time of sale, wife’s signature will be
required and she will be entitled to a half share is also taken care of by S.
64. The capital gains will be taxed in the hands of the husband only.
(iii) There are
many other judicial decisions granting exemption and approbating purchase in
joint names. And with respect, it can be seen that even the Bombay High Court
decision (312 ITR 40) is also based on the particular facts of that case. It
would be unjust and unfair to generalise the decision.
The Punjab &
Haryana High Court in the case of
CIT v. Gurnam Singh,
327 ITR 278 has also taken a favourable
In the following
decisions also, exemption has been allowed to the assessee for investment in the
sole/joint name with wife :
(1) CIT v. V.
Natrajan, 287 ITR 271 (Mad.)
(2) ITO v. Smt.
Saraswati Ramanathan, 116 ITD 234 (Del.)
(3) JCIT v. Smt.
Armeda K. Bhaya, 95 ITD 313 (Mum.)
In the context of
S. 27, S. 64 and having regard to the social custom, and also considering the
fact that the Bombay High Court gave the decision in a different context, the
exemption u/s.54/54F should not be denied merely because the purchase is in
joint name with spouse. Law should be clarified or the CBDT should issue a
Circular to avoid unnecessary and avoidable litigation.