TAX TALK-27.06.2011-THE HITAVADA
TAX TALK-27.06.2011-THE HITAVADA
TAX TALK BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“a RESIDENTIAL HOUSE PROPERTY” & LTCG EXEMPTION U/S 54”
Query 3]
1. I have inherited 1/3 ownership in a residential house which was purchased by my fore- father in 1920. The valuation of the whole house on 1-4-1981 was 15 Lacs and hence Rs. 5 Lacs for my 1/3rd share. Now I am selling my 1/3rd share for Rs 70 Lacs. What will be my taxable amount after considering index?
2. There are 7 shareholders in my HUF property. My question is whether I am entitled to purchase a single house or entitled to purchase 7 houses, 1 each for every individual member. Is there any restriction in this regard?
3. I am told that Chennai High Court has pronounced that one can purchase as many houses as he chooses, while the Mumbai High court sticks in favor of one single house only. Since my property is in Maharashtra, what is my entitlement? Is there any Supreme-Court ruling also in this matter?
4. In case ,my way to acquire 7 houses against the sale of 1 single HUF house is obstructed, can our way be free if all HUF members first make a partition of HUF property and then execute seven separate sale-deeds of their ownership shares?. [medmechanic@gmail.com]
Opinion:
1. As per provisions of the section 54 of the IT Act-1961, the long-term capital gain arising to an individual / HUF assessee, from the sale of a residential house shall be exempt if the amount of Long Term Capital Gain (LTCG) is invested within a stipulated time for purchase of “a ” residential house. Whether exemption will be available on investment of capital gain for purchase of more than one house property is question with no full proof solution. The issue is a vexed one and divergent views have been expressed by the Judiciary on the issue depending upon the facts & circumstance of each & every individual case. Confusion prevails as to the interpretation of alphabet “a” used in section 54.
2. The word “a” has been interpreted either way in the judicial ronouncements:
a] The Mumbai bench of the IT Appellate Tribunal in the case of Mrs. Gulshan banoo R. Mukhi vs Joint CIT ((2003) 78 TTJ 768 (Mumbai) held in favor of the department interpreting the term `a residential house’ as meaning one property. Recently, Punjab & Haryana High Court in the case of Pawan Arya Vs. CIT (2011) 37 CTR (P & H) 210 has held that exemption u/s 54 is available in respect of one house property only.
b] The Bangalore High Court in CIT Vs. D. Anand Basappa [2009] 180 Taxmann 4 (Kar) has affirmed the view of the Tribunal & has upheld that the exemption can be claimed in respect of the investment made in more than one house. Similar view are expressed in
i] ITO Vs. P.C. Ramakrishna (2007) 108 ITD 251 (Chennai),
ii] Prem Prakash Bhutani Vs. CIT (2007) 110 TTJ (Delhi) 440, &
iii] CIT Vs. Rukminiamma (2011) 196 Taxman 187 (Kar).
3. As of now, there is no Supreme Court Ruling on the issue. To be on a safer side, better interpret the word “a” as one house property only.
4. In your case, you can first partitions the property in 7 parts & thereafter the 7 individual owners can join in executing the sale deed in favor of the prospective buyers. With this modus operandi, all the 7 owners will be able to claim exemption u/s 54 for purchase of a residential house property without any hassle & dispute.
Query 2]
My father wants to take home loan for the reconstruction of house, on which my mother is also a co-owner, if he will take loan can he get full deduction on it against the interest & the principal amount paid, because my mother is housewife & her income is nil so the deduction which she will get, will be of no use. [manishkhonde@yahoo.in]
Opinion:
1. Deduction u/s 80C is restricted to the repayment of Loan (Principal portion) used for the purpose of purchase or construction only & not against the loan taken for reconstruction/ renovation etc.
2. However, deduction u/s 24(b) for interest payment is admissible even in respect of fund borrowed for repairs, renovation and or reconstruction. The persons who avails the loan can get the deduction u/s 24(b). In your case, your father will be availing the loan & so he can get the deduction towards the entire amount of interest on loan taken for reconstruction of the house property.
TAX TALK BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“a RESIDENTIAL HOUSE PROPERTY” & LTCG EXEMPTION U/S 54”
Query 3]
1. I have inherited 1/3 ownership in a residential house which was purchased by my fore- father in 1920. The valuation of the whole house on 1-4-1981 was 15 Lacs and hence Rs. 5 Lacs for my 1/3rd share. Now I am selling my 1/3rd share for Rs 70 Lacs. What will be my taxable amount after considering index?
2. There are 7 shareholders in my HUF property. My question is whether I am entitled to purchase a single house or entitled to purchase 7 houses, 1 each for every individual member. Is there any restriction in this regard?
3. I am told that Chennai High Court has pronounced that one can purchase as many houses as he chooses, while the Mumbai High court sticks in favor of one single house only. Since my property is in Maharashtra, what is my entitlement? Is there any Supreme-Court ruling also in this matter?
4. In case ,my way to acquire 7 houses against the sale of 1 single HUF house is obstructed, can our way be free if all HUF members first make a partition of HUF property and then execute seven separate sale-deeds of their ownership shares?. [medmechanic@gmail.com]
Opinion:
1. As per provisions of the section 54 of the IT Act-1961, the long-term capital gain arising to an individual / HUF assessee, from the sale of a residential house shall be exempt if the amount of Long Term Capital Gain (LTCG) is invested within a stipulated time for purchase of “a ” residential house. Whether exemption will be available on investment of capital gain for purchase of more than one house property is question with no full proof solution. The issue is a vexed one and divergent views have been expressed by the Judiciary on the issue depending upon the facts & circumstance of each & every individual case. Confusion prevails as to the interpretation of alphabet “a” used in section 54.
2. The word “a” has been interpreted either way in the judicial ronouncements:
a] The Mumbai bench of the IT Appellate Tribunal in the case of Mrs. Gulshan banoo R. Mukhi vs Joint CIT ((2003) 78 TTJ 768 (Mumbai) held in favor of the department interpreting the term `a residential house’ as meaning one property. Recently, Punjab & Haryana High Court in the case of Pawan Arya Vs. CIT (2011) 37 CTR (P & H) 210 has held that exemption u/s 54 is available in respect of one house property only.
b] The Bangalore High Court in CIT Vs. D. Anand Basappa [2009] 180 Taxmann 4 (Kar) has affirmed the view of the Tribunal & has upheld that the exemption can be claimed in respect of the investment made in more than one house. Similar view are expressed in
i] ITO Vs. P.C. Ramakrishna (2007) 108 ITD 251 (Chennai),
ii] Prem Prakash Bhutani Vs. CIT (2007) 110 TTJ (Delhi) 440, &
iii] CIT Vs. Rukminiamma (2011) 196 Taxman 187 (Kar).
3. As of now, there is no Supreme Court Ruling on the issue. To be on a safer side, better interpret the word “a” as one house property only.
4. In your case, you can first partitions the property in 7 parts & thereafter the 7 individual owners can join in executing the sale deed in favor of the prospective buyers. With this modus operandi, all the 7 owners will be able to claim exemption u/s 54 for purchase of a residential house property without any hassle & dispute.
Query 2]
My father wants to take home loan for the reconstruction of house, on which my mother is also a co-owner, if he will take loan can he get full deduction on it against the interest & the principal amount paid, because my mother is housewife & her income is nil so the deduction which she will get, will be of no use. [manishkhonde@yahoo.in]
Opinion:
1. Deduction u/s 80C is restricted to the repayment of Loan (Principal portion) used for the purpose of purchase or construction only & not against the loan taken for reconstruction/ renovation etc.
2. However, deduction u/s 24(b) for interest payment is admissible even in respect of fund borrowed for repairs, renovation and or reconstruction. The persons who avails the loan can get the deduction u/s 24(b). In your case, your father will be availing the loan & so he can get the deduction towards the entire amount of interest on loan taken for reconstruction of the house property.
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