Capital gains exemption can be claimed u/s 54 or 54F if the sales consideration is invested in buying the house or constructing the house . It does not matter if the land on which construction is done is owned by spouse. This is what karnataka High court said in the deicision in case of CIT and Anr. vs P.R. Seshadri [228 CTR 334 ]
The facts of the case
The assessee during the relevant accounting period was holding 90% shares in a company and transferred the entire shareholding in favour of another company. The assessee during the year had received Rs.25,00,000/- as advance payment towards the transfer of the said shares, and had invested the proceeds in the construction of a residential house on a piece of land that was owned by the assessee’s wife.
A.O. assessed the Capital gain on transfer of share . Assessee appealed to the CIT (A) and made the alternative argument of deduction under section 54F on the construction of the house on a piece of land which was owned by his wife gument was not accepted by the CIT(A).
On appeal to the tribunal by the assessee, the tribunal held in favour of the assessee and in doing so held that the assessee had contributed to the construction of the house out of his funds generated by the sale of shares and irrespective of the fact that the land belonged to the wife of the benefit under section 54F.
Decision of High court
23. The first question relating to the benefit of s. 54F being availed by the assessee in our opinion has to be answered against the Revenue and in favour of the assessee for the reason that though the land may be in the ownership of assessee’s spouse, nevertheless the Tribunal has recorded a categorical finding that construction work was in progress during 21st April, 1995 till 31st Aug., 1996 and the wife of the assessee could have included the value of construction for mortgage purposes and this alone does not mean that construction was carried out by the wife of the assessee out of her own funds so as to deny the assessee the benefit of deduction under s. 54F of the Act.
24. If that is to be accepted as finding of fact then we find no impediment in the assessee’s claim for relief under s. 54F, as the assessee had claimed relief to the extent of Rs. 20,96,008 as his contribution towards the cost of construction of the building and this amount we find that will fall within the cost of the building. Accordingly questions (i) and (ii) are answered in the affirmative and against the Revenue.
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