PERSONAL TAX: HUFs can claim tax benefit under Section 54F

Section 54F of the Income Tax Act ('the Act') provides that if a taxpayer invests sale proceeds received from the sale of any capital asset (other than a house property) into buying or for the construction of a new residential house within the specified time period; then the long-term capital gains earned on the sale of such asset shall be exempt to the extent of the proceeds invested.

In the past, various appellate authorities have been liberal in their interpretation and have allowed taxpayer's exemption claims under this section where the new property has been purchased in joint names either with father or even with wife. In a recent case that came up for decision before the Ahmedabad Tax Tribunal, the taxpayer had claimed exemption for investment made in a new property in the name of Hindu Undivided Family.

The taxpayer filed his return of income for assessment year 2010-11 within due date, which was duly assessed by the tax officer without any additions. Later, a fresh assessment was ordered by the Commissioner of Income Tax on the basis of new information available with the Tax Department. It was learnt that the taxpayer along with 10 other co-owners had sold a parcel of land for a total consideration of Rs 3.33 crore. Based on this information, the taxpayer's share in capital gains was computed at Rs 35.91 lakh, which was claimed exempt by him u/s 54F of the Act.

The taxpayer contended that a plot of land was purchased vide a deed dated June 12, 2009 for Rs 10.05 lakh; on which he constructed a house at a cost of Rs 31.38 lakh. Thus, the total cost of residence was claimed at Rs 41.83 lakh. The tax officer however denied this claim on the ground that the new plot was not purchased by him, but was in the name of his HUF. The first appellate authority agreed with the tax officer's view and did not grant any relief to the taxpayer.

Before the tribunal, the taxman argued that the exemption cannot be granted as the investment was made in the name of the HUF, which is a separate taxable entity. The taxpayer, on the other hand, argued that the new house has been constructed on a plot purchased in the name of the HUF, but members of the HUF have not contributed any money. The whole investment was made from the sale proceeds of earlier capital asset, as well as the additional contribution as required was made by the taxpayer only; thereby fulfilling all conditions given under the relevant section. The taxpayer relied on earlier judgements by Delhi and Karnataka High Courts where it was held that it is not necessary to purchase the new house only in the name of the taxpayer, and if other family members are also made as co-owners, exemption can be claimed.

The taxpayer contended that all the precedent judgements relied upon the fact that Section 54F does not require that the new property should be purchased in the taxpayer's name; but merely says that the taxpayer should have purchased/ constructed a residential house.

The tribunal observed that in the current case the other members of the HUF are no strangers but his wife and two sons. Money for the property was contributed only by the taxpayer and he himself had one fourth share in his HUF. In view of various High Court judgements, the tribunal ruled in favour the taxpayer and allowed exemption u/s 54F of the Act.

The writer is a Sebi-registered investment advisor