In a recent decision, the Mumbai Income Tax Appellate Tribunal (ITAT) ruled that an assessee who jointly owns multiple residential properties can still claim exemption under Section 54F of the Income Tax Act. The ITAT observed that the assessee in question was not the exclusive owner of five residential flats, as they were occupied by other family members. This ruling was based on the precedent set by the Madras High Court in the case of Dr. P.K. Vasanthi Rangarajan v. CIT (2012) 252 CTR 336 (Mad.), which favored the assessee’s position over a conflicting ruling by the Karnataka High Court in M.J. Siwani v. CIT (2015) 53 taxmann.com 318 (Karn.) that was relied upon by the revenue.
The ITAT relied on the Supreme Court’s ruling in CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC), which states that when there are conflicting views, the one favoring the assessee should be preferred. In this case, the individual assessee had transferred a long-term capital asset and claimed an exemption of Rs. 2.6 crore under Section 54F for the assessment year 2016-17. However, the revenue disallowed the exemption, arguing that the assessee owned six residential properties, even though they were jointly owned.
The revenue’s decision to disallow the exemption was upheld by the Commissioner of Income Tax (Appeals) (CIT(A)). However, the ITAT referred to the Karnataka High Court ruling in M.J. Siwani, which was relied upon by the revenue, and the Madras High Court ruling in Dr. P.K. Vasanthi Rangarajan, which was relied upon by the assessee. The Karnataka High Court had held that if the assessee owns a residential house, even jointly with another person, on the date of sale of the long-term capital asset, the claim for deduction of capital gains must be rejected under Section 54F. On the other hand, the Madras High Court held that joint ownership of the property does not prevent the assessee from claiming exemption under Section 54F.
Considering the conflicting decisions, the ITAT referred to the Supreme Court’s ruling in Vegetable Products Ltd. and an Ahmedabad ITAT ruling in ITO v. Upkar Retail (P) Ltd. ITAT ‘B’ Bench Ahmedabad ITA No. 2237/Ahd/2014, which stated that in case of a conflict in the decisions of non-jurisdictional High Courts, the view favorable to the assessee should be followed. Since the revenue did not refer to any adverse ruling from a jurisdictional High Court, the ITAT relied on the Madras High Court ruling and allowed the assessee’s appeal.
In conclusion, the Mumbai ITAT held that the assessee, despite jointly owning multiple residential properties, was eligible for exemption under Section 54F. The ITAT relied on the Madras High Court ruling, which favored the assessee’s position over the Karnataka High Court ruling relied upon by the revenue. The ITAT emphasized the principle of favoring the view that benefits the assessee in case of conflicting rulings.
