Punjab & Haryana High Court affirms Section 54F exemption for house purchased in joint names

1. Background of the dispute

The Punjab and Haryana High Court, in PCIT Vs Jangpal Singh Tanwar, dismissed an appeal filed by the Revenue under Section 260A of the Income Tax Act 1961. The Revenue had challenged the order of the Income Tax Appellate Tribunal, Chandigarh Bench, which had allowed the assessee’s claim for exemption under Section 54F in respect of a residential house purchased in joint names.

The controversy related to Assessment Year 2016-17 and arose from a revisional order passed under Section 263 by the Principal Commissioner of Income Tax, Chandigarh (PCIT). The core question was whether the assessee could claim full exemption under Section 54F when the new residential house was purchased jointly in the names of the assessee, his wife and his son, but the assessee had invested his entire Long Term Capital Gain (LTCG) in that property.

The High Court concluded that the Tribunal’s view in favour of the assessee was correct on facts and that no “substantial question of law” arose for consideration, leading to the dismissal of the Revenue’s appeal.

2. Facts recorded by the authorities and the Tribunal

2.1 Return of income and original assessment

  • The assessee, a retired pensioner, filed his return of income for AY 2016-17 on 05.08.2016 declaring total income of Rs.4,21,230/-.
  • The income was shown under the heads “Salaries” and “Income from Other Sources”.
  • The return was processed and accepted by the Assessing Officer (AO) vide order dated 07.12.2018 (Annexure A-1). No issue was initially raised in relation to Section 54F at the stage of original assessment.

2.2 Revision proceedings under Section 263

Subsequently, the PCIT invoked revisional jurisdiction under Section 263. Vide order dated 21.03.2021 (Annexure A-2), the PCIT set aside the assessment framed by the AO on the ground that the AO had not examined the assessee’s claim of exemption under Section 54F in respect of capital gains arising from the sale of an immovable property.

The PCIT held that the assessment order was erroneous and prejudicial to the interests of the Revenue as the AO had allowed the exemption without proper verification of the extent of investment made by the assessee in the new residential property and the corresponding eligibility under Section 54F. The AO was accordingly directed to redo the assessment after examining this issue.

The assessee filed an appeal before the Income Tax Appellate Tribunal, Chandigarh, challenging the revisional order.

2.3 Sale of the Panchkula plot and computation of capital gains

The Tribunal recorded the following undisputed factual aspects:

  • The assessee had sold residential plot No.227, Mansa Devi Complex (MDC), Urban Estate, Panchkula on 14.12.2015 for a sale consideration of Rs.1,28,50,000/-.
  • The plot had originally been allotted by HUDA on 10.12.2010 for Rs.10,83,815/-.
  • As per the computation of income on record, the assessee had disclosed Long Term Capital Gain of Rs.97,78,721/- in respect of this plot.

2.4 Purchase of new residential house in Chandigarh

Within a short time after selling the Panchkula plot, the assessee acquired a new residential house:

  • On 18.12.2015, the assessee purchased House No.365, Sector 20A, Chandigarh.
  • The purchase was made in the joint names of:
    • the assessee,
    • his wife, Smt. Sumitra, and
    • his son, Sh. Sukhbir Singh.
  • The sale consideration recorded in the judgment for House No.365 was Rs.1,82,00,000/-.

The assessee claimed exemption under Section 54F in respect of the capital gains arising from the transfer of the Panchkula plot, on the basis that the LTCG of Rs.97,78,721/- had been invested in the purchase of this new residential property.

3. Findings of the Revisional Authority under Section 263

In the revisional proceedings, the PCIT took the view that the assessee could not claim full exemption under Section 54F as if he alone had invested the entire purchase consideration for the new house.