Sections 54, 54B and 54F allow an assessee to claim exemption from capital gains on the transfer of long-term capital assets subject to satisfying certain conditions. All of these sections however require reinvestment in another asset for the purpose of the claim of exemption. One of the issues that has consistently arisen is whether the reinvestment made in the name of any other person being a family member of the assessee will entitle the assessee to the claim of exemption.
I have in my earlier blog referred to the decision of various High Courts where it has been held that the benefit of exemption u/s.54 / 54F would be available where the reinvestment is made in the name of the spouse of the individual. I have also mentioned that where the reinvestment is made in the name of a son or daughter the benefit of exemption cannot be claimed as has been held by the Bombay High Court in Prakash v ITO [2009] 312 ITR 40 (Bom).
However recently the Chhattisgarh High Court in Chowaram Baghel v PCIT 2023 (12) TMI 1163 – Chhattisgarh High Court has held that reinvestment in the name of the spouse of the individual assessee would not entitle the assessee to the exemption u/s.54B. In doing so the Chhattisgarh High Court has heavily relied on the decision in the Constitution Bench of the Supreme Court in Commissioner of Customs (Import) v Dilip Kumar and Co &Ors [2018] 9 SCC 1 (SC) where the Supreme Court has followed the ratio laid down in CCE v Hari Chand Shri Gopal &Ors [2011] 1 SCC 236 (SC).
The Supreme Court in Hari Chand Shri Gopal referred to suprahas held that it is a well-settled principle that a person who claims an exemption or concession has to establish that he is entitled to that exemption or concession. The Supreme Court, in this case, had observed that where exemption is available on compliance with certain conditions, the conditions have to be complied with and the mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown if there is failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption.
While as stated above, High Courts have taken a view that reinvestment in the name of the spouse would not disentitle the assessee to the exemption, this recent decision of the Chhattisgarh High Court takes a diametrically opposite view relying on the Supreme Court in Hari Chand Shri Gopal. It may be noted that even the Supreme Court in the case of Hari Chand Shri Gopal has held that where the requirement is only directory in nature, non-compliance would not affect the essence and substance of the notification granting exemption.
The purpose of granting exemption u/s.54 / 54F is apparently to encourage housing and that of section 54B is to encourage investment in an agricultural property. One would think that the avowed objective having been satisfied even where the reinvestment is made in the name of one’s spouse, the benefit of exemption should normally be made available.
This would be particularly so since in many such cases, assessees do not even realize that the reinvestment if made in the name of the spouse will result in the exemption not being available. Further, in many cases, the reinvestment made in the name of the spouse is made to protect the interest of the spouse in the unfortunate event of the death of the assessee individual.
# Income Tax, # section 54, # section 54F, # section 54B, # reinvestment, # spouse
