Can You Get Exemption U/s 54 or 54F If House Is Taken On Lease?
I am about to purchase a part of house (Linter) in rural Himahcal Pradesh out of my long term capital proceeds. But as per the local by laws outsiders of Himachal cannot purchase such property in rural area... Only via media is that I get the same on perpetual lease (or 99 year lease).My question is weather the investment in the said house and expenses on construction the same to make it livable on the said leased property is allowable under 54F of the income tax act. Sulekha ,Shimla
Section 54F states that if sales consideration of a long term capital asset other than residential house is utilised for purchase or construction of a house , the exemption from tax is to the extent the sale consideration is used for such purchase. The issue whether the taking lease of 99 years constitute "purchase" for the purpose of section 54F.
Section 54F states that if sales consideration of a long term capital asset other than residential house is utilised for purchase or construction of a house , the exemption from tax is to the extent the sale consideration is used for such purchase. The issue whether the taking lease of 99 years constitute "purchase" for the purpose of section 54F.
Section 54F is a beneficial enactment giving relief to the assessee .It well-settled that in construing a beneficial enactment, the view that advances the object of the beneficial enactment and serves its purpose must be preferred to the one which obstructs the objects and paralyses the purpose of the beneficial enactment as per the decision of the apex court in Kunal Singh v. Union of India [2003] 4 SCC 524.
The same question" whether the house purchased on lease " constitute "purchase" for the purpose of section 54 was before Guahati High Court in case of Commissioner of Income-tax v. Rajesh Kumar Jalan [2006] 286 ITR 274 (Gau) . The court held the decision in favour of assessee .
The basis of decision of Guahati High Court was the case of A. R. Krishnamurthy And Another.vs CIT 176 ITR 417 , the Supreme Court referred a decision of Patna High court in Traders and Miners Ltd. v, CIT [1955] 27 ITR 341, where a Division Bench of the Court, interpreting the expression "transfer of a capital asset", held as under (at page 345) :
We think that the expression 'transfer' in the section includes not only a permanent transfer but also a temporary transfer of title to the property in question and lease of mines for any period would fall within the ambit of section 12B of the Act. It was also contended by Mr. Dutt that a transaction of lease did not tantamount to a transfer of title but that a mere contractual right was created. We do not think that this argument is correct. A lease of land is transfer of interest in the land and creates right in rem : and there is a transfer of title in favour of the lessee though the lessor has right of reversion after the period of the lease terminates.This decision has been referred to with approval by this court in R. K. Palshikar (HUF) v. CIT [1988] 172 ITR 311”
Therefore, in my opinion, a lease hold right on house property which shows that the property is in all practical sense has been transferred to you by virtue of 99 years lease is as good as purchase and accordingly the claim of exemption u/s 54 or 54F will be valid.
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