Date:14/07/2008 URL: http://www.thehindu.com/2008/07/14/stories/2008071450041600.htm

Business

Reinvestment in another’s flat

It is not unusual that the sale proceeds of assets are reinvested in claiming relief under Sec. 54 or 54F in a residential property in the name of wife or son or in joint names of self and wife either for sentimental reasons or for the facility of succession or for mere convenience. Is it necessary that reinvestment should be made only in the name of the person claiming relief?

Some assessing officers have taken the view that reinvestment benefit will not be available, unless reinvestment is in the name of the assessee, who is liable for capital gains tax and claiming relief.

It becomes sometimes difficult, where the relief is claimed in respect of capital gains on sale of property in wife’s name, where the capital gains is clubbed in the hands of the husband under Sec. 64, so that it is unreasonable to expect that the reinvestment should be made in the name of the husband when the property sold actually belongs to the wife.

Even in normal cases, the objective of law should be treated as satisfied, where reinvestment is made in residential property out of sale proceeds in respect of which relief under the head “capital gains” is claimed.

Investment in wife’s name was accepted in CIT v V. Natarajan (2006) 287 ITR 271 (Mad) on the ground that the purchase of the property was out of the sale proceeds so that what was considered mainly was the source of funds for reinvestment. A similar view was taken by the Delhi Bench of the Tribunal in ITO v Smt. Saraswati Ramanathan (2008) 300 ITR (AT) 410. However, such a controversy can be avoided by having reinvestment made in the name of the assessee liable for capital gains, except in the case of clubbed income, in which case investment can be made in the name of a person, whose income is clubbed.

S. RAJARATNAM