Exemption for Two Houses u/s 54

This query is : Resolved 

20 December 2009

An Assesee sold a house property and got a capital gain of Rs. 20 Lakhs, he bought two house property out of the gain, One house property in his name and the other in his wife's name.

Please let me be answered with case laws if any,
1. Can an assessee claim exemption for two houses u/s 54 ?
2. Can an assessee claim exemption u/s 54 by buying a property in the spouse name?


Barun Kumar Ghosh (Expert)
20 December 2009

Reply to Question No.1
There are two conflicting judicial views on this particular issue. In the case of K.C.Kaushik vs. P.B.Rane, ITO 185 ITR 499 (Bom.) it was held by the Bombay High Court that if the assessee buys more than one house , he can claim exemption u/s 54 in respect of only one hopuse property.On the other hand, recently the Karnataka High Court in the case of CIT vs. D.Ananda Basappa (2009) 309 ITR 329 (Karn)has taken a contray view which is in favour of the assessee. The Court held that the expression "a residential house" should be understood in the sense that building should be of residential nature and "a" should not be understood to indicate a singular number. The Court has relied on the provision of the General Clauses Act.
Where there are two possible views on a particular issue, the view which is favourable to the assessee should be followed as held by the Supreme Court in the case of Vegetable Oil Ltd.
Reply to Question No.2
In the context of section 54B (exemption of capital gain from sale of agricultural land by purchasing another agricultural land)the Punjab & Haryana High Court in the case of CIT vs.Gurnam Singh 170 Taxman 160 (P&H) held that where the assessee sold agricultural land and out of sale proceeds, purchased another agricultural land in joint name of himself and his son, exemption under section was allowable. The said court recently in the case of Jai Narayan vs.ITO (2008) 306 ITR 335 held that if the assessee sold an agricultural land and bought another agricultural land in the name of son or grand son, the assessee was not eligible to claim exemption u/s 54B.
On the basis of the above decitions it appears that if the assessee buys a house property in the name of spouse, exemption u/s 54 will be denied.therefore, the better option is to buy the property in joint name.

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