Fiction created by any of the provisions of the incometax act can’t be super-imposed on other provisions which themselves tend to have any fiction involved. The same has been held by ITAT Chennai in the case of Shri K. Shantikumar vs Deputy Commissioner of Income Tax.
In the case concerned, the assessee had sold land and subsequently invested the sale proceeds in acquisition of a residential house property. The assessee claimed ded under section 54F saying that it held only one house property on the date of sale. The claim was rejected on the ground that prior to such sale, assessee also held 50% share in two flats each which were jointly owned with his wife. Although, the share in both the flats was relinquished in favour of wife before the sale of land, as per the AO, based on the provisions of section 27, the assessee continued to be the deemed owner of the two flats.
The relevant provisions contained in Section 27 reads –
“For the purposes of sections 22 to 26-
(i) an individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred;”
However, the ITAT has held that fiction created by any of the provisions of the Income Tax Act can’t be super-imposed on other provisions which themselves tend to have any fiction involved. Section 54F provides for deduction when sale proceeds are reinvested in the prescribed asset. Hence, it has a fiction involved. So far as the provisions of section 27 are concerned, they also involve fiction by treating the transferor as deemed owner for the limited purpose of the house property chapter. Thus, no deduction under section 54F can be denied in pursuance of fiction that has been established under section 27. This implied that the assessee concerned was treated as owner of a single residential house property on the date of sale of land. The concept of deemed owner wasn’t applicable for determining the eligibility for deduction under Section 54F. Moreover, it has been held that the act of relinquishment of right in the two flats in favour of wife is not an act of tax evasion but was entered into for convenience sake, and hence is a family arrangement.
