A taxpayer was denied income tax benefits, by the Income Tax Appellate Tribunal's (ITAT) Mumbai bench, on the gains made from the sale of a long-term residential property despite using it to purchase a new house.

He was denied the claim on the grounds that the house was registered in his wife and adult daughter's names. The Mumbai High Court held the view that the new property has to be either owned by the taxpayer or he/she should at least have legal title over it to avail the tax benefit.

Section 54 of the Income Tax Act allows tax relief on gains made from the sale of a long-term house property, if used to purchase a new house, within 2 years of the sale date. A house property held for over 2 years becomes a long-term asset and the profit from the sale of such an asset attracts 20 percent tax with adjustment for inflation (indexation benefit).

If the LTCG (long-term capital gain) is invested in another property in India, within the stipulated period, one can reduce their taxable income as the tax on the gains will be lowered to the extent of the investment.

In the case discussed here, the claimant sold a house that he owned jointly with his wife and did not offer to tax on any of the capital gains. The income tax authorities assessed tax liability on 50 percent of the gains made and his claim under section 54 was denied.

Meanwhile, in a similar case in the national capital, the Delhi high court judged in favour of the taxpayer.