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Reinvestment benefit is confined to one's own investment

Q: My son, being a NRI, bought a vacant house site in 1994 by issuing a cheque in my favour. A part of the amount was also paid by me. He has executed a general power of attorney in my favour in 1994 itself inter alia to construct a house.

Now, as per his approval, I am constructing a residential house through a contractor. He has sent a cheque in my favour which is being used for the construction of the house. Sale proceeds and long term capital gains arising from sale of shares held by me/my wife are also being used for this construction, kindly clarify whether capital gains on sale of our shares can be got exempted from income-tax.

A: Sec. 54F, which gives reinvestment benefit on sale of any asset other than residential property in proportion to which the sale proceeds are invested in a residential property obviously refers to the investment in residential property of the person, who sells the asset. In the reader's case, the investment is that of the reader's son, as the plot has been purchased in his name substantially out of his funds. The fact that the purchaser of the plot and construction has been done by the reader as a general power of attorney indicates that the house property belongs to the son. The sale proceeds of the shares belonging to the reader and his wife, used for the purpose of construction of son's property, can be either by way of gift to the son or a loan. Hence, capital gains on sale of shares by the reader or his wife cannot be avoided with reference to investment in son's property.

S. Rajaratnam

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