This one is a debatable issue. There are many case laws in favour of and against the purchase of property in the single name of close relatives like son, wife etc.
The position is a more complex when it comes to purchase of the new house by the taxpayer in the single name of a spouse or a child of the taxpayer. A few high courts, including the Delhi high court, have taken the view that purchase of the new house in the name of the taxpayer’s spouse will also qualify for the benefit of the exemption. The courts have noted that the law does not require that the new house has to be in the name of the taxpayer—it merely requires purchase or construction of the new house by the taxpayer, which is satisfied if the funds arising from the sale of the old house are utilized for such purchase or construction of the new house. These courts have also taken the view that since these provisions are exemption provisions, they should be interpreted in a manner to the benefit of the taxpayer, particularly when two views are possible in the matter.
The Nagpur bench of the Bombay high court has, however, taken the view that construction of a new house in the name of the taxpayer’s son would not qualify for the benefit of the exemption. The court has viewed the transaction as a means of transfer of the house, which is normally not permissible for a three-year period.
But Andhra Pradesh and Madras High Courts have given judgement in favour of the Assessee.
Thus to conclude In any case, whenever a taxpayer is contemplating acquisition of a new house to avail the benefit of the long-term capital gains exemption, given the risk of litigation by the tax department, it is certainly advisable for the taxpayer to acquire it in joint names with the close relative to whom he intends to bequeath the house, whether it is the spouse or a child, and not in the sole name of the spouse or child.