A woman has successfully challenged the Income Tax Department's disallowance of her ₹6.92 crore Section 54F exemption after purchasing her husband's Mumbai property using long-term capital gains proceeds. According to The Times of India, the dispute arose when she sold unlisted shares in AY 2021-22, earning ₹8.31 crore in long-term capital gains, and subsequently invested ₹7.50 crore in a residential property on Juhu Tara Road, Mumbai. The property was purchased through her husband's sole proprietorship, HP Trading, and the woman explained it was acquired as investment for future security with rental potential, separate from her residence where she continues to live on her husband's parental property.
The case involved the application of Section 54F of the Income Tax Act, 1961, which provides exemption from long-term capital gains for individuals or HUFs when gains arise from transfer of capital assets other than residential houses, with prescribed amounts invested in new residential properties. As reported by The Times of India, the exemption requires the asset sold to be a long-term capital asset other than a residential house, the new house to be in India, and purchase to be made within one year before or two years after the original asset transfer. The tribunal found no statutory bar on purchasing residential property from a spouse and claiming Section 54F exemption, provided other conditions are met, with the documents supporting the purchase being in place, consideration paid, and the property transaction itself not disputed.
The Assessing Officer's assessment was completed on December 30, 2022 under Section 143(3) read with Section 144B, with the Section 54F exemption denied and the amount added to the woman's total income. According to The Times of India, the department's reasoning was linked to the tax treatment in her husband's hands, who had earned short-term capital gains of about ₹4.85 crore from the transaction and subsequently set off ₹3.56 crore against business losses. The AO viewed the transactions between the husband and wife as a family arrangement involving rotation of funds, treating the two transactions as connected and effectively helping the family avoid tax. However, the tribunal found the department's chronology problematic, noting that the business loss arose only on March 31, 2022, months after the property transaction in June 2021, weakening the argument that the two events were planned together.
Chartered accountant Suresh Surana explained to The Times of India that the woman's transaction was properly documented with a registered transfer deed, stamp duty paid, and clear source of funds explained. The property was separate from her residence and acquired as investment for future security with rental potential. The tribunal held that genuine transactions cannot be disregarded merely because they involve related parties or result in tax benefits, emphasizing that legitimate tax planning within legal framework cannot be treated as tax evasion or colourable device. The case establishes important precedent for similar transactions between spouses seeking legitimate tax planning opportunities, with the ITAT ruling that the Income-tax Act does not impose such restrictions on purchasing residential property from a spouse.
