Delhi Tribunal rules that rights in house property are not equivalent to absolute ownership to deny exemption under S.54F of the ITA

In the case of Deepak Kotari ^[1] (Taxpayer), the Taxpayer was the absolute owner of one residential house property (House property 1) and a plot of land. The Taxpayer also acquired 25% right in residential house property (House property 2) on 11 July 2015 from his mother, though the formal mutation/transfer in favor of the Taxpayer happened on 3 March 2017. In August 2016, the Taxpayer transferred the land and claimed exemption under Section (S.) 54F of Income Tax Act, 1961 (ITA) by acquiring new residential house property. Tax authority denied benefit of S.54F of ITA by considering the Taxpayer as owner of more than one residential house as on date of transfer (August 2016) breaching the relevant condition of eligibility to the said exemption.

The issue before the Delhi Income Tax Appellate Tribunal was whether the tax authority was justified in denying capital gains exemption under S.54F of the ITA on the ground that the Taxpayer was owning two house properties (inclusive of the rights in residential house property pursuant to will) at the time of transfer of long-term capital asset (i.e. land).

The Delhi Tribunal noted that at the time of transfer of land in August 2016 the Taxpayer was the owner only of one house property (House Property 1). The Taxpayer became owner of House Property 2 only on 11 March 2017 when the house property was recorded in his name in relevant government records. The position is not impacted merely because he is also entitled to receive rent w.r.t House Property 2 since August 2015. Accordingly, the Tribunal held that the Taxpayer was eligible to claim exemption. On a without prejudice basis, the Tribunal also held that even where the Taxpayer is regarded to be 25% owner of House Property 2 as on date of transfer in August 2016, the said house property 2 will not be considered while determining condition of ownership, since he is only a part owner and not full owner. Accordingly, the Tribunal held that the Taxpayer was entitled for exemption under S.54F of ITA. Reliance was placed on Surat Tribunal decision of Mukesh Arvindlal Vakharia [(2023) 153 taxmann.com 55] which ruled that co-ownership cannot be regarded as absolute ownership to deny S.54F of ITA exemption. 

^[1] TS-1038-ITAT-2025(Del)