Archive · 1 Oct 2026
ITAT Grants Partial Section 54 Relief for House Construction
A man sold his share of an inherited house and used money to build another home.
The land for the new home had been bought in his wife's name.
Tax officials rejected his entire tax benefit claim.
They said the land was bought too early and was not in his name.
The tribunal looked separately at the land and the house built on it.
It said the land cost did not qualify because it was bought more than one year before the sale.
But the house was built within the allowed three-year period.
The tribunal therefore allowed a tax deduction for the construction cost of ₹63.04 lakh.
Dhanasekaran Palani sold his 50% share of an inherited house for ₹72.91 lakh.
He claimed Section 54 relief after building a home on land registered to his wife.
The plot cost ₹12.38 lakh and was bought on 19 July 2013, about 17 months before the sale.
The Chennai ITAT excluded the land cost because it fell outside the one-year pre-sale purchase window.
The tribunal allowed ₹63.04 lakh for construction after the completed property was valued at ₹75.42 lakh.
- Who
- Dhanasekaran Palani, who sold a 50% share of an inherited residential property, and the Chennai Income Tax Appellate Tribunal.
- What
- The ITAT granted a partial Section 54 exemption for construction costs while excluding the cost of the underlying plot.
- When
- The plot was purchased on 19 July 2013, about 17 months before the inherited property was sold; the house was completed within three years after the sale.
- Where
- The case was decided by the Chennai Income Tax Appellate Tribunal.
- Why
- Palani sought tax relief after using capital gains from the property sale to construct a new residential house.
Taxpayer's Position
Tax Department's Position
Eligibility for Section 54 relief
Taxpayer's Position
Palani argued that the house itself was constructed within the statutory three-year period, so the construction cost should qualify even though the plot had been acquired earlier in his wife's name.
Tax Department's Position
The assessing officer rejected the entire claim, citing the earlier purchase of the plot and its registration in the wife's name.
Treatment of land and construction
Taxpayer's Position
Palani provided a civil engineer's valuation report separately identifying the land and construction values, supporting a deduction for the construction component.
Tax Department's Position
The tax authorities treated the timing and ownership issues as grounds for denying the full Section 54 claim.
- Taxpayer
- Dhanasekaran Palani
- Sale proceeds
- Palani's 50% share was ₹72.91 lakh from the ₹1.46 crore sale.
- Claimed capital gains
- Approximately ₹66.48 lakh
- Plot cost
- ₹12.38 lakh
- Completed property value
- ₹75.42 lakh
- Allowed construction deduction
- ₹63.04 lakh
- Relevant provision
- Section 54 of the Income Tax Act