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Mumbai ITAT Allows Section 54F Exemption on Spouse Property Purchase
A woman in Mumbai made a lot of money by selling some shares.
In India, when you make money this way, you usually have to pay a big tax.
But the law has a special rule: if you use the money to buy a house, you do not have to pay that tax.
That rule is called Section 54F.
The woman bought a house from her husband's business and asked for the tax break.
The tax department said she was just trying to cheat and took the tax break away.
The woman asked a special court, called a tax tribunal, to help her.
The court checked everything and found no proof of cheating.
It said the law does not stop anyone from buying a house from their spouse.
So the court gave her the tax break back.
The Mumbai Income Tax Appellate Tribunal (ITAT) allowed Motwani's ₹6.92 crore exemption under Section 54F for buying a residential property from her husband's sole proprietorship.
Motwani, a Juhu, Mumbai resident, earned ₹8.31 crore in long-term capital gains from selling unlisted shares during AY 2021-22 and purchased the property for ₹7.50 crore in June 2021.
The Income Tax Department treated the transaction as a 'colourable device' to evade taxes, and the Assessing Officer denied the exemption on 30 December 2022.
The ITAT found the department's allegation rested on suspicion rather than evidence, noting the husband's business loss of about ₹3.56 crore arose only on 31 March 2022, after the property purchase.
The tribunal held that the Income Tax Act does not prohibit buying a residential property from a spouse to claim a Section 54F exemption and directed the Assessing Officer to allow the claim.
- Who
- Motwani, a resident of Juhu, Mumbai, who claimed the exemption; the Income Tax Department, which denied it; and the Mumbai Income Tax Appellate Tribunal (ITAT), which ruled in her favour.
- What
- The Mumbai ITAT allowed Motwani's ₹6.92 crore exemption under Section 54F of the Income Tax Act for buying a residential property from her husband's sole proprietorship, ruling the transaction was genuine and not a tax avoidance arrangement.
- Where
- Juhu Tara Road, Santacruz (West), Mumbai, India.
- When
- The property was purchased in June 2021 during assessment year 2021-22; the Assessing Officer denied the exemption on 30 December 2022; the article does not specify the date of the ITAT ruling.
- Why
- The tribunal found the department's case rested on suspicion rather than evidence, noted the husband's business loss arose after the purchase, and held that the law does not bar buying a property from a spouse.
Taxpayer's Position
Income Tax Department's Position
Nature of the property transaction
Taxpayer's Position
The purchase was genuine, properly documented, and compliant with the law; the department did not dispute the sale deed, stamp duty, valuation, or source of funds.
Income Tax Department's Position
The transaction was a pre-planned 'colourable device' arranged between husband and wife to reduce the family's overall tax liability.
Timing of the husband's business loss
Taxpayer's Position
The property was bought in June 2021 while the business loss arose only on 31 March 2022, so the loss could not have been anticipated at the time of the transaction.
Income Tax Department's Position
The arrangement was planned so the husband could adjust about ₹4.85 crore of short-term capital gains against business losses of about ₹3.56 crore.
Buying a property from a spouse under Section 54F
Taxpayer's Position
The Income Tax Act does not prohibit purchasing a residential property from a spouse or family member to claim the Section 54F exemption.
Income Tax Department's Position
The exemption should be denied because the transaction was a sham, fictitious, or merely an accommodation entry aimed at tax savings.
Key facts
- Exemption claimed under Section 54F
- ₹6.92 crore
- Long-term capital gains earned
- ₹8.31 crore from sale of unlisted shares, AY 2021-22
- Property purchase price
- ₹7.50 crore, purchased June 2021
- Property location
- Juhu Tara Road, Santacruz (West), Mumbai
- Exemption denied by Assessing Officer
- 30 December 2022, under Section 143(3) read with Section 144B
- Husband's reported short-term capital gains
- About ₹4.85 crore, partly adjusted against business losses of about ₹3.56 crore
- Ruling body
- Income Tax Appellate Tribunal (Mumbai)
- Applicable law
- Section 54F, Income Tax Act, 1961
Sources
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