Exemption u/s 54F allowed as assessee became owner of 2nd house only after mutation

Exemption u/s 54F allowed holding that assessee was owner of only one house at the time of transfer and became owner of second house property only after mutation

In a recent judgment, ITAT Delhi has allowed capital gain exemption u/s  54F holding that assessee was owner of only one house at the time of transfer and became owner of second house property only after mutation after the transfer. Merely because the assessee had right to receive the rent would not change the position.

ABCAUS Case Law Citation:
4679 (2025) (08) abcaus.in ITAT

Important Case Laws relied upon by Parties:
CIT vs. Vegetable Products Ltd
P. K. Vasanthi Rangarajan Vs. CIT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming denial of capital gain deduction under section 54F on the ground that the assessee owned more than one house other than the “new asset” and was therefore not eligible for exemption under Section 54F of the Income Tax Act, 1961 (the Act).

The appellant during the relevant Assessment Year claimed an exemption under section 54F of the Act w.r.t purchase of a residential property, against the long term capital gain earned in respect of transfer of land.

The exemption was claimed in respect of a residential property acquired i.e the “new asset”. That other than the “New Asset” the appellant was the legal owner of only one Residential Property. The Assessing Officer (AO) however disallowed the exemption claimed by the appellant stating that during the year under appeal the mother of the appellant passed away and by the virtue of her will the appellant became the additional owner of 1/4th share of a residential property and therefore he owned more than 1 property other than the “new asset” and is therefore not eligible for exemption under Section 54F of the Act.

Before the Tribunal the assessee submitted that the residential Flat in question was received by him as a result of the Will of the mother but it was mutated in his name six months after the transfer and assessee received only 25% share of the said property which in view of the several judicial decisions cannot be said to be ‘a’ residential house.

It was submitted that on the date of transfer or original assets, the assessee held only one property therefore, assessee be allowed to claim benefit u/s 54F of the Act.

The Tribunal observed that the assessee was the owner of one house at the time of transfer and he became owner of the second property after mutation nearly more than six months after transfer of original assets.  Therefore, at the end of relevant financial year, the assessee was the owner of only one house property. 

The Tribunal stated that merely because the assessee had right to receive the rent much before the year of transfer of original asset, the position does not change.  The absolute ownership acquired by the assessee only after mutation.  The relevant rent may or may not be receivable.  Mere rights will not get the absolute ownership.  Therefore, on the date of transfer, the assessee was the owner of only one property, hence eligible to claim the benefit u/s 54F of the Act. 

The Tribunal further added that for the sake of argument, in case assessee is the 25% owner of the property, still, he cannot be held to be absolute owner of the second property.

The Tribunal further observed that ITAT Surat relying on the judgment of the Madras High Court had held that in view of fact that one residential property was co-jointly owned in name of assessee and his wife and he could not be treated as ‘absolute owner’ of said property, deduction under section 54F could not be denied to him.

Accordingly, following the decision, the Tribunal allowed the ground raised by the assessee.

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