Man Sells Unlisted Shares, Buys Rs 5.65 Crore House; ITAT Allows Capital Gains Relief

A Delhi taxpayer who came under the income tax department’s scanner after buying a house worth Rs 5.65 crore has got relief from the Income Tax Appellate Tribunal (ITAT), Delhi. The case centred on whether he was entitled to claim a capital gains exemption after selling unlisted shares and using the money to buy a residential property.

The taxpayer had sold unlisted shares for Rs 7.88 crore. From this transaction, he earned long-term capital gains of Rs 7.59 crore. He then bought a residential property in Delhi for Rs 5.65 crore and claimed exemption under Section 54F of the Income-tax Act.

The tax department, however, questioned the claim. One of the reasons was the sharp discrepancy between the transaction size and the taxpayer’s regular income disclosures. The department also objected to how the exemption was claimed, including the fact that the money was not deposited into the Capital Gains Account Scheme (CGAS).

The matter finally reached ITAT Delhi, where the taxpayer argued that the money received from the sale of shares had been properly explained and that the residential house had been bought before the filing of the income tax return. The tribunal accepted his position and allowed the exemption.

Why The Claim Was Questioned

The tax department’s concern was not limited to the amount involved. It also examined whether the taxpayer had followed the conditions required for claiming exemption under Section 54F.

This provision gives relief to a taxpayer who sells a long-term asset other than a residential house and uses the money to buy a home within the period allowed under the law.

The department objected that the taxpayer had not parked the unused sale money in the Capital Gains Account Scheme before the original return-filing deadline. It also questioned his eligibility by pointing to another house property, saying this could go against the conditions laid down under Section 54F, according to a recent report by The Economic Times.

The taxpayer’s stand was simple: the money from the share sale had already gone into the purchase of the new house before he filed his return. Therefore, the requirement of depositing the amount in CGAS should not be applied in a rigid manner.

ITAT agreed with this view. It held that if the money has already been used for buying the residential house before the return is filed, the exemption cannot be denied only because the amount was not separately deposited in CGAS.

What ITAT Said On The Property Purchase

Another important point in the case was the taxpayer’s ownership of another property. The tax department had argued that he owned more than one house and was, therefore, not eligible for the Section 54F benefit.

The taxpayer had a share in a residential property along with his brothers. ITAT looked at the nature of this ownership and held that a fractional or joint share in a property could not be treated in the same way as owning more than one independent residential house.

This finding helped the taxpayer’s case. The tribunal took the view that the conditions of Section 54F had been met and that the exemption should be allowed.

The ruling also made it clear that a taxpayer’s low regular income by itself cannot be used to reject a genuine capital gains claim if the source of money is explained through proper documents. In this case, the money had come from the sale of unlisted shares, and the taxpayer was able to support the transaction.

What Taxpayers Should Learn From This Case

The ruling is important for people who sell shares, land, jewellery, or other long-term capital assets and use the proceeds to buy a house.

It shows that documentation is critical. If a taxpayer is claiming Section 54F exemption, there should be a clear trail showing the sale of the original asset, receipt of money, use of funds, purchase of the new house, and filing of the income tax return.

It also shows that the CGAS requirement may not come in the way where the taxpayer has already used the money to buy the house before filing the return. However, this does not mean timelines can be ignored. In capital gains cases, a delay or missing document can easily lead to scrutiny.

Taxpayers should also be careful about jointly held property. Merely having a share in a family property may not always mean that the person owns another independent residential house, but facts will matter in each case.

For high-value transactions, especially where the taxpayer’s regular income is low, the income tax department may ask more questions. The best defence in such cases is a clean paper trail, proper valuation, bank records, share sale documents, property papers, and accurate reporting in the income tax return.

FAQs

What was the dispute in this case?

The tax department questioned the taxpayer’s Section 54F claim after he sold unlisted shares and used the gains to buy a Rs 5.65 crore house.

Why did ITAT allow the capital gains exemption?

ITAT held that the exemption could not be denied only because the money was not deposited in CGAS, as it had already been used to buy the house before the return was filed.

Does joint ownership of another property affect Section 54F relief?

Not always. ITAT said a fractional share in a jointly owned family property cannot automatically be treated as owning another independent residential house.