Wife Buys Rs 7.5 Crore Mumbai Property From Husband, ITAT Allows Section 54F Tax Relief

A property purchase between spouses does not automatically become a tax-avoidance arrangement simply because both sides of the deal are related. The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has allowed a taxpayer’s Section 54F exemption after she invested Rs 7.5 crore in a residential property bought from her husband.

The dispute arose after the woman reported long-term capital gains of Rs 8.31 crore from the transfer of unlisted shares. Against these gains, she claimed an exemption of nearly Rs 7 crore under Section 54F of the Income-tax Act, 1961, on the ground that the money had been invested in a residential property in Juhu, Mumbai.

The property was purchased from a sole proprietorship concern belonging to her husband. The couple signed the transfer deed on March 30, 2021. The property was subsequently registered in the wife’s name, and she paid the purchase amount to her husband.

What Raised The Tax Department’s Doubts

The assessing officer, however, questioned whether the deal was eligible for the tax exemption. One reason was that the husband had reported short-term capital gains of around Rs 4.8 crore from the sale of the property and had adjusted part of those gains against business losses of about Rs 3.5 crore.

The department viewed the arrangement as designed to reduce the couple's overall tax burden. It therefore disallowed the woman’s Section 54F claim and added nearly Rs 7 crore back to her taxable income. The Commissioner (Appeals) also upheld the disallowance, according to a recent report by The Times of India.

The taxpayer, however, maintained that the purchase was genuine. The property transfer had been registered, stamp duty had been paid, and the consideration had actually changed hands. She also explained the source of the funds used for the purchase.

Why The ITAT Allowed The Exemption

A key factor before the tribunal was the timing of the husband’s business loss. The taxpayer argued that the property transaction had taken place much earlier, whereas the loss in her husband’s business arose only on March 31, 2022. Therefore, it could not reasonably have formed the basis of a tax-saving arrangement planned at the time of purchase.

The ITAT accepted this argument and also noted that the husband had adjusted only part of his short-term capital gains against the business loss.

The tribunal held that an otherwise permissible deduction cannot be denied merely because the transaction is between relatives. The tribunal said the tax department could not reject the transaction solely on suspicion. It had to show that the deal was not genuine.

For taxpayers, the ruling also shows why paperwork matters in property deals involving family members. Registration documents, proof of payment, stamp-duty records and evidence showing where the money came from can help support the transaction if it is questioned by the tax department.

FAQs

1. Can Section 54F exemption be claimed if a house is bought from a spouse?
Yes. The ITAT held that a purchase from a spouse cannot be denied tax relief merely because the parties are related, provided the transaction is genuine.

2. Why did the tax department question the Rs 7.5 crore property purchase?
The department suspected that the deal was structured to reduce the couple’s overall tax liability, particularly because the husband had adjusted part of his gains against business losses.

3. What documents can help support a property transaction between family members?
Registration records, proof of payment, stamp-duty documents and evidence of the source of funds can help establish that the transaction is genuine.