ITAT Allows Rs 14.70 Lakh Section 54F Deduction After Tax Department Counts Company-Owned Property

The Income Tax Appellate Tribunal, Nagpur has allowed a deduction of Rs 14.70 lakh under Section 54F of the Income-tax Act, 1961, and has ruled that a company-owned home is not the taxpayer’s asset and that her jointly held flat did not breach the ownership limit.

The case relates to Assessment Year (AY) 2014-15  Surekha Diliprao Dhole had claimed the deduction after investing in a residential property at Onkar Nagar, Nagpur. The assessing officer reopened her case, saying she owned more than one other residential house and failed a key condition for the relief.

The officer counted three properties: the Onkar Nagar house, a property at Pushpkunj Complex and a flat in Devshree Apartment. The Onkar Nagar house was the one for which she claimed the deduction. The other two became central to the dispute.

Why The Income Tax Department Rejected The Claim

Section 54F of the Income-tax Act, 1961, provides relief from long-term capital gains (LTCG) when an eligible individual or Hindu Undivided Family (HUF) invests the net consideration from the sale of a long-term capital asset other than a residential house in a qualifying home, subject to conditions. The home must generally be bought within one year before or two years after the sale, or constructed within three years.

One condition bars a taxpayer from owning more than one residential house, apart from the new asset, on the date of transfer. 

According to a report in The Times of India, the department treated all three properties as hers and denied the deduction of Rs 14.70 lakh. It assessed her total income at Rs 16.70 lakh. The Commissioner of Income Tax (Appeals) upheld the disallowance, prompting her to approach the tribunal.

Company Property And Joint Ownership

The Nagpur bench of the Income Tax Appellate Tribunal (ITAT) examined who owned each property. The Pushpkunj Complex property belonged to Taral Projects and Infrastructure, where Dhole was a director. The tribunal said it could not be treated as her personal house merely because she held a directorship in the company.

The flat at Devshree Apartment was jointly owned by Dhole and her husband. She told the tribunal she had not contributed to its purchase. The bench nevertheless counted her as a joint owner while examining the claim. Even then, it found she owned only one residential house apart from the Onkar Nagar property for which she sought relief.

The tribunal held that the ownership restriction did not disqualify her. It reversed the appellate order and allowed the full deduction of Rs 14.70 lakh.

The decision turned on how the properties were held, rather than on the number of addresses listed in the assessment order. A house owned by a company is not automatically a director’s personal asset. The tribunal also did not say that a jointly-owned home can never count: it treated the Devshree flat as Dhole’s property and still found her eligible because it was her only other house.

For taxpayers claiming relief under Section 54F, the ownership test is separate from the investment requirement. The claim also depends on meeting the statutory timelines and other conditions. Property records, the sale deed, and evidence of the investment can matter if the department questions a claim.

The Nagpur order relates to AY 2015-16 and its particular facts. It does not mean every taxpayer with a company connection or jointly held property will qualify. The relevant question is what the taxpayer owned on the date specified by the law, and whether the qualifying investment and other requirements were met.

FAQs

What does Section 54F provide?
It allows eligible taxpayers to claim relief from long-term capital gains by investing the net sale consideration in a qualifying residential property, subject to conditions.

Does a home owned by a company count as a director’s property for Section 54F?
In this case, ITAT Nagpur said the company-owned property could not be treated as the director’s personal home simply because she was a director.

Did the flat jointly owned with her husband make Dhole ineligible?
No. The tribunal counted her as a joint owner, but found it was her only other residential house besides the property for which she claimed the deduction.