Section 54F relief: ITAT Hyderabad grants ₹2.80 cr tax break to NRI in rare case

Tax relief: In a significant ruling reinforcing the substance-over-form principle in tax law, the Income Tax Appellate Tribunal (ITAT), Hyderabad, granted an NRI taxpayer relief under Section 54F of the Income-tax Act, even though the new residential property was registered in his sister’s name. The decision provides important clarity on how genuine investment intent and funding sources can outweigh technical ownership issues in capital gains exemptions.

Case background

As noted by tax advisory platform Tax Buddy, the taxpayer, Revanth, an NRI based in the UK, sold five villas during FY 2021–22 for a total consideration of ₹5.26 crore. After accounting for indexed cost of acquisition, he reported long-term capital gains (LTCG) of ₹3.41 crore. Against this, he claimed a deduction of ₹2.80 crore under Section 54F, citing investment in a new residential property.

However, the dispute arose because the new property—purchased from Aqua Space Developers—was registered in the name of his sister, Shreya, on April 10, 2023.

What is Section 54F?

Section 54F of the Income Tax Act enables individuals and HUFs to claim exemption on long-term capital gains arising from the sale of non-residential assets—such as shares or gold—if the net sale proceeds are reinvested in a single residential property in India. The investment must be made within specified timelines: purchase within one year before or two years after the sale, or construction within three years. The exemption is capped at ₹10 crore.

Tax officer’s stand

The Assessing Officer rejected the entire Section 54F claim on a strict legal interpretation. The core argument was straightforward:

The new house was not registered in Revanth’s name Therefore, he could not be treated as the legal owner Consequently, the exemption under Section 54F was denied in full

This resulted in the entire LTCG of ₹3.41 crore being treated as taxable, instead of ₹61.33 lakh as claimed by the taxpayer.

Taxpayer’s defence

Revanth contended that the property was registered in his sister’s name purely due to logistical constraints, as he was residing abroad and unable to travel to India at the time of registration.

More importantly, he substantiated his claim with a strong evidentiary trail:

The builder’s allotment letter was issued in his name A booking advance of ₹65 lakh was paid directly from his bank account The total purchase consideration of ₹4.31 crore was paid through a joint bank account held with his father His sister provided a written confirmation stating she was not the beneficial owner The property was later transferred back to Revanth via a registered gift deed dated January 20, 2025 Municipal records and tax documents ultimately reflected his ownership

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ITAT’s observations

The ITAT acknowledged that judicial precedents typically allow a liberal interpretation of Section 54F when properties are purchased in the name of a spouse or unmarried children. However, it clarified that such relaxation does not automatically extend to other relatives, including siblings.

Despite this, the Tribunal ruled in favour of Revanth based on the factual matrix of the case. It emphasised that:

The entire investment originated from the taxpayer The ownership arrangement was temporary and procedural Documentary evidence consistently established beneficial ownership Final Verdict and Implications

The ITAT upheld the Section 54F deduction of ₹2.80 crore and dismissed the Revenue’s appeal, significantly reducing Revanth’s taxable capital gains.

This ruling underscores a critical takeaway: Section 54F relief hinges not merely on legal title but on the genuineness of investment and beneficial ownership. While taxpayers should ideally ensure property registration in their own name, this case demonstrates that robust documentation and clear financial trails can still secure tax relief in exceptional circumstances.

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