Section 54F

Section 54F — the law in short

What the courts have decided on section 54F, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Navin Jolly v ITO High CourtHelps taxpayer
  The officer says I already owned more than one residential house on the date of transfer, so s.54F is out. Some of those flats are let out for commercial use. Does that count?
  Usage decides it, not the sanction plan. The Karnataka High Court held that in applying the condition in the proviso to s.54F(1) the use to which a property is actually put has to be considered in deciding whether it is residential or commercial. The assessee owned nine flats; the Revenue conceded that seven were sanctioned for commercial purposes, and the remaining two, though sanctioned as residential, were being run as serviced apartments. Those two could not be treated as residential apartments. The Court also held, as an alternative ground, that two apartments of 500 square feet in the same building have to be treated as one residential unit.
• PCIT v Vembu Vaidyanathan High CourtHelps taxpayer
  I booked a flat in 2004 and only signed the agreement in 2008. Does my holding period run from the allotment letter?
  Yes. Applying CBDT Circulars 471 and 672, the Bombay High Court held that the date of allotment is the date on which the purchaser of a residential unit acquires the property, so the holding period runs from the allotment letter and not from the later agreement. The allottee gets title on the allotment letter; paying the instalments and taking possession come afterwards. The Revenue's appeal was dismissed and the gain stayed long-term.
• CIT v Ajit Thomas High CourtHelps taxpayer
  I settled a house on my wife years ago. The Assessing Officer says section 27(i) makes me its deemed owner, so I own more than one residential house and cannot have section 54F. Does section 27 reach outside the house property head?
  No. The Madras High Court held that section 27(i) is a deeming provision applicable only for sections 22 to 26, in computing the annual value of property, and that the deeming fiction cannot be extended to deny an exemption under section 54F, which applies as an independent provision. The Revenue's appeal was dismissed at the admission stage.
• Humayun Suleman Merchant v CCIT High CourtHelps departmentNo later treatment found
  I never deposited the unspent sale proceeds in a capital gains account. Can I still claim 54F?
  No, not for the unspent part. Section 54F(4) requires the amount not utilised towards the new house to be deposited in the notified account before the due date under section 139(1), and failure to do so confines the exemption to what was actually spent.
• CIT v K. Ramachandra Rao High CourtHelps taxpayer
  I put the whole sale consideration into building a house within the section 54F time limit but never opened a Capital Gains Account. Can the officer deny me the exemption on that ground alone?
  No. The Karnataka High Court held that section 54F(4) is attracted only where the net consideration is not used to purchase or construct the house. If the assessee actually invests within the periods in section 54F(1), the deposit requirement never comes into play and exemption cannot be refused for want of a Capital Gains Account Scheme deposit. The Court also held there is no bar on constructing the new house on a site the assessee already owns; investments in that construction within one year before and three years after the transfer qualify. All four Revenue appeals were dismissed.
• CIT v Gita Duggal High CourtHelps taxpayerSuperseded by amendment
  I got two independent floors from the builder. Is that one residential house for 54?
  Yes, for the years this decision governs. So long as the assessee acquires a building of several units that can conveniently and independently be used as residences, section 54 and 54F are satisfied and the exemption is not restricted to a single unit.
• CIT v Kamal Wahal High CourtHelps taxpayer
  I put the entire sale consideration into a house bought in my wife's name. Do I get 54F?
  Yes, on this view. Where the whole consideration came from the assessee and the spouse contributed nothing, section 54F does not require the new residential house to be bought in the assessee's own name or exclusively in his name.
• Rajendra Kumar Dwivedi v CIT, Kanpur High CourtHelps department
  I sold my agricultural land in small plots over several years, leaving roads and drains. The Assessing Officer has taxed part as business income and part as capital gains and invoked s.45(2). Can he split it like that?
  Yes, on facts like these. The Allahabad High Court upheld a finding that land held in an urban area as a capital asset, carved into 43 plots of 60 to 1,815 sq. mtrs. and sold over seven years with roads and drainage provided, had been converted into stock-in-trade, so that s.45(2) applied and the profits on sale were business income. Both substantial questions were decided in favour of the Revenue and the appeals were dismissed.
• CIT v Sambandam Udaykumar High CourtHelps taxpayer
  I invested the sale proceeds in construction but the house isn't finished. Do I lose 54F?
  No. What section 54F requires is that the consideration be invested within the prescribed period. Completion of construction, execution of the sale deed, or occupation of the new house within that period is not a requirement of the section.
• Gouli Mahadevappa v ITO High CourtCuts both waysSuperseded by amendment
  If the gain is computed on the stamp duty value, can I at least claim s.54F on everything I actually put into the new house?
  Yes, on this authority. Where the capital gain had been assessed on the notional consideration of Rs 36,00,000 substituted under s.50C in place of the Rs 20,00,000 actually received, the Karnataka High Court held that the Rs 24,00,000 the assessee invested in constructing a residential house was available for exemption under s.54F.
• CIT v Ravinder Kumar Arora High CourtHelps taxpayer
  I paid the whole price of the new house but put my wife's name on the deed alongside mine. Will the officer cut my section 54F exemption to half?
  No. The Delhi High Court held that section 54F requires the assessee to purchase a house; it does not require the house to be purchased in his name only. Where the assessee provided the entire consideration, paid the stamp duty, corporation tax, commission and legal expenses, and the wife contributed nothing, he is the real and constructive owner and the conditions of the section are met. Adding a wife's name is conduct to be encouraged rather than penalised. The section is a beneficial provision to be construed liberally and purposively, and the exemption on the full Rs.3.18 crore was allowed. The Revenue's appeal was dismissed with costs.
• Prakash v ITO High CourtHelps departmentNo later treatment found
  I paid for the new house but it's in my son's name. Can I still claim 54F?
  No, on this view. The court held that ownership and domain over the new asset must run to the assessee from the sale of the original asset through to the purchase or construction; where the son became the owner, the assessee had no right over the property and section 54F was refused.
• CIT v Sardarmal Kothari High CourtHelps taxpayer
  I put the whole sale consideration into land and started building, but the house was not finished when the officer inspected. Do I lose section 54F?
  No. The Madras High Court dismissed the Revenue's appeals and upheld the exemption. The assessees had invested the entire net consideration in the land and then spent large sums on construction, and neither the cost of the land nor the construction expenditure was disputed. The only ground for refusing the exemption was that the houses were not complete when the Assessing Officer visited. That is not the test. The Court held that Circular No. 667 does not support the Revenue's reading that construction must be completed, and it approved the Tribunal's consistent view that it is enough if the assessee establishes that the entire net consideration was invested within the stipulated period.
• Vinod Sharma v ACIT ITATCuts both waysNo later treatment found
  I claimed HRA on rent paid to my wife. We are co-owners of the flat and we live in it together. The officer has disallowed it. What exactly will sink the claim?
  Four things sank it here, and any one of them is dangerous: the assessee was himself a co-owner of the accommodation, there was no rent agreement, no monthly rent outgo could be traced in the bank account, and the recipient's return of income showing the rent as her income was never produced — not before the Assessing Officer, not before the Commissioner (Appeals), and not before the Tribunal. On those facts the Tribunal dismissed the ground in a paragraph.
• Raunaq Prakash Jain v ITO ITATHelps taxpayerNo later treatment found
  I sold Bitcoin in FY 2020-21, before the VDA regime — capital gains or income from other sources?
  Capital gains, for that year. For AY 2021-22 Bitcoin was a capital asset under s.2(14), so the gain fell under the capital gains head and not s.56, and a holding period of more than three years made it long-term and eligible for s.54F relief on reinvestment in property. This decides only years before the virtual digital asset regime took effect on 1 April 2022; for years inside that regime s.115BBH governs and this answer does not carry across.
• ITO v Raj Kumar Parashar ITATHelps taxpayer
  The AO substituted the circle rate under s.50C. Does that higher figure also become the net consideration I have to reinvest for s.54F?
  No, on this line of authority. The Jaipur Bench held that the deeming fiction in s.50C is confined to computing capital gains under s.48 and does not carry into s.54F, so 'net consideration' in the Explanation to s.54F is the consideration actually received under the sale deed. The assessee had reinvested the whole of the actual consideration and got the whole gain exempted, even though the gain itself had been computed on the stamp duty value.
• ITO v Apsara Bhavana Sai ITATHelps departmentNo later treatment found
  I own a half share in one flat and a whole house. Does that block 54F?
  Yes. The proviso to section 54F denies the deduction where the assessee owns more than one residential house other than the new asset on the date of transfer, and a fractional or joint share counts as ownership for that purpose.
• CBDT Circular 672 CBDT Circulars & InstructionsHelps taxpayer
  My client's flat was allotted by a co-operative society, not the D.D.A. Does Circular 471 still help?
  It depends — on whether the society's scheme is similar. The Board decided that where the terms of the schemes of allotment and construction of flats or houses by co-operative societies or other institutions are similar to those in para 2 of Circular 471, those cases may also be treated as cases of construction for s.54 and s.54F. The comparison with para 2 is the whole of the test, so the work is in showing the similarity, not in citing the circular.
• CBDT Circular 471 CBDT Circulars & InstructionsHelps taxpayer
  Is a flat allotted under a self-financing scheme a purchase or a construction for s.54 and s.54F?
  Construction. The Board decided that allotment of a flat under the Self-Financing Scheme of the D.D.A. is to be treated as a case of construction, not purchase, so the three-year window applies rather than the one-year-before or two-years-after window. In reaching that view the Board recorded that the allottee gets title on the issue of the allotment letter and that paying the instalments and taking possession come afterwards — a sentence that has since done a great deal of work outside s.54 and s.54F.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.