Having Legal title over the property is a condition precedent for claiming Capital Gain exemption


Having Legal title over the property is a condition precedent for claiming Capital Gain exemption


There are various instances where taxpayers suffer heavily for the minor mistakes. One such instance is while claiming an exemption against Long Term Capital Gain (LTCG) arising from sale of any capital assets. Even though the basic conditions of claiming an exemption is complied, still exemption may be denied if it is strictly not in accordance with the provision of law.

If long term capital gain arises from sale of any capital assets like house, Gold, Shop, etc then taxpayer can save tax by claiming an exemption u/s 54 or 54F of the Income Tax Act-1961. For exemption, taxpayers have to purchase or construct the house property within prescribed period. Though section 54 or 54F merely stipulates investment, it silently follows that the investment has to be in the name of the taxpayer. Investment in the name of wife, parents, child, relatives whether as a matter of luck/Shagun or out of emotional consideration or for the sake of convenience will disentitle taxpayer from exemption.

This is the view expressed recently by Income Tax Appellate Tribunal (ITAT), Mumbai in the case of Shri Hem Chandra R. Gavankar Vs. ITO [ITA No. 7451/Mum/2017] wherein taxpayer has made the following submission in support of its exemption claim:

    1. Interpretation of Section 54 and 54F no way suggest that the investment in the new house property has to be in the name of the assessee.

    1. Section 54 requires assessee to invest the capital gain in purchase of a new house property. If assessee can demonstrate that the investment in purchase of a new property, even though in the name of wife, was made by the assessee from the capital gain, conditions of section 54 will be fulfilled.

  1. Section 54 is a beneficial provision & it should be construed liberally to grant the benefit of exemption

All above submissions were out rightly rejected by the ITAT & held that exemption u/s 54 cannot be granted to the taxpayer if the new property is purchased in the name of his wife and daughter. ITAT relied on the decision of the Bombay High Court in the case of Praksh vs. ITO (2008) 312 ITR 40 wherein it was held that the property must be owned by the taxpayer for claiming an exemption of LTCG.

ITAT concluded as under:

“Therefore, as per the ratio laid down in the aforesaid decision of the Hon’ble Jurisdictional High Court if the new house property in respect of which the assessee has claimed deduction under section 54/54F of the Act is not purchased in the name of the assessee, no deduction under the said provisions can be claimed”.

Similar conclusions were drawn by P & H HC in the case of Jai Narayan vs ITO [2008] 386 ITR 335 & Nagpur ITAT in ITO vs. Prakash Timaji Dhanjode  81 TTJ 694. However, contrary views were expressed by Delhi HC in ITO vs. Kamal Waha 351 ITR 4, CIT Vs Ravinder Kumar Arora 307 (Delhi) [2011] & by Madras High Court in CITv. V. Natarajan [2006] 287 ITR 271 wherein it was held that (a) exemption cannot be denied if the investment is done in the name of wife or daughter (b) purposive construction is to be preferred as against a literal construction.

Controversy will continue till apex court decides over it or till an amendment is carried out in the Income Tax Act clarifying its intent.



  1. Taxpayer within the jurisdiction of the BombayHighCourt must remain careful while buying a new property to avoid tax litigation. To have safe exemption claim, legal title of the old property & new property should remain same. “Assessee” used in section 54 or 54F should not be extended to include Wife, daughter, Son etc. If required, such other persons could join as a co-owner.


  1. Taxpayer residing in other states, considering the risk of litigation, it is advisable to acquire the property in the same name.

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