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Mumbai Tribunal Upholds Rs 6.92 Crore Tax Relief on Spouse Property

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The ITAT Mumbai bench allowed a woman's Section 54F claim after she bought a Rs 7.5 crore Juhu property from her husband's firm using share-sale gains.

The Mumbai bench of the Income Tax Appellate Tribunal has allowed a woman surnamed Motwani to keep a capital gains tax exemption of roughly Rs 6.92 crore, ruling on July 17, 2026 that her purchase of a Mumbai flat from her own husband's business did not amount to a scheme to dodge tax. The decision overturned the Income Tax Department's view that the deal was a "colourable device" arranged to cut the family's tax bill.

The dispute traces back to assessment year 2021-22, when the woman sold unlisted equity shares and declared long-term capital gains of about Rs 8.31 crore. In June 2021 she paid Rs 7.5 crore for a residential property on Juhu Tara Road in Mumbai and claimed relief under Section 54F of the Income-tax Act, 1961, seeking to shield around Rs 6.92 crore of those gains from tax.

One fact drew the Assessing Officer's attention. The flat belonged to her husband and was sold through HP Trading, his sole proprietorship. Completing the assessment on December 30, 2022 under Section 143(3) read with Section 144B, the officer refused the exemption and added the Rs 6.92 crore back to her taxable income.

The department's family-arrangement theory

The Assessing Officer tied the wife's claim to what happened on her husband's side of the transaction. He had booked short-term capital gains of roughly Rs 4.85 crore on the sale and later offset close to Rs 3.56 crore of that against business losses. Read together, the officer argued, the two moves let the couple rotate funds within the household: she secured a large exemption on the purchase, while he wiped out much of his taxable gain using his losses.

The woman gave a different account. She told the authorities she had bought the flat as a long-term investment and a cushion for the future, with the option of letting it out, not as a home. She said she continues to live on her husband's ancestral property.

Why the tribunal ruled for the taxpayer

The tribunal focused on whether the department had shown the deal to be a sham or a pre-planned tax dodge, and found it had not. The paperwork held up: there was a registered transfer deed, stamp duty had been paid, the price had actually changed hands, and the woman had explained where the money came from.

The timing undercut the department's central claim. The property changed hands in June 2021, but the business loss the officer leaned on only arose on March 31, 2022. Since that loss did not yet exist when the flat was bought, the tribunal held it could not reasonably have been foreseen, making it hard to argue the two events were choreographed from the start.

On the objection that the seller was her spouse, the tribunal was direct: nothing in the law stops a taxpayer from buying a home from a family member and claiming Section 54F, as long as the provision's other conditions are met. Finding those conditions satisfied, the ITAT struck down the disallowance of about Rs 6.92 crore and allowed the claim.

Chartered accountant Suresh Surana, speaking to ET, said the woman had sold unquoted shares in AY 2021-22 for gains near Rs 8.31 crore and then put Rs 7.5 crore into the Juhu flat bought from HP Trading. "A genuine transaction cannot be disregarded merely because it takes place between related parties or results in a tax benefit," he said. "Legitimate tax planning carried out within the framework of law cannot, by itself, be treated as tax evasion or a colourable device."

What Section 54F offers

Section 54F lets an individual or a Hindu Undivided Family avoid tax on long-term gains when the profit comes from selling a capital asset that is not a residential house, provided the money is put into a new home. The replacement property must be in India. Its successor provision, Section 86 of the Income-tax Act, 2025, carries the same relief forward.

The rules set firm deadlines. The buyer must acquire the new house within one year before, or two years after, selling the original asset, and any self-built property must be finished within three years. The benefit is also lost if the gains are ploughed into two separate residential properties rather than one.

Section 54F exemption, ITAT Mumbai ruling, long-term capital gains tax, colourable device, unlisted shares LTCG, Juhu Tara Road property, Income Tax Appellate Tribunal, tax planning India

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