Capital gains arising from the transfer of any long-term capital asset, other than a residential house, qualify for deduction under Section 54F where the assessee, being an individual or HUF, purchases or constructs a residential house, subject to the conditions prescribed in the section. Similarly, Section 54B grants relief in respect of capital gains arising from the transfer of land used for agricultural purposes where the assessee, being an individual or HUF, purchases another agricultural land for similar use.
A recurring controversy under both provisions is whether the benefit can be claimed where the new residential house or agricultural land is purchased not in the name of the assessee, but in the name of a family member.
Punjab & Haryana High Court- Division Bench View
In Jai Narayan v. ITO [2008] 306 ITR 335 (P&H), the issue before the Court was whether an assessee who, after selling agricultural land, purchased new agricultural land in the names of his son and grandson could claim exemption under Section 54B. The Court answered the question in the negative. It held that Section 54B does not indicate any legislative intent to extend the benefit of the provision to an assessee who purchases agricultural land in the name of a third person.
According to the Court, the expression “assessee” is qualified by the words “purchased any other land for being used for agricultural purposes”, which necessarily implies that the new asset must be purchased in the assessee’s own name. Consequently, agricultural land purchased in the names of the assessee’s son or grandson was held not to qualify for exemption under Section 54B.
The same principle was subsequently applied in Commissioner of Income-tax, Faridabad v. Dinesh Verma [2015] 60 taxmann.com 461 (P&H), where the Court held that exemption under Section 54B could not be allowed even if the sale consideration had been invested in agricultural land purchased in the name of the assessee’s wife.
Thereafter, in Kamal Kant Kamboj v. ITO [2017] 88 taxmann.com 541 (P&H), the Court once again reaffirmed that agricultural land purchased in the name of the assessee’s wife would not qualify for exemption under Section 54B.
A Limited Departure from the Strict View
A somewhat different approach was adopted in Commissioner of Income-tax v. Gurnam Singh [2008] 170 Taxman 160 (P&H). In that case, the assessee invested the sale proceeds of agricultural land in another parcel of agricultural land purchased partly in his own name and partly in the name of his only son, who was unmarried and dependent upon him.
The Court upheld the exemption under Section 54B. It noted that the Tribunal had recorded a finding of fact that the land continued to be used by the assessee for agricultural purposes and that the mere inclusion of the son’s name as a co-owner in the sale deed did not alter the substance of the transaction. The Court, therefore, declined to deny the exemption merely because the son had been shown as a co-owner.
While Gurnam Singh case did not expressly depart from the earlier line of authority, it demonstrated a degree of flexibility where the facts established that the investment and use of the land remained effectively with the assessee.
Delhi High Court’s Liberal Interpretation
A more purposive approach emerged in the context of Section 54F from the Delhi High Court. In CIT v. Ravinder Kumar Arora [2012] 342 ITR 38/[2011] 203 Taxman 289/15 taxmann.com 307 (Delhi), the Delhi High Court held that where the entire consideration for the new residential house had been paid by the assessee and no contribution had come from any other person, exemption under Section 54F could not be denied merely because the property had been purchased in the name of the assessee’s wife.
The Court observed that Section 54F does not expressly require the new residential house to be purchased exclusively in the name of the assessee. The provision merely requires that the assessee should have purchased or constructed “a residential house”. Consequently, the Court preferred a purposive interpretation over a rigid literal construction. The Court observed:
‘Therefore, the predominant judicial view for the purposes of section 54F is that the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. It is moreover to be noted that the assessee in the present case has not purchased the new house in the name of a stranger or somebody who is unconnected with him. He has purchased it only in the name of his wife. There is also no dispute that the entire investment has come out of the sale proceeds and that there was no contribution from the assessee’s wife. [Para 9 of judgement]
The Court also attached significance to the fact that the property had been purchased in the name of the assessee’s wife rather than in the name of a stranger, and that the entire investment had come from the assessee alone.
This principle was reaffirmed in Commissioner of Income-tax-XII v. Kamal Wahal [2013] 30 taxmann.com 34 (Delhi), where the Delhi High Court again held that deduction under Section 54F cannot be denied merely because the new residential house stands in the name of the assessee’s spouse.
An Anomalous Situation
The practical consequences of these divergent judicial approaches became evident in Ashok Kumar v. ITO [2025] 176 taxmann.com 641 (Delhi-Trib.). In that case, the Delhi Bench of the Tribunal held that, for claiming deduction under Section 54F, the new residential property must be purchased in the name of the assessee. The property had apparently been purchased in the name of the assessee’s mother, possibly to avail lower stamp duty.
The Tribunal acknowledged the existence of contrary decisions, including those of the Delhi High Court, where exemption had been allowed even though the property stood in the name of a family member. Nevertheless, since the assessee was subject to the territorial jurisdiction of Gurgaon, the Tribunal considered itself bound by the adverse decisions of the Punjab & Haryana High Court and therefore denied the claim.
Interestingly, in Phool Singh v. ITO [2025] 170 taxmann.com 429 (Delhi-Trib.), the Tribunal relied upon CIT v. Gurnam Singh [2008] 170 Taxman 160/327 ITR 278 (Punjab & Haryana) and held that agricultural land purchased in the name of the assessee’s wife for the purpose of saving stamp duty was eligible for exemption under Section 54B. In doing so, it effectively disagreed with the approach adopted by the Commissioner (Appeals), who had relied upon the adverse decision in Kamal Kant Kamboj.
Conclusion
The current state of the law gives rise to a striking anomaly within the National Capital Region itself. An assessee residing in Delhi may be entitled to claim deduction under Section 54F on a particular set of facts, whereas an assessee residing in Gurgaon may be denied the same benefit on identical facts solely because of the difference in territorial jurisdiction and the binding precedents applicable thereto.
Such disparities undermine the objective of uniform tax administration. The issue, therefore, may merit consideration by a Special Bench of the Income Tax Appellate Tribunal with the approval of the President of the ITAT so as to promote greater consistency at the Tribunal level. Ultimately, however, a conclusive resolution can only emerge through an authoritative pronouncement of the Supreme Court.