An NRI taxpayer who sold five villas for Rs 5.26 crore secured a Rs 2.80 crore capital gains exemption under Section 54F—even though the new property was registered in his sister’s name. In a fact-driven ruling, the Income Tax Appellate Tribunal (Hyderabad) held that the benefit cannot be denied if the taxpayer can clearly prove investment, intent, and ownership through documentation, despite technical ownership being in a relative’s name.
No property in your name, yet tax exemption? ITAT gives big relief (Image: AI-generated)
In a significant ruling that could reshape how Section 54F claims are interpreted, the Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) has allowed a Rs 2.80 crore capital gains exemption to an NRI taxpayer even though the new residential property was not registered in his own name.
The case of DCIT vs. Revanth Challagalla shows that while the law may appear strict on ownership, substance and intent can still prevail when backed by strong evidence.
A high-value transaction and a disputed claim
Revanth, an NRI based in the UK, had received 12 villas under a joint development agreement. During FY 2021–22, he sold five of these villas for a total consideration of Rs 5.26 crore. Against the capital gains arising from this sale, he claimed a deduction of Rs 2.80 crore under Section 54F by investing in a new residential property.
However, this is where the dispute began.
The new property, purchased from Aqua Space Developers, was registered not in Revanth’s name but in the name of his sister, Shreya, via a sale deed dated April 10, 2023.
Why the tax department rejected the claim
The assessing officer took a strict legal view. Since the property was not registered in the taxpayer’s name, he was not considered the legal owner. On that basis alone, the entire Section 54F deduction of Rs 2.80 crore was denied.
This reflects the conventional interpretation of the law—Section 54F relief is typically allowed only when the new property is purchased in the taxpayer’s own name (or in some cases, spouse or minor children).
The taxpayer’s defence: ‘Ownership vs. real investment’
Revanth argued that the registration in his sister’s name was purely due to practical constraints. Being based in the UK, he could not travel to India at the time of purchase. The arrangement, he said, was only for convenience not for transferring ownership.
More importantly, he backed this claim with strong financial evidence:
-The builder issued the allotment letter in his name
-A Rs 65 lakh booking advance was paid directly from his bank account
-The total consideration of Rs 4.31 crore was paid through his joint account with his father
-His sister provided a written confirmation stating she was not the real owner
Adding further strength to his case, the property was eventually transferred back to him via a gift deed dated January 20, 2025. Municipal records and tax documents also reflected his ownership later on.
What ITAT Hyderabad said
The ITAT made an important distinction.
It acknowledged that a liberal interpretation of Section 54F has been allowed in cases where property is purchased in the name of a spouse or minor children. However, this flexibility does not automatically extend to all relatives.
Yet, the tribunal did not stop at a rigid interpretation.
Instead, it examined the substance of the transaction who actually paid, who intended to invest, and whether the taxpayer could establish a clear nexus between the sale proceeds and the new investment.
In Revanth’s case, the tribunal found that the entire investment flowed from the taxpayer and the documentation supported his ownership intent. The sister’s role was only nominal and the property ultimately came back to him legally.
On these facts, ITAT allowed the deduction and dismissed the Revenue’s appeal.
Expert view: A “purposeful interpretation” of Section 54F
According to Jignesh Shah, Partner – Direct Tax at Bhuta Shah & Co., the ruling marks an important shift from a purely literal interpretation of the law.
He points out that while Section 54F requires the new property to be owned by the taxpayer, courts have previously relaxed this rule for immediate family members. This ruling goes a step further by extending relief even when the property is in a sibling’s name—provided the taxpayer can clearly establish intent and funding.
However, Shah cautions that such claims are likely to remain litigation-prone.
He highlights key safeguards that taxpayers should follow if adopting a similar structure. He suggests having a valid reason for registering the property in another person’s name, ensuring the entire or majority of payment is made by the taxpayer, maintaining a clear trail linking sale proceeds to reinvestment, executing proper legal documentation, including gift deeds or MoUs, and using the property details consistently for official communication.
Does this ruling change the law? Not quite
While the decision offers relief, it does not completely dilute the established position of law. As the expert explains, this ruling provides a “harmonious interpretation” rather than a blanket relaxation.
In simple terms, it opens a window—but only for those who can strongly prove that they are the real investor and intended owner.
Final outcome – ITAT Hyderabad allowed the Section 54F claim and the deduction of Rs 2.80 crore was upheld. The revenue’s appeal was dismissed.
Why this case matters
This ruling reinforces a crucial principle in tax law: documentation and intent matter as much as legal form.
For taxpayers, especially NRIs, it sends a clear message. Even if property is registered in someone else’s name, relief may still be possible. But only if the financial trail is clean, the intent is genuine, and the structure can withstand scrutiny.
Disclaimer:
This ruling has been delivered by the Income Tax Appellate Tribunal (ITAT) and may not be the final word on the matter. Such decisions can be challenged and may be overturned or modified by higher judicial authorities like the High Court or the Supreme Court of India. Taxpayers should therefore exercise caution and consult a qualified tax advisor before relying on this ruling for their own cases.
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