Summary of the judgement
ITAT Mumbai discussion
Rs 9.65 crore capital gains deduction under Section 54F
Why Income Tax Department taxed the Rs 9.82 crore rebate
What the buyer’s defence said about discount
Purchase price was not below stamp duty
ITAT, Delhi’s observation in case
Nature
Amount (INR)
Down Payment Rebate
4,27,83,490
Move-in Rebate
2,22,90,000
Special Rebate
1,82,05,740
Timely Payment Rebates
1,48,60,000
Total Rebate
9,81,39,230
Section 54F eligibility
What ITAT, Delhi said in its decision
When a homebuyer bought a flat in DLF Camellias for Rs 23.13 crore after getting Rs 9.82 crore discount from the builder, the Income Tax Department sent him a tax notice. The property’s listed price before the discount was Rs 32.95 crore. In a major ruling, the Income Tax Tribunal , Delhi, decided that discounts on property purchases can’t be treated as income from other sources and hence, can’t be taxed. The tribunal also allowed capital gains of Rs 9.65 crore under Section 54F to the taxpayer, reversing the decision made by the lower authority.The Income Tax Department’s assessment officer (AO) had treated the Rs 9.82 crore rebate as ‘income under other sources’ under Section 56(1) of the Income Tax Act , 1961. ITAT said that these discounts were part of the apartment buyer’s agreement and tied to the payment and other conditions, and hence, can’t be treated as other income.ITAT, Delhi, clarified that Section 56 cannot be applied unless specific deeming provisions are triggered.This case revolved around an individual who bought a flat for Rs 23.13 crore at DLFafter getting a discount of Rs 9.82 crore from the seller. The property’s listed price before the rebate was Rs 32.95 crore.Tax Buddy has highlighted the case in a social media post on X (formerly Twitter).Let’s find out what happened in the case.Chartered Accountant Suresh Surana explained tothat that in the given case, the assessee had filed his income tax return (ITR) and claimed income tax exemption under Section 54F of the Income-tax Act , 1961 for capital gains arising from the sale of shares of an unlisted company. The capital gains were claimed to have been reinvested in buying a residential apartment at Gurugram.During the assessment proceedings, the Assessing Officer (AO) made two key adjustments:●Firstly, the AO denied the exemption claimed under Section 54F on the ground that the assessee allegedly owned more than one residential property on the date of transfer of the original asset and that the new property had not been registered within the prescribed period.●Secondly, the AO treated the rebate of approximately Rs 9.81 crore granted by the builder on the purchase price of the apartment as income chargeable under the head “Income from Other Sources” under Section 56(1), contending that the discount represented a benefit or income received by the assessee. These findings were subsequently upheld by the Commissioner of Income-tax (Appeals) [CIT(A)], and the assessee filed an appeal before the ITAT.Surana says that after studying the facts and evidence on record, the Tribunal ruled in favour of the assessee. Regarding the addition (of Rs 9,81 crore) under Section 56(1), the Tribunal observed that the rebate granted by the developer was not an independent receipt of income, but rather a contractual concession embedded in the apartment buyer’s agreement, granted for factors such as early payment, timely payment, and compliance with the payment schedule.The Tribunal noted that such rebates are typical in commercial real estate deals and do not count as “real” income.Moreover, the property was bought for more than the stamp duty value, which means the deemed income provisions under Section 56(2)(x) do not apply here.Since there wasn’t any specific rule that deemed such rebate as income, the Tribunal held that Revenue (the income tax department) could not tax the rebate merely on presumptions or conjectures. Accordingly, the addition made by the Assessing Officer under Section 56 was held to be unsustainable and was removed.Regarding the denial of exemption under Section 54F, the Tribunal found that the lower authorities had made a mistake by concluding that the assessee owned more than one residential property at that time.The Tribunal accepted the assessee’s explanation that his interests in certain properties had been transferred to his wife through gift deeds well before the sale of the original asset, and therefore he did not own multiple residential houses on the relevant date.Further, the Tribunal clarified that registration of the sale deed is not a mandatory condition for claiming exemption under Section 54F, and that acquisition of possession and substantial payment for the property can establish “purchase” for the purpose of the provision.According to Surana, the Tribunal also made s distinction from the case that the CIT(A) relied on regarding ‘colourable devices’, observing that in the present case, the gifts had been made several years before the transaction and formed part of a legitimate family arrangement rather than a tax avoidance mechanism.Thus, the ITAT concluded that both the addition of the rebate as income and the denial of exemption under Section 54F were not justified in law. The Tribunal therefore allowed the appeal by the assessee and directed deletion of the impugned additions, holding that the assessee met the legal requirements for claiming the exemption and that the rebate received under the apartment buyer’s agreement could not be taxed as income.According to the Rajguru vs DCIT ITA No. 2550/Del/2025 case (Assessment Year: 2021-22), Rajguru filed Income Tax Return (ITR) for the Assessment Year 2021-22 on December 31, 2021, and revised it on March 31, 2022, declaring an income of Rs 1.94 crore, and claiming a capital gains deduction of Rs 9.65 crore under Section 54F.AO says as on the date of the transfer of capital asset, shares of unlisted companies, Rajguru was in possession/occupation of more than one residential house, and the new property was not registered and thus was not eligible for deduction under Section 54F.The I-T Department treated Rs 9.82 crore discount as ‘income from other sources’ under Section 56(1) and taxed it.The AO also says for the purpose of exemption u/s 54F, an assessee must purchase a residential house within one year before, or within two years after the date of the transfer of the original capital asset. Since the property was not registered in the name of the assessee, deduction claimed u/s 54F was not allowable, says the AO.Rajguru filed an appeal to the Learned Commissioner of Income Tax (Appeals) but didn’t get any relief. He then filed an appeal at ITAT, Delhi.Rajguru's defence counsel said Ld. CIT(A) has erred in law and on facts in confirming the AO’s order, adding a deemed income of Rs 9.81 crore in the hands of assessee as Income from Other Sources' u/s 56.The counsel also said that the action of Ld. CIT(A) in confirming the action of Ld. AO in not allowing the exemption of Rs 9.65 crore claimed by Rajguru was bad in law and against the facts and circumstances of the case.The buyer’s defence also raised an important legal point that for immovable property, Section 56(2)(x) of the Income Tax Act, 1961, usually applies where purchase price is below stamp duty value. In this case, the purchase price was higher than stamp value of Rs 14.68 crore, and so there was no case of undervaluation of the property. Such an argument weakened the Income Tax Department’s case further.ITAT, Delhi, observed that the rebate of Rs 9.82 crore was part of the apartment buyer’s agreement and was linked to payment and other conditions.ITAT didn’t consider the Rs 9.82 crore discount as a separate income source at all. It rather found it to be a contractual discount.The discount breakup was noted in the following order:ITAT observed that joint ownership in properties doesn’t disqualify a taxpayer from claiming exemption.The tribunal said that to get Section 54F exemption, the registration of the property is not mandatory, as the ownership for 54F exemption can be established by the possession, payments and rights of a property.ITAT says gifts to spouse are valid as the transfer of properties to the wife years before the transaction was a genuine family arrangement, and it was not an effort to avoid tax.ITAT, Delhi deleted the Rs 9.81 crore addition and said that discounts on these facts were not taxable as income from other sources.ITAT said that Rajguru is eligible to get Rs 9.65 crore exemption under Section 54F as the possession and the payment of the flat is within the two-year window.