Section 54
This query is : Resolved
14 May 2014
My assessee sold his long term residential house property in Dec. 2013. And full amount of sale consideration invested in construction of residential house property. But the problem is that the land (whereupon residential house property constructed) was in the name of his wife which were purchased in 5 years back. Can my assessee claim deduction u/s 54?
15 May 2014
ownership of land is not relevant. as long as the house has been constructed and the capital gains have been exhausted in doing so, exemption shall be available.
15 May 2014
Dear nikhilji
Can u give any case law or article in this regard.
Can u give any case law or article in this regard.
23 July 2025
Yes, your query is about whether Section 54 of the Income Tax Act, 1961 allows capital gains exemption when the new residential house is constructed on a plot of land owned by the assessee's wife, not the assessee himself. Here's a full explanation, along with case law to support the view.
✅ Section 54 – Quick Recap
Section 54 provides exemption from long-term capital gains if:
The assessee is an individual or HUF.
Gains arise from the sale of a long-term residential house.
The assessee purchases or constructs another residential house:
Purchase: within 1 year before or 2 years after the transfer.
Construction: within 3 years after the transfer.
The key issue in your case: Whether the new house must be in the name of the assessee or can be in someone else's name (like the spouse).
🧠 Interpretation: Ownership of Land vs. Construction
Courts have taken a liberal view where:
The construction is funded entirely by the assessee.
The exemption is allowed even if land is not in the name of the assessee.
⚖️ Important Case Laws Supporting You
1. CIT v. V. Natarajan (2006) 287 ITR 271 (Mad)
The Madras High Court held that exemption under section 54 is allowable even if the new house is constructed on a plot owned by the assessee’s wife, provided that construction cost is borne by the assessee.
2. CIT v. Kamal Wahal [2013] 351 ITR 4 (Delhi HC)
The court allowed exemption where the new house was purchased in the name of the wife. It was held that exemption cannot be denied merely because the new asset is in the name of the spouse if the investment was made by the assessee.
3. CIT v. Gita Duggal [2013] 357 ITR 153 (Delhi HC)
While this case is about multiple residential units, the court upheld liberal interpretation of Section 54 to promote housing.
📝 Conclusion
✅ Yes, your assessee can claim deduction under Section 54, even though the land is in the wife’s name, provided:
The entire capital gain amount was used by the assessee to construct the house.
The construction happened within the prescribed time limit.
📚 Supportive Case Law: CIT v. V. Natarajan (Mad HC) is your most directly relevant case.
✅ Section 54 – Quick Recap
Section 54 provides exemption from long-term capital gains if:
The assessee is an individual or HUF.
Gains arise from the sale of a long-term residential house.
The assessee purchases or constructs another residential house:
Purchase: within 1 year before or 2 years after the transfer.
Construction: within 3 years after the transfer.
The key issue in your case: Whether the new house must be in the name of the assessee or can be in someone else's name (like the spouse).
🧠 Interpretation: Ownership of Land vs. Construction
Courts have taken a liberal view where:
The construction is funded entirely by the assessee.
The exemption is allowed even if land is not in the name of the assessee.
⚖️ Important Case Laws Supporting You
1. CIT v. V. Natarajan (2006) 287 ITR 271 (Mad)
The Madras High Court held that exemption under section 54 is allowable even if the new house is constructed on a plot owned by the assessee’s wife, provided that construction cost is borne by the assessee.
2. CIT v. Kamal Wahal [2013] 351 ITR 4 (Delhi HC)
The court allowed exemption where the new house was purchased in the name of the wife. It was held that exemption cannot be denied merely because the new asset is in the name of the spouse if the investment was made by the assessee.
3. CIT v. Gita Duggal [2013] 357 ITR 153 (Delhi HC)
While this case is about multiple residential units, the court upheld liberal interpretation of Section 54 to promote housing.
📝 Conclusion
✅ Yes, your assessee can claim deduction under Section 54, even though the land is in the wife’s name, provided:
The entire capital gain amount was used by the assessee to construct the house.
The construction happened within the prescribed time limit.
📚 Supportive Case Law: CIT v. V. Natarajan (Mad HC) is your most directly relevant case.
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