In a noteworthy decision, the Income Tax Appellate Tribunal (ITAT), Hyderabad Bench, recently ruled in favor of a taxpayer who had claimed an exemption under Section 54F of the Income Tax Act, 1961. This section provides tax relief on capital gains if the money is invested in a residential house, provided certain conditions are met. One of the main conditions is that the taxpayer should not own more than one residential house property (excluding the new one purchased) at the time of selling the original asset.

Here’s what happened in the case and why this decision is important for taxpayers:

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Case Summary:

Dispute: Was There More Than One House?

• The taxpayer clarified that one of the houses the AO counted was gifted to his daughter at the time of her marriage in 2015.
• But there was a problem: The formal registered gift deed for the property was done only in 2022, much later than the date of the gift.
• The AO argued that a valid gift of immovable property (like a house) requires a registered deed, and since there was no such document in 2015, the gift could not be accepted.

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What the Taxpayer Showed:

To prove that the house was genuinely gifted in 2015, the taxpayer submitted:

1. A registered gift deed made in 2022 — showing his intent to give the property to his daughter.
2. A Streedhan Agreement between his daughter and her husband, confirming the property was received as a gift in 2015.
3. His daughter’s Income Tax Return, which showed her living at that address — supporting her possession of the property.
4. The fact that the gift was made out of love and affection, a common practice in Indian families, especially during marriages.

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What the Tribunal (ITAT) Decided:

• The Tribunal accepted the taxpayer’s claim.
• It agreed that while the law (Section 123 of Transfer of Property Act) usually requires a registered deed for gifting property, there are exceptions in Indian culture and traditions.
• In Indian society, it’s common for parents to give property to children during marriage without formal documentation.
• Since the evidence clearly showed the gift happened in 2015, the Tribunal held that the taxpayer did not own more than one house on the relevant date.
• Therefore, the conditions of Section 54F were fulfilled, and the capital gains exemption was allowed.

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Why This Decision Matters:

This judgment is important because:

• It recognizes traditional practices like oral gifts in Indian families.
• It shows that intent, relationship, and supporting evidence can sometimes compensate for the lack of formal documentation.
• It gives relief to genuine taxpayers who follow customs but may not always complete legal formalities on time.
• It shows that the tax authorities and courts can take a practical and culturally sensitive approach in interpreting tax laws.

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Key Takeaway for Taxpayers:

If you have given a house as a gift — especially to children at the time of marriage — and there was no registered deed at that time, you may still be able to prove the gift through other strong evidence. This could help you claim tax benefits like the Section 54F exemption.

However, it’s always safer to register such gifts to avoid disputes. When in doubt, consult a tax professional to make sure your claims are legally valid and well-documented.

IN THE INCOME TAX APPELLATE TRIBUNAL
         HYDERABAD "B" BENCH: HYDERABAD

BEFORE SHRI MANJUNATHA G, ACCOUNTANT MEMBER
                     AND
      SHRI RAVISH SOOD, JUDICIAL MEMBER

                 ITA.No.1113/Hyd./2024
               Assessment Year 2022-2023

The Income Tax Officer,       Narasimha Reddy Duthala,
Ward-2(1),      Hyderabad     Hyderabad - 500 032
                          vs.
PIN - 500 084.                Telangana.
Telangana.                    PAN ABPPD8192C
        (Appellant)                  (Respondent)

               For Revenue : MS. M. Narmada, CIT-DR
               For Revenue : Shri Mohd. Afzal, Advocate

           Date of Hearing : 13.03.2025
    Date of Pronouncement : 09.05.2025

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