The Income Tax Appellate Tribunal, New Delhi has held that a contractual rebate or discount provided by a builder under the terms of a buyer’s agreement, for reasons such as timely payment or early occupation, cannot be treated as taxable income in the hands of the property purchaser under Section 56 of the Income Tax Act. The Tribunal further clarified that for claiming exemption under Section 54F, the concept of “purchase” of a residential house must be understood in a broader sense and does not mandatorily require the registration of a conveyance deed.
The Division Bench comprising Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member) allowed the appeal filed by the assessee, setting aside the additions made by the Assessing Officer and upheld by the National Faceless Appeal Centre (NFAC).
The assessee had filed a revised return declaring total income of ₹1.94 crore and claimed a deduction of ₹9.65 crore under Section 54F against long-term capital gains arising from the sale of shares of an unlisted company. The investment was made towards the purchase of a residential apartment in “The Camellias”, Gurugram, for a total agreed consideration of ₹32.95 crore.
During the assessment proceedings, the Assessing Officer disallowed the deduction under Section 54F on the ground that the assessee owned more than one residential house on the date of transfer of the capital asset. It was alleged that the assessee had gifted his share in two residential properties to his wife in order to artificially qualify for the exemption. Additionally, the Assessing Officer treated a rebate of ₹9.81 crore received from the developer, DLF, as income from other sources under Section 56(1) of the Act.
The NFAC upheld the additions made by the Assessing Officer, observing that the rebate appeared unreasonable and could indicate an arrangement between the buyer and the builder to adjust value in cash or kind. It also held that since the purchase deed of the new residential property had not been registered, the conditions required under Section 54F were not satisfied.
Before the Tribunal, the assessee contended that the rebate granted by the developer was not an arbitrary or unexpected benefit but formed part of the contractual terms of the apartment buyer’s agreement. It was submitted that the rebate consisted of a down payment rebate, move-in rebate, special rebate, and timely payment rebates, which were standard commercial incentives offered by builders to encourage early payments and prompt occupation.
After examining the material on record, the Tribunal noted that the purchase consideration paid by the assessee for the apartment was ₹23.13 crore, whereas the stamp duty value of the property was ₹14.68 crore as per the applicable circle rate. The Tribunal observed that under Section 56(2)(x) of the Act, deemed income can arise only when an immovable property is purchased for a consideration lower than the stamp duty value.
Since the actual purchase consideration paid by the assessee was substantially higher than the stamp duty value, the Tribunal held that the provisions relating to deemed income were not attracted. The Bench observed that “there is actually no real income but it is the benefit by way of rebate which the department wanted to cap as income,” and therefore the addition could not be sustained.
The Tribunal further found that the rebates were clearly stipulated in the apartment buyer’s agreement and were not granted arbitrarily at the end of the transaction. Such rebates were common in high-value real estate transactions and were intended to encourage timely payments or early occupation of the property. The Tribunal noted that questioning the business prudence of the builder in offering such rebates could not be a matter of inquiry from the purchaser’s perspective.
Accordingly, the Tribunal held that the rebate amount could not be treated as income from other sources under Section 56 of the Act and deleted the addition of ₹9.81 crore made by the tax authorities.
The Tribunal then examined the denial of exemption under Section 54F. The tax authorities had contended that the assessee was ineligible for the exemption because he owned more than one residential house on the date of transfer of the capital asset and because the newly purchased property had not yet been registered.
The Tribunal noted that the assessee had transferred his undivided share in two residential properties—one in “The Magnolias”, Gurugram and another in Geetanjali Enclave, New Delhi—to his wife through gift deeds executed in 2017 and 2018 respectively. These transfers had taken place well before the sale of shares in 2020, which gave rise to the capital gains.
It was further observed that the assessee had originally held only a half share in these properties as a co-owner along with his wife. By transferring his share to her, the arrangement merely converted her status from co-owner to full owner. The Tribunal held that such a transfer within the family, particularly between spouses who were already co-owners, could form part of a family arrangement and could not automatically be treated as a colourable device to claim tax benefits.
Distinguishing the case relied upon by the tax authorities, the Tribunal observed that in the present matter there was a significant time gap between the gift transactions and the sale of shares. Therefore, the circumstances did not support the inference that the transfers were executed merely to circumvent the eligibility conditions of Section 54F.
The Tribunal also observed that the assessee had received possession of the new apartment and had made substantial payments towards its acquisition. In this context, it held that the concept of “purchase” under Section 54F must be interpreted in a practical manner. What is relevant is whether the assessee has acquired substantial rights over the property, including the right of possession and enjoyment.
The Bench held that the registration of a sale deed is not the sole determinant of purchase for the purposes of Section 54F. Once the buyer has acquired rights and possession of the property upon payment of consideration, the requirement of purchase can be considered satisfied.
The Tribunal also addressed the issue of co-ownership and held that mere co-ownership in a residential property does not disentitle a taxpayer from claiming exemption under Section 54F. In light of these findings, the Tribunal concluded that the tax authorities had erred in treating the rebate as taxable income and in denying the exemption under Section 54F. The additions made by the Assessing Officer and sustained by the NFAC were accordingly deleted, and the appeal of the assessee was allowed.
Cause Title: Satya Prasan Rajguru vs DCIT
Case No: ITA No. 2550/Del/2025
Coram: Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member)
