Mumbai tribunal affirms spouse-to-spouse property transactions can qualify for Section 54F relief

The Mumbai Income Tax Appellate Tribunal rules that genuine, fully documented property deals between spouses are not automatically considered tax avoidance, setting a precedent for future family transactions under Section 54F.

The Mumbai Income Tax Appellate Tribunal has ruled that a woman who bought a residential flat from her husband’s proprietary concern could still claim relief under Section 54F, finding that a genuine, fully paid property deal does not become a tax dodge simply because the parties are spouses. According to the tribunal’s order in Neha Karan Motwani v. ITO, the key question was whether the transaction was real and properly documented, not whether it involved family members.

The dispute arose after the taxpayer sold shares and used the proceeds to buy a flat from HP Trading, a proprietary concern run by her husband. She claimed a Section 54F exemption of about ₹6.92 crore on the basis that the money had been invested in a residential property within the relevant framework. Tax officials challenged the claim, arguing that the arrangement was a colourable device meant to reduce the family’s overall tax bill. They pointed in particular to the husband’s later tax position, including short-term capital gains from the flat and a set-off against business losses in the following year.

The tribunal was not persuaded. It noted that the flat was transferred in 2021, while the business loss used for set-off arose only on 31 March 2022. That timing mattered, because a later loss could not reasonably be treated as part of the original transaction. In the tribunal’s view, the Revenue had not shown that the sale and purchase were anything other than a real transfer carried out for consideration through banking channels and backed by proper documents.

That reasoning fits with earlier Mumbai rulings on similar family transactions. In a separate case involving a property purchase from close relatives, the tribunal held that an exemption cannot be refused merely because the buyer and seller are related if the record shows a bona fide transfer. Moneycontrol and other tax reporting outlets said the latest ruling also echoes the tribunal’s earlier approach in Kavita Manoj Damani, where a house bought from a husband was allowed to qualify for relief under the capital gains provisions.

The practical message for taxpayers is narrower than the headline might suggest. Section 54F still requires the usual conditions to be met, including a genuine transfer of the original asset, investment in a qualifying residential house, compliance with the prescribed time limits and proper documentation. Transactions involving spouses or other relatives may invite closer scrutiny, especially if there is unusual fund movement or no real change in ownership. But the tribunal has now made clear that family relationship alone does not invalidate a claim, and a later tax outcome does not automatically rewrite the purpose of an earlier deal.