Lady sells listed equity shares for Rs 26 crore and constructs house, pays no capital gains tax; ITAT Kolkata rules in her favour

Feb 14, 2026

Synopsis
A woman successfully claimed capital gains tax exemption on Rs 26 crore from selling shares. The Income Tax Appellate Tribunal in Kolkata ruled in her favour, allowing her claim under Section 54F. She invested the proceeds in constructing a residential property. The tribunal clarified rules regarding joint ownership, property usage, and construction timelines.

On January 12, 2026, the Income Tax Appellate Tribunal (ITAT) Kolkata held that if a residential property is jointly owned by two persons, it does not preclude a taxpayer who is one of the joint holders from claiming Section 54F capital gains tax exemption, especially if she is not the sole owner of the property.

The tribunal also held that Section 54F of the Income-tax Act, 1961, does not mandate that construction of the house must begin after the date of transfer, nor does it require the direct use of sale proceeds for construction or purchase of a residential house.

This judgement of the ITAT Kolkata came against the background of a case filed by Smt. Goenka, who had sold 36 lakh shares of a reputed mainboard-listed company for Rs 26 crore and then invested around Rs 53 crore in an under-construction residential house at Queens Park, Ballygunge, Kolkata.

However, the shares in question had originally belonged to her husband’s brother and were transferred to her as a gift. On the capital gains arising from the sale of these listed equity shares, she claimed tax exemption under Section 54F, citing reinvestment in the construction of the residential house.

For the uninitiated, Section 54F of the Income Tax Act provides a capital gains tax exemption to taxpayers who sell any asset other than a residential house and reinvest the gains into buying or constructing a residential house.

However, the gift transaction later become the subject of a tax dispute, with the income tax department probing both the transaction itself and her background.

As per her submission before the ITAT Kolkata, she already owned a parcel of land on Barrackpore Trunk Road (BT Road) and jointly owned another house in Southern Avenue, Kolkata. The BT Road property was rented out, with the tenant having constructed a superstructure on the land.

The tax officer was of the view that, since she already owned two residential properties, she was in violation of the sub-clause (i) of the proviso to Section 54F, and therefore, she was not entitled to claim tax exemption under Section 54F.

The tax officer also observed that the construction of the Queens Park residential property was started more than five years ago before the sale of the shares, and therefore, she is not entitled to the benefit of Section 54F in respect of the investment made by her in purchasing a capital asset (land) before the period of one year prior to the sale of another capital asset, namely the shares gifted by her husband’s brother.

The tax officer also held that the construction costs of the house property were not directly funded by the proceeds from the sale of shares. Therefore, for this reason, she was also not eligible to claim the exemption under Section 54F.

She filed an appeal to the National Faceless Appeal Centre (NFAC), Delhi (CIT A), contesting the tax officer’s rejection of the Section 54F benefit. On August 18, 2025, NFAC, Delhi (CIT A), denied her the benefit of Section 54F and upheld the order issued by the tax officer. Then she filed an appeal in the Income Tax Appellate Tribunal (ITAT), Kolkata bench, for her Section 54F tax exemption claim amounting to Rs 26 crore (Rs 26,77,72,881).

On January 12, 2026, she won the case in the ITAT Kolkata. Fellow of Chartered Accountancy (FCA) Akkal Dudhwewala represented her in the ITAT Kolkata.

Chartered Accountant Naveen Wadhwa, Vice President, Research and Advisory Division at Taxmann, said to ET Wealth Online that Section 54F of the Income-tax Act, 1961, provides an tax exemption from long-term capital gains arising from the transfer of a non-residential capital asset, provided the net consideration is invested in a new residential house.

Wadhwa says: "An assessee (individual or HUF) is generally eligible if, on the date of transfer of the original asset, they own not more than one residential house (excluding the new asset being acquired for exemption). The interpretation of 'joint property' ownership has been a subject of extensive judicial debate."

According to Wadhwa, while some high courts and Tribunals have adopted a liberal view, holding that fractional or joint ownership does not amount to 'absolute ownership' for disqualification under Section 54F, a more restrictive interpretation suggests that even joint ownership of a residential house can lead to disqualification if it results in the assessee owning more than one residential house on the date of transfer.

Summary of the judgement

Chartered Accountant Suresh Surana says that in the given case [2026] 182 taxmann.com 393 (Kolkata - Trib.), the assessee, an individual, earned long-term capital gains on the sale of equity shares of a listed company during the relevant assessment year and claimed exemption under section 54F of the Income-tax Act, 1961 on account of investment in the construction of a new residential house.

The Assessing Officer denied the exemption on multiple grounds, that the assessee allegedly owned more than one residential house on the date of transfer, that the construction of the new house had commenced prior to the transfer of the original asset, and that the sale proceeds were not directly utilised for such construction. The Commissioner (Appeals) upheld the denial, leading to the appeal before the Income-tax Appellate Tribunal, Kolkata Bench

On examination of facts, the Tribunal noted that one of the properties relied upon by the Revenue was merely a parcel of vacant land leased to a tenant, on which the tenant had constructed and owned an industrial/commercial super-structure.

Accordingly, such property could not be regarded as a “residential house” for the purposes of the proviso to section 54F(1). With respect to the second property, the Tribunal observed that it was a jointly owned family property in which the assessee was only one of several co-owners and not the exclusive owner.

Relying on settled judicial precedents, the Tribunal held that joint ownership of a residential property does not disentitle an assessee from claiming exemption under section 54F, as the proviso applies only where the assessee exclusively owns more than one residential house.

The Tribunal further rejected the Revenue’s contention that exemption under section 54F is unavailable where construction of the new residential house commences prior to the date of transfer of the original asset or where the sale consideration is not directly utilised for such construction.

It was held that section 54F merely requires that the residential house be constructed within three years from the date of transfer, and does not mandate that construction must commence only after such transfer.

Similarly, the provision does not prescribe any condition that the sale proceeds themselves must be directly deployed for construction, so long as the overall investment in the new residential house satisfies the statutory requirements.

Surana says: "Based on the above reasoning, the Tribunal concluded that the assessee had fulfilled the substantive conditions of section 54F, including completion of construction within the prescribed period and investment exceeding the amount of capital gains."

Consequently, the denial of exemption by the lower authorities was held to be unjustified, and the assessee was held entitled to exemption under section 54F. The appeal was therefore allowed in favour of the taxpayer

ITAT Kolkata analysis and discussion

Judicial Member Pradip Kumar Choubey and Accountant Member Rajesh Kumar decided on this judgement (ITA No.2129/Kol/2025) on January 12, 2026.

Land does not qualify as residential property since the superstructures built on this land are used as a factory
The ITAT Kolkata said that the undisputed facts as culled out from the records as placed before them are that the assessee sold 36,00,000 shares on July 13, 2020, which yielded long-term capital gain of Rs 26 crore (26,77,72,881), which was claimed as exempt under Section 54F.

The ITAT Kolkata said that they note that the assessee, along with other family members, jointly constructed a new residential property at Queens Park. The construction spanned from 2015 to 2022 and was completed on June 9, 2022. It is observed that the cost of construction incurred up to March 31, 2021, was Rs 53 crore (Rs 53,86,79,823), and therefore, the entire capital gain derived from the sale of shares was claimed as exempt under Section 54F.

The income tax assessing officer (AO), however, denied the exemption on three grounds.

The first and foremost reason given by the AO is the applicability of the proviso to Section 54F(1) of the Income Tax Act. The proviso below sub-section (1) of Section 54F lays down certain disqualifications for claiming exemption under the said section.

As per the said proviso, the benefit of tax exemption shall not be available to an assessee if the assessee owns more than one residential house [other than the new asset] as on the date of transfer of the original asset and, further, purchases any residential house [other than the new asset] within one year of transfer or constructs another residential house. This is subject to the further condition that the income from such other residential houses is chargeable to tax under the head “Income from house property”.

The ITAT Kolkata said that in the present case, the assessee, as per the AO, owns more than one residential house as of the date of transfer of the original asset, viz., two residential properties, in the present case.

The assessee has, however, claimed that she did not own any residential property and that the AO had acted on a mistaken assumption of fact. The first property in question is located on BT Road.

According to the AO, the assessee owned a building over the said land that was leased out to a tenant. The assessee, however, has brought to ITAT Kolkata’s notice that she had acquired a vacant land parcel on BT Road in 1982. The said land was originally leased out vide tenancy agreement dated March 31, 1997, and the tenant is found to have been permitted to construct a superstructure on the said land and use it.

ITAT Kolkata said that the tenant had provided a confirmation letter, indicating that the assessee had leased a vacant land parcel on BT Road, where a factory was constructed by them on that land. The AO acknowledged this confirmation issued by the tenant; however, he refused to accept it due to certain terms in the renewal tenancy agreement, which stated that the rent included electric charges, corporate taxes, and maintenance, if any.

The assessee’s authorised representative, FCA Akkal Dudhwewala, pointed out that these terms incorporated were general in nature and that the contemporaneous fact was that the assessee was the owner of the land alone and that the superstructure was constructed and owned by the tenant, which was verifiable from the contents of the original agreement dated March 31, 1997, and the recitals of the renewal agreement dated April 1, 2018.

The ITAT Kolkata said that they observed that the AO was also unable to disprove the confirmation issued by the tenant that it was the owner of the superstructure/factory constructed over the said land.

The ITAT Kolkata said that, therefore, the AO had proceeded on the mistaken fact that the assessee had constructed the superstructure on the said vacant land and was the owner of it.

The ITAT Kolkata said that in their considered view, the property on BT Road comprised vacant land owned by the assessee and therefore did not qualify as residential property for the purposes of the sub-clause (i) of the proviso to Section 54F.

The ITAT Kolkata said that it was also brought to their notice that the land was used for industrial purposes and the constructed superstructure was a factory.

The ITAT Kolkata said, “Viewed from any angle, therefore, the immovable property on BT Road did not qualify as residential house property, and therefore it was to be excluded for the purposes of the proviso to Section 54F.”

Residential property on Southern Avenue is a family property, jointly held—not exclusively owned by her

The ITAT Kolkata said that the Southern Avenue property is a family-owned property and that the assessee was one amongst several co-owners of the property.

The tribunal cited a Madras High Court judgement in the case of Dr. Smt. P .K. Vasanthi Rangarajan (23 taxmann.com 299), where it was held that if a residential property is jointly owned by two persons, that would not preclude the person (as an assessee) from claiming exemption under section 54F of the Act, as the assessee would not be hit by the proviso to section 54F of the Act, being not the exclusive owner of the residential property.

The decision of the Madras High Court is found to have been followed by the coordinate bench, Delhi, in the case of Deepak Kothari Vs ACIT (177 taxmann.com 219), wherein, on similar facts as involved in the present case, it was held that jointly held family property cannot be regarded as a ‘residential house’ exclusively owned by the assessee for purposes of the sub-clause (i) of the proviso to Section 54F.

The ITAT Kolkata said that following these judgements, they hold that the conditions stipulated in the clause (i) of the proviso to Section 54F (1) disentitling the claim under Section 54F are not satisfied in the present case.

Construction period of new house

The ITAT Kolkata said that the AO contended that the assessee had completed the construction of the new property [June 9, 2022] within three years of the date of sale of the capital asset [July 13, 2020]. As the construction started much prior to the date of sale, the AO said, the assessee should not have claimed the exemption under Section 54F.

According to the AO, the proceeds received from the sale of shares should have been directly used for the construction of property, which did not happen here.

The ITAT Kolkata said that Section 54F(1) states that the assessee, being an individual or Hindu Undivided Family who had earned capital gains from the transfer of any long-term capital not being a residential house, could claim benefit under the said Section provided any one of the following three conditions was satisfied:

(i) the assessee had, within a period of one year before the sale, purchased a residential house;
(ii) within two years after the date of transfer of the original capital asset, purchased a residential house and
(iii) within a period of three years after the date of sale of the original asset, constructed a residential house.

The ITAT Kolkata said that for the satisfaction of the third condition, it is not stipulated or indicated in the Section that the construction must begin after the date of sale of the original/old asset.

The ITAT Kolkata said: “Rather, it only refers to the construction of a residential house within three years, which in our view is the date of completion of the constructed residential house being habitable for the purpose of residence.”

According to the ITAT Kolkata, therefore, the fact that the assessee started construction of the property much prior to the date of sale of the capital asset will not disentitle her from claiming exemption under Section 54F, given the fact that the construction was completed within three years from the date of sale of the capital asset.

Gains of share sale not directly attributable to construction of new house

The ITAT Kolkata said that it is seen that, on similar facts, the Karnataka High Court in the case of CIT vs. Anandraj has held that there is no requirement for the assessee to directly utilise the sale proceeds for construction/purchase of the property, and as long as the amount spent towards construction of the residential house is more than the consideration received upon sale of the capital asset, the assessee is entitled to the benefit of Section 54F of the Act.

The ITAT Kolkata said that Smt Goenka’s representative (FCA Akkal Dudhwewala) has also rightly relied upon the following observations of the Punjab & Haryana High Court in the case of Kapil Kumar Agarwal.

The ITAT Kolkata said that respectfully following the above high court decision, they are of the view that there is no stipulation set out in Section 54F which requires the assessee to directly utilise the capital gains for purchase/construction of the residential property. It is seen that the assessee had complied with the primary conditions of Section 54F, viz., she had incurred the cost of construction towards a new residential property which was completed within three years from the date of sale of the capital asset, and therefore the lower authorities were unjustified in denying the benefit of exemption under Section 54F.

Gift of shares and allegations of colourable device

The ITAT Kolkata said that the tax department contended that the transaction involving sale of shares was a “colourable device” to avoid tax.

According to the tax department’s representative, the said shares were acquired by way of gift by the assessee from her spouse, to which clubbing provisions contained in Section 64 would have applied and that the spouse was ineligible to claim exemption under Section 54F.

The taxpayer’s representative had pointed out that the very foundation of this allegation rested on a factual error. The CIT(A) had proceeded on the mistaken assumption that the shares in question had been gifted to the assessee by her spouse.

It was brought to the ITAT’s notice that the shares were received by way of gift from the assessee’s husband’s brother, and therefore, the clubbing provisions had no application.

The taxpayers’ authorised representative also pointed out to the ITAT Kolkata that the assessee’s husband’s brother himself had claimed the benefit of exemption under Section 54F in his income tax return (ITR), and therefore it was also not the case that the shares were gifted to the assessee, because the assessee’s husband’s brother was not eligible to claim exemption under Section 54F.

It is seen from the material placed before the ITAT Kolkata that the newly constructed property was acquired by the family of the assessee, wherein the lead members were the females of the family, and that the act of acquiring and constructing a property in the name of the female members was influenced by their Hindu culture and traditions, where holding residential property in the name of the females of the house is considered to be auspicious.

The ITAT Kolkata said that they also found that another female member of the family had also claimed exemption under Section 54F in respect of the cost of construction incurred towards the property at Queens Park against the long-term capital gains derived from the sale of shares in AY 2020-21, and the NFAC, after considering the same factual matrix, had accepted and allowed the exemption so claimed by the said assessee.

ITAT Kolkata judgement

Considering the facts and circumstances of the assessee in the light of the above discussions, we hold that the assessee is entitled to exemption of capital gain invested in the construction of new property.

Therefore, we are inclined to set aside the Ld. CIT(A) and direct the AO to delete the addition by allowing exemption u/s 54F as claimed by the assessee.

In the result, the appeal of the assessee is allowed. Kolkata, the 12th January, 2026.

[The Economic Times]