Friday, March 29, 2024

Clarification on Section 54 Deduction for Property in Spouse's Name

The Income Tax Appellate Tribunal (ITAT) Delhi Bench's decision in Simran Bagga v. ACIT on January 4, 2024, has provided a critical clarification regarding the applicability of Section 54 of the Income Tax Act, 1961. This ruling addresses a specific scenario concerning the eligibility for tax deductions on capital gains from property sales when the proceeds are reinvested in a residential property that is not in the assessee's name but in the name of the assessee's spouse.

Key Clarifications:

  1. Eligibility for Deduction with Spouse-Registered Property: The tribunal clarified that for the purposes of Section 54, the crucial factor is the reinvestment of capital gains into a new residential property within the prescribed timeframe, not the name in which the property is registered. Thus, a property purchased in the name of the assessee's spouse qualifies for the deduction.

  2. Interpretation in Line with Legislative Intent: The ruling emphasizes a purposive interpretation of the law, focusing on the intent behind tax provisions to facilitate benefits for the taxpayer, rather than a strict literal interpretation that could restrict such benefits.

  3. Consistency with Precedents: This decision aligns with prior judgments that have permitted deductions under Section 54F for properties purchased in a spouse's name, applying the same reasoning to Section 54. This ensures consistency in the interpretation and application of similar provisions within the Income Tax Act.

  4. Liberal Interpretation Favoring Taxpayers: By advocating for a broader, more liberal interpretation of the law, the ITAT decision ensures that the beneficial provisions of the Income Tax Act are accessible and applicable in a manner that supports taxpayer relief.


This ITAT ruling removes ambiguity and provides much-needed clarity on the issue of property registration in the name of an assessee's spouse for the purpose of claiming a deduction under Section 54. It reinforces the principle that tax laws should be interpreted in a manner that aligns with their intended purpose of providing relief to taxpayers. This clarification is invaluable for taxpayers planning to reinvest capital gains from property sales into residential properties, ensuring they can confidently avail themselves of the tax deductions afforded by Section 54 without concern for the name in which the new property is registered.