Case: Kusum Sahgal (Through LR) v. ACIT, ITA No. 341/Del/2025 (Order dated 8 November 2025)
By CA Surekha S Ahuja
The Delhi ITAT has delivered a landmark ruling clarifying one of the most contentious aspects of capital gains taxation under the Income Tax Act—the scope of ownership for claiming exemption under Section 54F. The tribunal held that joint or fractional ownership of a residential property does not automatically disentitle an assessee from claiming Section 54F relief, marking a significant shift toward a purposive, assessee-friendly interpretation.
Section 54F: Statutory Framework and Ownership Issue
Section 54F provides exemption from long-term capital gains tax when an individual or HUF transfers any capital asset (other than a residential house) and reinvests the net proceeds in a residential property.
Disqualifying Proviso: Exemption is denied if the assessee “owns more than one residential house” on the date of transfer or acquires another residential house within the prescribed period.
Interpretational Challenge: The Act does not define ownership. Courts and authorities were divided over whether joint or fractional ownership triggers the disqualifying proviso.
Case Facts: Kusum Sahgal
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Capital Asset Transfer: Ms. Kusum Sahgal sold 21,50,000 shares in Quality Needles Pvt. Ltd., realizing long-term capital gains of ₹21.28 crore (AY 2016-17).
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Reinvestment: Residential unit in The Camellias, DLF.
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AO’s Position: Denied Section 54F exemption, citing her 50% joint ownership in a Noida property with her husband as ownership of more than one residential house.
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Other Assets:
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Commercial flat (non-residential)
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Mehrauli agricultural land (possession without residential rights)
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Critical Observation: The Noida property was jointly owned, not exclusively.
Judicial Conflict Prior to the ITAT Ruling
| Court | Position | Principle |
|---|---|---|
| Karnataka HC – CIT v. M.J. Siwani | Fractional/joint ownership bars exemption | Even small shares count as ownership |
| Madras HC | Only exclusive ownership bars exemption | Co-ownership ≠ multiple houses |
| SC – Vegetable Products Ltd. | Ambiguities in tax provisions resolved in assessee’s favor | Doctrine applied to Section 54F disputes |
| SC – Dilip Kumar & Co. | Disqualifying conditions construed in assessee’s favor | Supports assessee-friendly interpretation |
| SC – Seth Banarasi Dass Gupta | Fractional ownership ≠ full ownership | Confirms co-ownership does not equal multiple houses |
ITAT Delhi Reasoning
1. Purposive Interpretation Over Literalism
Section 54F aims to encourage investment in residential properties. Treating fractional ownership as multiple ownership undermines this legislative purpose.
2. Exclusive Ownership vs. Joint/Fractional Ownership
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Exclusive Ownership: Full, undivided rights over a property.
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Joint/Fractional Ownership: Shared interest; does not count as owning multiple houses.
3. Proviso Threshold
A 50% share in a jointly-held property does not amount to owning “more than one residential house.”
4. Individual/HUF Capacity
Ownership assessment is in the assessee’s capacity, not merely the presence of any interest in a property.
5. Harmonization of Conflicting Precedents
The ITAT adopted the assessee-favorable interpretation from the Madras HC, overriding the restrictive Karnataka HC approach, guided by Supreme Court doctrines.
Key Holdings
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Joint ownership does not bar Section 54F exemption.
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Fractional ownership ≠ multiple residential houses.
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Exclusive ownership is required to invoke the disqualifying proviso.
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Divergent High Court precedents are harmonized using a purposive, assessee-friendly interpretation.
Practical Scenarios
| Scenario | Facts | Ruling |
|---|---|---|
| Single exclusive property + joint property | Owns one property exclusively + 50% joint property | Proviso not triggered |
| Multiple exclusive properties | Owns 2+ properties solely | Proviso applies |
| Multiple joint ownerships | 25% each in 4 properties | Proviso likely not triggered (subject to litigation) |
| Agricultural + residential | Possession of agricultural land + residential property | Agricultural land excluded |
Tax Planning and Compliance Tips
For Assessees:
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Disclose all properties, clearly distinguishing joint/fractional vs. exclusive ownership.
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Maintain title deeds, co-ownership agreements, and partition documents.
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Joint investments with spouses/family members do not jeopardize Section 54F exemption.
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Avoid acquiring multiple exclusive residential houses if seeking exemption.
For Tax Professionals:
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Re-examine prior Section 54F rejections based solely on joint ownership.
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Prepare appellate submissions leveraging Kusum Sahgal and Supreme Court doctrines.
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Document the nature and extent of ownership meticulously.
For Revenue Authorities:
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Avoid denying Section 54F solely on fractional/joint ownership.
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Apply purposive interpretation to reduce litigation and align with ITAT guidance.
Strategic Takeaways
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Families and married couples can jointly acquire residential properties without fear of losing Section 54F exemption.
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Exclusive ownership of multiple properties is the only scenario triggering the disqualifying proviso.
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Fractional ownership across multiple properties does not disqualify the assessee.
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Proper documentation and disclosure can maximize exemptions and reduce assessment disputes.
Conclusion
The Delhi ITAT in Kusum Sahgal has set a precedent for a purposive, assessee-friendly interpretation of Section 54F. By clearly distinguishing exclusive vs. joint/fractional ownership, the tribunal has:
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Strengthened assessee rights,
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Reduced ambiguity in Section 54F applications,
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Provided a clear roadmap for tax planning in residential property investments.
Practical advice: Joint property acquisition within a family or with a spouse is safe under Section 54F, as long as no multiple exclusive residential houses are held.
Citations:
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Kusum Sahgal (Through LR) v. ACIT, ITA No. 341/Del/2025
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CIT v. M.J. Siwani, 366 ITR 356 (Karnataka HC)
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Seth Banarasi Dass Gupta v. CIT, 166 ITR 783 (SC)
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CIT v. Vegetable Products Ltd., 88 ITR 192 (SC)
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Dilip Kumar & Co. v. CIT, Constitution Bench
