By CA Surekha Ahuja
The Tax Fiction That Cannot Create Money: Chennai ITAT Draws the Line Between “Deemed Consideration” and “Net Consideration”
Can the law deem a higher value for computing capital gains—and then use that fiction to deny exemption because the taxpayer did not reinvest money he never received?
This is the turning point in the Chennai ITAT's decision in T. Srikanth v. DCIT, ITA No. 3792/Chny/2025.
The Tribunal has held that the stamp-duty value deemed as consideration under Section 50C for computing capital gains cannot automatically be imported as “net consideration” under Section 54F. The decision is important not because it neutralises Section 50C, but because it puts a boundary around how far a statutory fiction can travel.
The case in numbers
The assessee sold five properties for an actual consideration of approximately ₹2.03 crore.
He invested approximately ₹2.16 crore in purchase of land and construction of a new residential house and claimed exemption under Section 54F.
The Assessing Officer invoked Section 50C and adopted the stamp-duty value of approximately ₹4.64 crore.
The higher deemed consideration substantially increased the capital gain. The AO also used this higher figure while restricting the Section 54F exemption.
The assessee's argument was compelling: The entire actual consideration had already been invested—and, in fact, the investment exceeded it.
The ITAT agreed.
THE TURNING POINT
Section 50C “deems” a value. Section 54F measures “net consideration”. They are not automatically the same thing.
This is the real issue. The Revenue's approach effectively creates this chain:
Stamp-duty value
↓
Deemed consideration u/s 50C
↓
Capital-gain computation u/s 48
↓
Same deemed value becomes “net consideration” u/s 54F
The Tribunal refused to extend the fiction that far.
Why?
Because Section 50C itself limits its operation:
“for the purposes of section 48”
Section 54F, meanwhile, contains its own concept of “net consideration”—linked to the full value of consideration received or accruing from the transfer, after reducing specified transfer expenditure.
That difference in statutory language is decisive.
The simplest way to understand the controversy
Suppose: Actual consideration received: ₹2 crore
Stamp-duty value: ₹4 crore
Section 50C may require ₹4 crore to be treated as the deemed full value of consideration for Section 48.
But did the taxpayer actually receive ₹4 crore? No.
Did the taxpayer have ₹4 crore available to reinvest?
Not merely because Section 50C says so.
And that leads to the most powerful insight from the ruling:
A valuation fiction cannot automatically become a cash-flow fiction.
Why “net consideration” matters
Section 54F does not merely use the expression “consideration”.
Its Explanation defines “net consideration” by reference to the consideration received or accruing, reduced by expenditure incurred wholly and exclusively in connection with the transfer.
Therefore, the statutory sequence is: Section 50C Deemed consideration for Section 48
Section 54F - Consideration received/accruing Less: specified transfer expenditure = Net consideration
The question is therefore not whether Section 50C applies.
The real question is: Does Section 50C expressly extend its deeming fiction into the Section 54F definition of “net consideration”?
The Tribunal's answer is No.
Revenue's strongest argument — and why it does not finally answer the issue
The Revenue has a legitimate textual argument. Both provisions use the expression:
“full value of consideration”
Therefore, it can be argued that once ₹4 crore is deemed to be the full value of consideration under Section 50C, the same figure should logically be used under Section 54F.
Otherwise, the same transaction appears to have two consideration figures:
₹4 crore for capital-gain computation but
₹2 crore for Section 54F.
That is the strongest Revenue argument. But the taxpayer has an important answer:
Identical words cannot be divorced from their statutory context.
Section 50C expressly confines its deeming fiction to Section 48.
Section 54F separately uses the expression “received or accruing” while defining net consideration.
There is no express statutory bridge saying that the Section 50C fiction shall also apply to Section 54F.
The legal-fiction principle
The Tribunal's reasoning rests on a fundamental principle of statutory interpretation:
A deeming provision must be confined to the purpose for which it is enacted and cannot ordinarily be extended beyond that purpose.
Therefore: Section 50C fiction → Section 48 → Capital-gain computation
does not automatically become: Section 50C fiction → Section 54F → Higher reinvestment requirement
The second chain requires an additional statutory step. Section 50C does not expressly provide it.
The most compelling fact in T. Srikanth
The facts make the principle particularly powerful. Actual consideration: ₹2.03 crore
Investment in new house: ₹2.16 crore. So the taxpayer had invested more than the actual consideration.
The dispute was therefore not really about failure to reinvest. It was about whether a deemed valuation of ₹4.64 crore could be used to make the Section 54F denominator artificially larger.
This is why the judgment has significance beyond its individual facts.
A growing judicial line
T. Srikanth is not an isolated decision.
The taxpayer-favourable reasoning finds support in a line of Tribunal decisions, including:
- Gyan Chand Batra v. ITO
- Nand Lal Sharma v. ITO
- Gouli Mahadevappa v. ITO
- Raj Kumar Parashar v. ITO
- Nanag Ram Meena v. ACIT
The broad proposition emerging from these decisions is that Section 50C's deeming fiction, created for Section 48, should not automatically be transplanted into Section 54F's independent mechanism for determining net consideration.
However, the issue should not be described as universally settled law. The binding effect of jurisdictional High Court decisions must always be examined before relying on the Tribunal line.
Where the taxpayer's case is strongest
The ruling is particularly useful where:
Actual net consideration is fully invested
For example: Actual net consideration: ₹2 crore
Qualifying investment: ₹2.10 crore
The taxpayer has invested the entire actual net consideration.
The argument that a higher stamp value should nevertheless reduce the exemption becomes substantially stronger.
But the decision should not be overstretched. Where only part of the actual net consideration is invested, the Section 54F formula and all other statutory conditions require separate examination.
The professional strategy: fight on two fronts
A taxpayer facing this issue should ideally not rely on the Section 54F argument alone.
Front 1 — Challenge Section 50C
Examine:
- correctness of stamp-duty valuation;
- applicable tolerance provisions;
- valuation evidence;
- comparable properties;
- DVO reference, where applicable; and
- factual evidence supporting the actual consideration.
Front 2 — Protect Section 54F
Without prejudice:
Even if the Section 50C valuation is sustained for computing capital gains under Section 48, the deemed value cannot automatically be treated as “net consideration” under Section 54F.
This gives the taxpayer two independent lines of defence.
The bigger tax principle
The controversy ultimately illustrates something much larger than Sections 50C and 54F.
A statutory fiction has boundaries.
The law can say: “For this particular computational purpose, treat ₹4 crore as the consideration.”
But that does not necessarily mean the law has also said: “Treat the taxpayer as having received ₹4 crore in cash.”
That distinction between tax computation and economic reality is at the heart of the decision.
Professional takeaway
For taxpayers and advisers dealing with property transactions where the sale consideration is below stamp-duty value:
Do not automatically treat the Section 50C figure as the Section 54F net consideration.
Instead, separately establish: Actual consideration received/accruing
→ Less eligible transfer expenditure → Net consideration u/s 54F→ Actual qualifying investment
And simultaneously examine whether the Section 50C valuation itself can be challenged.
The bottom line
T. Srikanth does not say that Section 50C is irrelevant.
It says something more precise—and potentially more important:
Section 50C may deem a higher consideration for computing capital gains under Section 48. It does not, merely by that fiction, deem the differential amount to have been received by the taxpayer or automatically convert it into “net consideration” under Section 54F.
A deemed value can increase the tax computation. It should not automatically create a deemed cash balance.
That is the turning point. And that is why T. Srikanth deserves close attention from taxpayers, CAs, tax litigators and assessing authorities dealing with the increasingly common intersection of Section 50C and Section 54F.
Professional caution: This is an ITAT ruling and therefore does not have the binding force of a Supreme Court or jurisdictional High Court decision. The applicable jurisdictional precedent, the precise facts, actual consideration, transfer expenses, reinvestment and all other conditions of Section 54F should be examined before relying on the ruling
