[Opinion] Section 54F Jurisdictional Anomaly Across High Courts

Anuj Tiwari – [2026] 187 taxmann.com 924 (Article)

Introduction

Tax law aspires to treat like cases alike. Yet a recent decision of the Delhi Bench of the Income Tax Appellate Tribunal exposes a structural fault line that produces precisely the opposite result — two taxpayers, broadly similar facts, a capital gain reinvested in a residential property registered in a parent’s or spouse’s name, and diametrically opposite tax outcomes under Section 54F, turning in material part on whether the assessee’s case falls within the territorial writ jurisdiction of the Delhi High Court or the Punjab & Haryana High Court. For taxpayers living and working across the National Capital Region — where Delhi, Gurgaon, Faridabad and Rohtak form a single economic and social unit but sit under different High Courts — this is not an academic curiosity. It is a real and demonstrated trap.

This article examines the Delhi Bench’s recent ruling in Ashok Kumar v. ITO [2025] 176 taxmann.com 641 (Delhi – Trib.), decided 11 June 2025, traces the conflicting line of judicial authority on Section 54F that produced it, and sets it against the Tribunal’s earlier ruling in Ramphal Hooda v. ITO (ITA No. 8478/Del/2019, decided 2 March 2020) — a case with a closely comparable fact pattern decided the opposite way, for jurisdictional reasons. Read together, the two orders show that the anomaly is not hypothetical; it has already determined real assessees’ tax liability under the very same provision.

The Statutory Scheme

Section 54F of the Income-tax Act, 1961, exempts long-term capital gains arising from the transfer of a long-term capital asset (other than a residential house) where the assessee, within the prescribed time, purchases or constructs “a residential house.” The provision, in its literal text, does not state that the new asset must be acquired in the name of the assessee — it requires only that the assessee “purchase” or “construct” it. That gap in the text has, for nearly two decades, been the breeding ground for conflicting judicial interpretation as to whether the new house must stand in the assessee’s own name.

Section 54F is conceded on all sides to be a beneficial provision — intended to encourage reinvestment in housing rather than to penalise taxpayers for the form in which a family arranges its affairs. The question that has divided High Courts is whether that beneficial purpose is served by a liberal construction that looks to the source of funds, or undermined by it.

The Liberal Line: Substance Over Form

Beginning with the Madras High Court in CIT v. V. Natarajan [2006] 154 Taxman 399/287 ITR 271 (Madras), a substantial body of authority has held that Section 54F does not require the new house to stand in the assessee’s own name. The Delhi High Court adopted this approach decisively in CIT v. Kamal Wahal [2013] 30 taxmann.com 34/214 Taxman 287/351 ITR 4 (Delhi), where the assessee invested part of his sale proceeds in a house registered in his wife’s name. The Court held that the predominant judicial view was that the new residential house need not be purchased by the assessee in his own name, nor exclusively in his name, provided the entire investment came from the assessee and the property was not acquired in the name of a stranger unconnected to him.

The Delhi High Court had earlier taken a consistent position in CIT v. Ravinder Kumar Arora [2011] 15 taxmann.com 307/203 Taxman 289/342 ITR 38 (Delhi), allowing the Section 54F exemption where the property was purchased jointly in the assessee’s and his wife’s names, on the footing that the entire consideration had flowed from the assessee. The same Court extended the reasoning in Vipin Malik (HUF) v. CIT [2009] 183 Taxman 296/[2011] 330 ITR 309 (Delhi), where the new house was purchased in the joint names of the karta and his mother. The underlying rationale across these decisions is consistent: so long as the assessee alone funds the acquisition and the recipient is a close family member rather than a stranger, denying the Section 54F exemption on a technicality of title would defeat, rather than serve, the legislative purpose.

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