ITAT Chennai allowed capital gains deduction under Section 54 for construction on a plot owned by the assessee's wife, provided construction was completed within three years and funds were traceable.
Section 54 Benefit Permissible on Spouse-Owned Land
ITAT Chennai allowed a deduction of ₹63.04 lakh under Section 54 of the Income Tax Act for construction of a residential house on land owned by the assessee’s wife. The capital gains arose from sale of a residential property, with proceeds used to construct a new house on the wife’s plot.
The tribunal accepted that the construction was completed within three years of transfer and that the assessee financed the construction directly. While the land was not in the assessee’s name, the ITAT held that
“ownership of land need not be in the transferor provided the housing unit constructed is in his name and used for residential purpose”, citing precedents supporting spousal arrangements.
However, the cost of land owned by the wife was excluded from the cost of new asset. Practitioners should ensure documentation of funding, ownership, and completion timelines. This ruling provides clarity on familial property arrangements in capital gains planning.
Citations
- Section 54, Income Tax Act, 1961
