ITAT Delhi Allows Section 54F Exemption to Private Trust on Capital Gains

ACIT Vs Merilina Foundation (ITAT Delhi)

The Income Tax Appellate Tribunal (ITAT) of Delhi has dismissed an appeal by the Assistant Commissioner of Income Tax (ACIT), upholding a lower court’s decision that the Merilina Foundation, a private trust with identified beneficiaries, is eligible for the capital gains exemption under Section 54F of the Income-tax Act, 1961. This ruling establishes that, for the purpose of this exemption, a private trust can be treated similarly to an individual or a Hindu Undivided Family (HUF), as long as its beneficiaries are clearly identifiable. The ITAT’s decision directly addresses a long-standing point of contention between taxpayers and the revenue authorities regarding the applicability of Section 54F to entities other than individuals and HUFs.

The case began when the ACIT reopened the assessment for the Merilina Foundation for the Assessment Year 2011-12, citing a substantial amount of cash deposits and interest income. The foundation had sold immovable property and claimed an exemption of Rs. 4,82,40,602 under Section 54F by investing the proceeds in a new residential house. The revenue department’s contention was that Section 54F applies exclusively to individuals and HUFs, and since the foundation is an Association of Persons (AOP), it was not entitled to the exemption. The ACIT therefore added the entire amount to the foundation’s taxable income.