Surekha Diliprao Dhole Vs ITO (ITAT Nagpur)
A Company’s House Is Not Its Director’s House – Section 54F Cannot Ignore the Corporate Veil Only to Deny Exemption
The Nagpur Bench of the ITAT has held that a residential property owned by a company cannot be treated as a house owned by its director while determining eligibility for exemption u/s 54F. A company is a separate legal entity, and mere directorship does not confer ownership over its assets.
The Tribunal also recognised that section 54F does not prohibit an assessee from owning one other residential house on the date of transfer. The restriction applies only where the assessee owns more than one residential house, other than the new asset.
The assessee, Surekha Diliprao Dhole, claimed deduction of ₹14,70,000 u/s 54F for AY 2015-16. Her case was reopened on the allegation that the deduction had been wrongly claimed because she allegedly owned more than one residential house on the relevant date.
After considering the assessee’s submissions, the AO identified three residential properties which, according to him, were owned by the assessee. These were a house situated at Onkar Nagar, Nagpur; a property at 77, Pushpkunj Complex, Central Bazar Road, Ramdaspeth, Nagpur; and Flat No. 102, Devshree Apartment, Cement Road, Nagpur.
The AO concluded that the assessee owned more than one residential house in addition to the new asset. He therefore denied the entire deduction of ₹14.70 lakh and assessed the total income at ₹16,70,500.
The CIT(A) confirmed the disallowance. The assessee carried the matter before the Tribunal.
The Tribunal examined the ownership of each property separately instead of proceeding merely on the basis of the addresses referred to in the assessment order.
The first property, situated at Onkar Nagar, was the property in respect of which the assessee had claimed deduction u/s 54F. This was the new residential house acquired for claiming the exemption. Under the proviso to section 54F, the new asset itself must necessarily be excluded while counting the number of other residential houses owned by the assessee.
The second property, situated at 77, Pushpkunj Complex, was not owned by the assessee in her individual capacity. It belonged to Taral Projects and Infrastructure Pvt. Ltd., a company in which the assessee was one of the directors.
The Department did not dispute the fact that the registered and legal owner of the property was the company. The Tribunal therefore held that the property could not be counted as a house owned by the assessee.
The legal personality of a company is distinct from that of its directors and shareholders. The company owns its assets in its own right. A director may manage the affairs of the company or exercise control over it, but that does not make the director the legal owner of the company’s immovable properties.
The third property, Flat No. 102 in Devshree Apartment, was jointly owned by the assessee and her husband. The assessee contended that she had not contributed any amount towards its purchase. Nevertheless, for examining the section 54F claim, the Tribunal proceeded conservatively and treated her as a joint owner of the residential flat.
Even after counting the jointly owned flat, the assessee owned only one residential house other than the new asset. She therefore did not fall within the disabling provision of section 54F.
The statutory condition does not require an assessee to be completely without a residential house before making the new investment. An assessee may own one residential house apart from the new asset. Disqualification arises only if the assessee owns more than one such house on the date of transfer of the original asset.
After excluding the Onkar Nagar property as the new asset and the Pushpkunj property as an asset belonging to the company, only the jointly owned Devshree Apartment remained. The assessee accordingly satisfied the ownership condition.
The Tribunal reversed the CIT(A)’s finding and directed that the deduction of ₹14,70,000 u/s 54F be allowed. The assessee’s appeal was allowed.
Author’s Comments
The ruling applies two elementary but frequently overlooked legal principles. First, the new residential house acquired for claiming section 54F exemption cannot be included while counting the assessee’s “other” residential houses. The statute itself requires the new asset to be excluded.
Second, ownership by a company is not ownership by its director. A private limited company does not lose its separate legal personality merely because a director exercises control over its affairs, uses its address for correspondence or is closely associated with it. Unless the Department establishes that the company is a sham or that the assessee is the real beneficial owner under a legally sustainable arrangement, the company’s property cannot be casually added to the director’s personal portfolio.
The Tribunal’s treatment of the jointly owned flat is also significant. Although the assessee claimed that she had made no financial contribution, the Tribunal did not enter into that controversy. It treated her as a joint owner and still allowed the deduction because ownership of one other residential house is permissible.
This approach avoided an unnecessary decision on whether nominal joint ownership without contribution should be counted for section 54F. That issue can depend upon the title deed, source of consideration, beneficial ownership and applicable property law. In the present case, the exemption survived even on the assumption most favourable to the Revenue.
Taxpayers claiming section 54F should nevertheless document the ownership position carefully. Registered sale deeds, company financial statements, property-tax records and evidence regarding the source of investment can prevent confusion between a property owned personally, jointly, beneficially or through a separate corporate entity.
The principle emerging from the ruling is simple: the AO must count houses, but must first identify who legally owns them. A director does not become the owner of every building appearing in the balance sheet of the company she manages.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT
The captioned appeal at the instance of assessee pertaining to A.Y. 2015-16 is directed against the order dated 20.08.2025 framed by National Faceless Appeal Centre, Delhi (NFAC) arising out of Assessment Order dated 30.03.2022 passed u/s. 147 r.w.s.144B of the Income Tax Act, 1961 (in short ‘the Act’).
2. The sole grievance of the assessee is against the deduction u/s.54F of the Act by the Revenue authorities alleging that assessee owned more than one house property making the assessee disentitled for claiming deduction u/s.54F of the Act.
3. I have heard the rival submissions and perused the record placed before me. I observe that the assessee is an individual and case of the assessee for A.Y. 2015-16 reopened alleging wrong claim of deduction u/s.54F of the Act at Rs.14,70,000/-. After duly considering the submissions of the assessee, ld. Assessing Officer denied the benefit observing that since the assessee owns more than one residential house other than the asset on the date of transfer, therefore, the assessee is not entitled to deduction u/s.54F of the Act at Rs.14,70,000/- and accordingly assessed income at Rs.16,70,500/-. Thereafter, the assessee preferred appeal before ld.CIT(A) but failed to succeed.
4. I observe that ld. Assessing Officer has referred to following three houses owned by the assessee in the assessment order :
1. House situated at Onkar Nagar, Nagpur
2. House situated at 77, Pushpkunj Complex, Central Bazar Road, Ramdas Peth, Nagpur
3. House at Flat No.102, Devshree Apartment, 204, Cement Road, Nagpur
5. From going through the submissions made by the assessee before the lower authorities and before this Tribunal, I observe that the first house property located at Onkar Nagar, Nagpur is the property for which deduction u/s.54F has been claimed. The property at Sl.No.2 located at 77, Pushpkunj Complex, Central Bazar Road, Ramdas Peth, Nagpur is owned by Taral Projects and Infrastructure Private Limited in which the assessee is one of the Director. This fact is not in dispute that this property located at 77, Pushpkunj Complex, Central Bazar Road, Ramdas Peth, Nagpur is not owned by the assessee but it is owned by the company Taral Projects and Infrastructure Private Limited and therefore the same cannot be considered as a property owned by the assessee. So far as the third property namely Flat No.102, Devshree Apartment,204, Cement Road, Nagpur, the same is jointly owned by the assessee and her husband and the assessee has not provided any amount towards the purchase of the said property. However, for the sake of examining the claim of deduction u/s.54F of the Act, the assessee is considered to be the joint owner of the house property at Flat No.102, Devshree Apartment,204, Cement Road, Nagpur. This brings me to a conclusion that at the time of making investment in house property for claiming deduction u/s.54 of the Act, the assessee was owning only one house property, i.e. Flat No.102, Devshree Apartment,204, Cement Road, Nagpur. The assessee has fulfilled the necessary conditions for claiming deduction/s.54F of the Act and therefore entitled to deduction u/s.54F of the Act at Rs.14,70,000/-. Finding of ld.CIT(A) is reversed. Grounds of appeal raised by the assessee are allowed.
6. In the result, the appeal of the assessee is allowed.
Order pronounced on 10th September, 2026 under Rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963.
