Section 54 Allowed on Flat Booking Rights, But Capital Gains on Gifted Share to Wife Clubbed Under Section 64(1)(iv)

Late Rajeshbhai Muljibhai Amin Vs ACIT (ITAT Mumbai)

Section 54 Allowed on Flat Booking Rights, But Capital Gains on Gifted Share to Wife Clubbed Under Section 64(1)(iv)

The Mumbai ITAT delivered a split ruling in favour of the assessee by allowing the Section 54 deduction of ₹2 crore while simultaneously upholding the applicability of Section 64(1)(iv) in respect of capital gains arising from the share of property gifted to the spouse.

The assessee had sold a residential property and invested ₹2 crore in acquiring rights in a specific flat in the redevelopment project known as “11 West”. The Assessing Officer denied the deduction under Section 54 on the ground that the assessee had merely acquired rights in a future property and had not purchased an identifiable residential house within the prescribed period. The CIT(A) also affirmed the disallowance by treating the initial arrangement as an unregistered document incapable of evidencing a valid purchase.

Reversing these findings, the Tribunal held that the assessee had substantially complied with the requirements of Section 54. It noted that the investment of ₹2 crore was made within the statutory period, the rights acquired related to a specific and identifiable residential flat, and the subsequent registered deed merely formalised rights that had already been acquired earlier. The ITAT emphasized that Section 54 is a beneficial provision requiring liberal interpretation and that acquisition of enforceable rights in a residential property is sufficient to qualify for exemption. Reliance was placed on decisions including T.N. Aravinda Reddy (SC), Podar Cement (SC), Kuldeep Singh (Delhi HC), Sambandam Udaykumar (Karnataka HC) and Hilla J.B. Wadia (Bombay HC). Accordingly, the entire disallowance of ₹2 crore was deleted.

On the second issue, the Tribunal examined the transfer of a 17% undivided share in the property by way of gift to the assessee’s wife shortly before the property was sold. The wife had offered the resultant capital gains of ₹1.00 crore in her return of income. The assessee argued that capital gains cannot be clubbed under Section 64(1)(iv). Rejecting this contention, the Tribunal held that capital gains are included within the definition of “income” under Section 2(24) and therefore fall squarely within the ambit of the clubbing provisions. Relying on the Supreme Court decision in Sevantilal Maneklal Sheth v. CIT, the Tribunal held that where an asset is transferred to a spouse without consideration, the capital gains arising from its subsequent sale continue to be attributable to the transferred asset and are therefore liable to be clubbed in the hands of the transferor spouse.

Thus, while the assessee succeeded on the Section 54 exemption issue, the Tribunal affirmed the principle that capital gains arising from assets gifted to a spouse can be clubbed under Section 64(1)(iv) where the statutory conditions are satisfied.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal has been filed by the Assessee against the order passed by the National Faceless Appeal Centre, Delhi / Ld. Commissioner of Income Tax (in short “Ld. CIT(A)”), vide order dated 09.10.2025 passed for A.Y. 2014-15. The assessee has raised the following grounds of appeal:

General Ground

1. The Learned National Faceless Appeal Centre (NFAC) erred in law and on facts in confirming the action of the Assessing Officer (AO) in assessing the total income at ₹3,99,96,883/- as against the return income ₹86,31,310/-. The adverse inference drawn by NFAC and AO is not at all

Grounds on Merits

2. The Ld. NFAC has erred in confirming the disallowance of deduction claimed under section 54 of the Income-tax Act, 1961, amounting to *2,00,00,000/-. The appellant had duly invested the capital gains arising from the sale of a residential property in the purchase of another residential property within the prescribed time limit as stipulated under section 54 of the Act. The denial of the said claim is unjustified and liable to be deleted.

3. The Ld. NFAC has erred in confirming the action of the AO in restricting the deduction of legal and brokerage expenditure to ₹6,86,000/-as against the total expenditure of ₹14,00,000/- actually incurred by the appellant in connection with the sale of the residential property. The disallowance of 7,14,000/- is arbitrary and without proper basis.

4. The Ld. NFAC has erred in sustaining partial disallowance of consultancy fees incurred for sale of property. The NFAC allowed only ₹1,10,113/- out of the total expenditure of ₹2,24,720/-, thereby disallowing 1,14,607/-. The said disallowance is unjustified and deserves to be deleted in full.

5. The Ld. NFAC has erred in confirming the action of the AO in making an addition of ₹1,00, 74,915/- in the hands of the appellant under section 64(1)(iv) of the Income-tax Act, 1961, without appreciating the correct facts and circumstances of the case. The addition made is erroneous, unjustified, and liable to be deleted.

6. The Appellant denies the liability on account of interest levied under section 234A, 234B and 234C of the Act. The levy of such interest is unjustified and deserves to be deleted.

7. The Appellant craves leave to add, alter, amend, substitute, or withdraw any of the above grounds of appeal at the time of hearing, if so required.

2. The brief facts of the case are that the assessee, an individual, had filed the return of income for A.Y. 2014-15 through his legal heir, Mrs. Anju Rajesh Amin, declaring total income of ₹86,31,310. The assessee had expired on 20.03.2014 and the return was thereafter filed by his wife as legal representative. During the year, the assessee had earned income from commission, house property and capital gains from the sale of a residential property jointly owned by him along with his wife, son and daughter. The case was selected for scrutiny assessment primarily to verify the capital gains arising from the transfer of immovable property and the claim of deduction under section 54 of the Act. During the assessment proceedings, the Assessing Officer observed that residential property was jointly owned and it had been sold for a total consideration of ₹6.20 crore, of which the assessee’s share was 49%, resulting in sale consideration of ₹3.038 crore. The assessee claimed deduction of ₹2 crore under section 54 of the Act on the ground that he had invested in a new residential property pursuant to an arrangement/agreement dated 15.01.2014 whereby he acquired rights in Flat No. 303, Wing -A, in a redevelopment project known as “11 West”. The assessee also claimed deduction of ₹16,24,720 towards legal fees, brokerage and consultancy expenses incurred in connection with the transfer of the property. Further, the Assessing Officer observed that shortly before the sale of the property, the assessee had executed a gift deed transferring 51% of his ownership interest in favour of his wife, son and daughter without consideration and consequently part of the capital gains had been shown by the wife of the assessee in her own return of income. The Assessing Officer was of the view that the benefit of investment claimed under section 54 of the Act was merely a right in a “future property” and not investment in an identifiable residential house within the prescribed period. The Assessing Officer accordingly disallowed the deduction claimed under section 54 of the Act amounting to ₹2 crore. He further invoked section 64(1)(iv) and clubbed capital gains of ₹1,00,74,915 shown by the assessee’s wife (in her return of income) in the hands of the assessee on the ground that the transfer of ownership interest to the spouse was without consideration and constituted a device to reduce tax liability. The Assessing Officer also restricted deduction of legal fees and brokerage expenditure to ₹6,86,000 proportionate to the assessee’s 49% share in the property and disallowed the consultancy fees of ₹2,24,720 for want of satisfactory evidence. Consequently, the total income was assessed at ₹3,99,96,883 as against the income of ₹86,31,310, declared by the assessee.

3. Aggrieved by the assessment order, the assessee carried the matter in appeal before the CIT(Appeals) and challenged the denial of deduction under section 54 of the Act, the clubbing of capital gains under section 64(1)(iv) of the Act, and the disallowance of transfer-related expenses. In support of the claim under section 54 of the Act, the assessee contended that the assessee had entered into an agreement dated 15.01.2014 for acquisition of rights in a specific and identifiable residential flat being Flat No. 303 in Wing-A of the redevelopment project “11 West”, and had paid consideration of ₹5 crore for acquisition of such rights. It was argued that the Assessing Officer had failed to appreciate the contents of the agreement and the subsequent registered deed of transfer executed on 15.11.2016, which clearly established that the investment was made in a specific residential unit and therefore satisfied the requirements of section 54 of the Act. The assessee placed reliance on the decision of the Hon’ble Supreme Court in CIT v. T.N. Aravinda Reddy (120 ITR 46) to contend that the expression “purchase” occurring in section 54 of the Act must be construed liberally. With regard to clubbing under section 64(1)(iv) of the Act, the assessee contended that no show-cause notice had been issued before making the addition and therefore capital gains arising in the hands of the wife could not be clubbed m erely because the underlying asset had been received through a gift. The assessee further argued that the wife was independently assessed to tax, had offered the capital gains in her return of income and had also claimed deduction under section 54 of the Act. In respect of legal, brokerage and consultancy expenses, the assessee submitted that under a family arrangement he had agreed to bear the entire expenditure connected with the sale transaction and had actually incurred and paid the same. The assessee also furnished bank statements and invoices to substantiate payment of consultancy fees to Ganesh & Rajendra Associates.

4. The CIT(Appeals), after examining the material on record, upheld the action of the Assessing Officer in denying deduction under section 54 of the Act. The CIT(Appeals) held that the assessee had failed to establish the existence of a legally enforceable agreement showing acquisition of a residential property within the prescribed period. The CIT(Appeals) observed that the document dated 15.01.2014 was merely an unregistered arrangement executed on plain paper and did not satisfy the requirements of section 53A of the Transfer of Property Act read with section 2(47)(v) of the Income-tax Act. The CIT(Appeals) further held that the consideration was not supported by adequate documentary evidence and the deed of transfer was finally executed only on 15.11.2016, well after the relevant period. Relying upon the decision of the Hon’ble Supreme Court in CIT v. Balbir Singh Maini [2017] 86 taxmann.com 94 (SC), the CIT(Appeals) held that the arrangement dated 15.01.2014 could neither be treated as a valid agreement for transfer nor as evidence of purchase of a residential property for the purposes of section 54 of the Act.

5. In relation to the addition of ₹1,00,74,915 made under section 64(1)(iv) of the Act, the CIT(Appeals) observed that the assessee had transferred 51% of his ownership rights in the property to family members, including his spouse, without consideration through a gift deed executed only a short time before the sale of the property. According to the CIT(Appea ls), the timing and manner of the transfer clearly showed that there was an attempt to reduce tax liability by splitting the capital gains among family members. The CIT(Appeals) held that, by virtue of section 27 of the Act, the assessee continued to be the deemed owner of the property transferred to the spouse and therefore the capital gains arising therefrom were liable to be clubbed in his hands under section 64(1)(iv) of the Act. The CIT(Appeals), therefore, sustained the addition made by the Assessing Officer under the clubbing provisions.

6. As regards the expenditure incurred in connection with the transfer of the property, the CIT(Appeals) upheld the restriction of legal and brokerage expenses to ₹6,86,000 on the ground that the assessee’s ownership interest in the property was only 49% and therefore only proportionate expenditure could be allowed against his share of the capital gains. The contention that the assessee had voluntarily borne the entire expenditure under a family arrangement was rejected by CIT(A) on the ground that such private understanding could not override the statutory scheme governing computation of capital gains. However, with respect to consultancy fees of ₹2,24,720 paid to Ganesh & Rajendra Associates, the CIT(Appeals) accept ed that the assessee had produced bank statements showing payment and that the expense had actually been incurred. The Assessing Officer was therefore directed to allow consultancy charges proportionate to the assessee’s share, resulting in relief of ₹1,10,113. Accordingly, while the grounds relating to deduction under section 54 of the Act, clubbing of capital gains and legal/brokerage expenses were dismissed, partial relief was granted in respect of consultancy fees and the appeal was partly allowed.

7. The assessee is in appeal before us against the order passed by CIT(Appeals).

8. We have heard the rival contentions and perused the material available on record.

9. The principal controversy arising in Ground No. 2 relates to the assessee’s claim for deduction under section 54 of the Act amounting to ₹2,00,00,000. The Assessing Officer denied the claim on the ground that the assessee had acquired only “rights” in a “future property” and had not invested in an identifiable residential house within the period prescribed under section 54 of the Act. The Ld. CIT(Appeals) has affirmed the aforesaid view by holding that the arrangement dated 15.01.2014 was an unregistered document and therefore could not be regarded as evidence of purchase of a residential house.

10. Upon careful consideration of the facts and documents placed on record, we are unable to subscribe to the view adopted by the AO and ld. CIT(A). It is an undisputed fact that the original residential property was sold on 26.11.2013 and the assessee, together with the co-owners, invested an aggregate sum of ₹5,00,00,000 in a new residential property project. The chronology of events placed at page 64 of the Paper Book clearly demonstrates that immediately after the sale of the original residential property, an amount of ₹5,00,00,000 was paid towards acquisition of a new residential unit through Mrs. Bela Vipul Shah in the redevelopment project being undertaken by Parinee Realty Pvt. Ltd. Out of the said investment, the assessee’s share was ₹2,00,00,000, being the amount claimed as deduction under section 54 of the Act. The said investment was made on 15.01.2014, which was within the period prescribed under section 54 of the Act.

11. We further find that the registered Deed of Transfer executed on 15.11.2016 itself supports the assessee’s case that an identifiable residential property existed. Clause G of the registered Deed specifically records that the Transferor (Ms Bela Vipul Shah) was the holder of five shares in Amrit Jeevan Co-operative Housing Society and by virtue thereof was entitled to Flat No. A-7 in the existing building. The clause further shows that pursuant to redevelopment, the Transferor became entitled to a residential unit, namely Flat No. 303 admeasuring 1161 sq. ft. carpet area in Wing A of the new building known as “11 West”. Thus, the subject matter of transfer was never an uncertain or unidentified future asset. The rights acquired by the assessee were always linked to a specific and identifiable residential unit. Clause “U” of the registered Deed notes that during his lifetime Shri Rajesh Amin, along with the transferees, had approached the developer and invested funds in certain projects of the developer and, upon such transactions not materialising, negotiated with Mrs. Bela Vipul Shah for acquisition of the shares and rights attached to the new flat. The said clause specifically records that the amounts earlier paid to the developer were, at the request of the parties, remitted towards consideration for acquisition of the said shares and the new flat and that the entire arrangement was recorded by way of a agreement dated 15.01.2014. Therefore, the registered document itself acknowledges not only the existence of the arrangement dated 15.01.2014 but also the payment of consideration and the acquisition of rights in a specific residential flat. Once these facts are accepted in a registered instrument, it cannot simultaneously be contended that the assessee had not purchased a residential property or that the investment was made in an unidentifiable asset.

12. The Assessing Officer and CIT(Appeals), in our considered view, have proceeded on a highly technical interpretation of section 54 of the Act. The provision is a beneficial provision enacted to promote investment in residential housing and therefore deserves to receive a liberal construction. The Hon’ble Supreme Court in CIT vs. T.N. Aravinda Reddy (1979) 120 ITR 46 (SC) held that the expression “purchase” occurring in section 54 of the Act must be given its ordinary and practical meaning and cannot be interpreted in a narrow or pedantic manner. The Court held that acquisition of rights in a residential property for consideration would constitute purchase for the purposes of section 54 of the Act. Similarly, in CIT vs. Podar Cement Pvt. Ltd. (1997) 226 ITR 625 (SC), the Hon’ble Supreme Court recognised that beneficial ownership and domain over property are relevant considerations and that strict legal title is not always decisive for Income-Tax purposes. The Hon’ble Delhi High Court in CIT vs. Kuldeep Singh (2014) 270 CTR 561 (Del.) held that allotment of a residential flat and payment of substantial consideration is sufficient compliance with section 54 of the Act and actual possession or execution of a conveyance deed within the stipulated period is not mandatory. Similar principles were laid down by the Hon’ble Karnataka High Court in CIT vs. Sambandam Udaykumar (2012) 345 ITR 389 (Kar.), wherein it was held that section 54 of the Act being a beneficial provision must be interpreted liberally and substantial investment in a residential house within the prescribed period is sufficient compliance. Reference may also be made to the decision of the Hon’ble Bombay High Court in CIT vs. Mrs. Hilla J.B. Wadia (1995) 216 ITR 376 (Bom.), wherein acquisition of rights in a flat under an agreement with a builder was held sufficient for claiming exemption under section 54 of the Act. In this case, the Bombay High Court observed as under:

Quote

“Under the terms of the agreement of the assessee with the society, the assessee obtained a right to take possession of a specific flat bearing Nos. 7-A and B on the seventh floor of the said society. The assessee under the terms of the agreement had no right to cancel the agreement or claim any damages. Thus, the assessee acquired substantial domain or control over the above flat by virtue of making almost the entire payment relating to the cost of construction of this flat to the society within a period of two years from the date when the assessee and her husband conveyed the original property to the society.

In these circumstances, we have to see whether the assessee has complied with the requirements of section 54 of the Income-tax Act, 1961, as then in force. The material part of sect ion 54 at the relevant time was as follows:

“Section 54. Profit on sale of property used for residence. — Where a capital gain arises from the transfer of a capital asset…. being buildings or lands appurtenant thereto the income of which is chargeable under the head ‘Income from house property’, which in the two years immediately preceding the date on which the transfer took place, was being used by the assessee …. mainly for the purposes of his own …. residence, and the assessee has within a period of one year before or after that date purchased, or has within a period of two years after that date constructed, a house property for the purposes of his own residence, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section. …”

In the present case, the assessee had transferred the property in which she had a half share and which was being used for the purpose of her residence to the society. The question is whether she can be said to have constructed a house property for the purpose of her residence within a period of two years from that date. This provision will have to be construed in the context of the manner in which such residential properties are now being constructed in a city like Bombay where, looking to the cost of the land, co-operative housing societies are being formed for constructing a building in which flats are allotted to the members. This must also be viewed as a method of constructing residential tenements. What we have to see is whether the  assessee has acquired a right to a specific flat in such a building  which is being constructed by the society and whether she has  made a substantial investment within the prescribed period which  will entitle her to obtain possession of the flat so constructed and  in which she intends to reside. The material test in this  connection is domain over the flat and investment in it. The assessee satisfies both these conditions. She has acquired such a domain and has invested almost the entire requisite amount in it within a period of two years prescribed under section 54.

In this connection, our attention was drawn to a circular of the Central Board of Direct Taxes bearing No. 471 (see [1986] 162 ITR (St.) 41), dated October 15, 1986, which dealt with the investment in flats under the self-financing scheme of the Delhi Development Authority. The Board has stated in the circular that when an allotment letter is issued to an allottee under this scheme on payment of the first instalment of the cost of construction, the allotment is final unless it is cancelled. The allottee, thereupon, gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking delivery of possession is only a formality. The Board has directed that such an allotment of a flat under this scheme should be treated as a case of construction for the purpose of capital gains. The present case is on a much stronger footing because there is not merely an allotment of the flat but even almost the entire cost of construction is paid by the assessee within a period of two years ”.

Unquote

14. In the present case, there is no allegation that any part of the sale consideration remained unaccounted for or that the investment of ₹2,00,00,000 claimed by the assessee was not actually made. The source of investment is fully explained, the payment is evidenced, the rights acquired relate to a specific residential flat and such acquisition is also reflected and confirmed in the registered Deed of Transfer. The subsequent execution of the Deed of Transfer on 15.11.2016 merely formalised the rights which had earlier been acquired pursuant to the arrangement dated 15.01.2014. Therefore, the date relevant for the purposes of section 54 of the Act is the date on which the assessee invested and acquired enforceable rights in the residential unit and not the date on which the formal conveyance was eventually executed.

15. In these circumstances, we hold that the assessee had substantially complied with all the requirements of section 54 of the Act and was entitled to deduction of ₹2,00,00,000 as claimed. The disallowance made by the Assessing Officer and sustained by the Ld. CIT(Appeals) is accordingly directed to be deleted. Ground No. 2 raised by the assessee is allowed.

Another issue is related to the addition of ₹1,00,74,915 made by invoking the provisions of section 6 4(1)(iv) of the Act in respect of capital gains shown by the assessee’s wife, Smt. Anju Rajesh Amin (Ground No. 5)

16. The undisputed facts are that by a registered Gift Deed dated 18.10.2013, the assessee transferred 17% undivided share in the residential property to his wife without consideration. Subsequently, the property was sold on 26.11.2013 and capital gains attributable to such share amounting to ₹1,00,74,915 were offered to tax by Smt. Anju Rajesh Amin in her return of income. The primary contention of the assessee is that capital gains do not fall within the ambit of section 64(1)(iv) of the Act and therefore no clubbing could be made in the hands of the assessee.

17. We are unable to accept the aforesaid contention. Section 64(1)(iv) of the Act specifically provides that in computing the total income of an individual, there shall be included all such income as arises directly or indirectly to the spouse from assets transferred directly or indirectly to the spouse otherwise than for adequate consideration. The expression “income” employed in section 64 of the Act is of wide amplitude and derives its meaning from section 2(24) of the Act. Clause (vi) of section 2(24) specifically includes capital gains chargeable under section 45 of the Act within the ambit of income. Therefore, there is no statutory basis to exclude capital gains from the operation of section 64(1)(iv) of the Act.

18. The legal position stands concluded by the judgment of the Hon’ble Supreme Court in SevantilalManeklal Sheth vs. CIT (1968) 68 ITR 503 (SC) , wherein the Court held that capital gains arising from assets transferred to the spouse without consideration are liable to be included in the income of the transferor spouse under the clubbing provisions. The facts were that the assessee had gifted shares to his wife. After the gift, the wife became the owner of those shares. The wife herself sold the shares. The sale resulted in capital gains of ₹70,860. The Revenue sought to club those capital gains in the hands of the husband under section 16(3)(a)(iii) of the 1922 Act (the predecessor provision to section 64(1)(iv) of the 1961 Act). The argument advanced before the Supreme Court was substantially similar to the argument arising in the instant case, namely that capital gains arise from the act of sale and therefore arise from the sale transaction and not from the gifted asset itself. The Supreme Court rejected this contention and held that although the wife sold the shares and the capital gain arose on such sale, the gain nevertheless “arose” from the asset originally transferred by the husband. Therefore, the capital gains were liable to be clubbed in the husband’s hands. The Hon’ble Supreme Court held that the spouse may be the legal owner and actual transferor of the asset at the time of sale, yet the resultant capital gains can still be clubbed in the hands of the transferor spouse under section 64 of the Act, because the gains arise from the asset earlier transferred without consideration. The Hon’ble Supreme Court explained that once the income can be traced to the transferred asset, the nature of such income, including capital gains, would not take it outside the scope of the clubbing provisions. In the present case, the capital gain arose directly from the very asset gifted by the assessee to his spouse. Therefore, the requisite nexus contemplated by section 64(1)(iv) stands fully established.

19. However, we find force in the alternate contention raised by the assessee. The record clearly shows that the assessee’s wife had not only offered the capital gains to tax but had simultaneously invested ₹1,00,00,000 in the new residential project and claimed deduction under section 54 of the Act. The chronology of events placed on record shows that out of the aggregate investment of ₹5,00,00,000 made in the new residential property, ₹2,00,00,000 was invested by the assessee and ₹1,00,00,000 each was invested by his wife, son and daughter. Thus, the capital gain of ₹1,00,74,915 sought to be clubbed by the Revenue was accompanied by an investment of ₹1,00,00,000 made by the spouse in the very same residential project for the purpose of claiming exemption under section 54 of the Act.

20. Once the Revenue seeks to invoke section 64 of the Act and bring the spouse’s capital gains into the hands of the assessee, the entire computation mechanism attached to such income must necessarily follow. It is impermissible to club only the income component while ignoring the corresponding deductions and exemptions lawfully available in respect of such income. The Hon’ble Supreme Court in CIT vs. J.H. Gotla (1985) 156 ITR 323 (SC) held that statutory provisions must be interpreted in a manner that avoids unjust and absurd results.

21. In the present case, had the capital gain remained assessable in the hands of Smt. Anju Rajesh Amin, the corresponding deduction under section 54 of the Act arising from her investment of ₹1,00,00,000 in the new residential property would necessarily have been available. Therefore, once the capital gain of ₹1,00,74,915 is brought to tax in the hands of the assessee by virtue of section 64(1)(iv) of the Act, the corresponding benefit under section 54 of the Act attached to such capital gain must also be granted in the hands of the assessee. Any other view would result in taxation of an amount larger than the taxable capital gain that actually arose under the Act and would defeat the scheme of computation of capital gains.

22. Accordingly, while we uphold the applicability of section 64(1)(iv) of the Act and the clubbing of capital gains of ₹1,00,74,915 in the hands of the assessee, we direct the Assessing Officer to allow consequential deduction under section 54 of the Act in respect of the investment of ₹1,00,00,000 made by Smt. Anju Rajesh Amin in the new residential property. Subject to the aforesaid direction, Ground No. 5 is partly allowed.

Ground Nos. 3 and 4 relate to the disallowance of transfer expenses comprising legal charges, brokerage and consultancy fees.

23. We have carefully considered the rival submissions and perused the material available on record. The assessee has consistently maintained that, under a family understanding, he alone agreed to bear and in fact paid the entire expenditure connected with the transfer of the property. The record shows that legal fees, brokerage and consultancy charges aggregating to ₹16,24,720 were paid by the assessee. The assessee produced supporting documents viz. invoices and bank statements evidencing payment, and the genuineness of the expenditure has not been disputed by the Revenue. The basis adopted by the Assessing Officer for restricting the deduction was that the assessee held only 49% ownership in the property.

24. In our view, the approach adopted by the lower authorities is too narrow in the peculiar facts of the present case. Once it is demonstrated that the entire expenditure was actually incurred and paid by the assessee and such factual position remains undisputed, the deduction cannot be artificially restricted merely by applying a proportion based on ownership share. This conclusion is further reinforced by the fact that, while invoking section 64(1)(iv) of the Act, the Revenue itself has clubbed the capital gains attributable to the assessee’s wife in the hands of the assessee. Having treated the spouse’s share of capital gains as assessable in the hands of the assessee, it would be inconsistent and inequitable to deny the corresponding transfer expenditure that was admittedly borne by the assessee in connection with the very same transaction.

25. Looking at the totality of facts, namely, (i) the actual incurrence and payment of the expenditure by the assessee, (ii) the absence of any dispute regarding genuineness of such expenditure, and (iii) the clubbing of the spouse’s share of capital gains in the assessee’s hands, we hold that the assessee is entitled to deduction of the entire expenditure of ₹16,24,720 under section 48 of the Act. The disallowance made by the Assessing Officer and sustained in part by the Ld. CIT(Appeals) is therefore directed to be deleted. Ground Nos. 4 and 6 are

23. In the combined result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 10.06.2026