Son wins 54F tax case on inherited land from mother

Mr Patel, from Surat, Gujarat, owns half of his late mother's land in Althan, a 9,510 sq. meter plot originally purchased for Rs 21.17 lakh in 2008. In 2017, he legally converted this land into a business asset for his real estate enterprise. After conversion, Patel claimed a long-term capital gain (LTCG) of Rs 5.06 crore, but did not pay any tax on it.

Mr Patel's exemption from tax on the LTCG was based on his claim that he had constructed a house for Rs 5.06 crore, which offset the LTCG under Section 54F of the Income Tax Act. However, the Income Tax Assessing Officer rejected his claim, and the Income Tax Appellate Tribunal (ITAT) Surat also ruled against him.

The ITAT Surat, however, ruled in Mr Patel's favor, stating that he could claim Section 54F tax exemption even when the land was used for business stock before the LTCG was invested. The tribunal referred to CBDT Circular No. 359 which supports the broader principle that a capital gains exemption should not be denied merely because an eligible investment was made before the formal transfer.