Deduction under Section 54F is available when capital gains are reinvested in a residential property, subject to specified conditions. One of the key conditions is that the individual must not own more than one residential house (other than the new asset) on the date of transfer of the original asset.
In the case report Sumanth Badiga vs. Dy CIT [2026] 183 taxmann.com 252 (Hyderabad – Tribunal) dated 06-02-2026, the assessee owned one residential house in India and two residential properties outside India. The case was selected for revision under Section 263 by the Commissioner of Income tax.
In appeal before the Tribunal, the assessee contended that the residential properties situated outside India should not be considered while applying the restrictive proviso to Section 54F(1).
The Tribunal remanded the matter to the Assessing Officer for proper verification.
Importantly the Department in this case argued that the proviso to Section 54F(1) must be strictly interpreted. It relied upon a reported Tribunal decision involving identical facts.
On the other hand, the assessee submitted that the proviso should be construed harmoniously with the main provision so as to advance the legislative intent. He argued that the section must be read as a whole — including the proviso — in a manner that ensures harmonious construction. The assessee also relied on an unreported Tribunal decision.
This issue now remains open to further litigation. However, given the current legislative environment, where retrospective amendments are not uncommon, taxpayers may need to exercise caution before making such debatable claims or may opt for updated returns to ease future litigations.
On the contrary it is also settled that the Commissioner of Income tax has no power to invoke section 263 and revise an assessment on subjects that are debatable in nature. [2026] 183 taxmann.com 97 (Mumbai – Trib.)[02-02-2026).