ITAT: Builder’s Contractual Rebate Not Taxable as Income; Registration of Sale Deed Not Mandatory for Section 54F Exemption

February 25, 2026 : The Income Tax Appellate Tribunal (ITAT), New Delhi has held that a contractual rebate or discount granted by a real estate developer under the terms of a buyer’s agreement cannot be treated as taxable income in the hands of the purchaser under Section 56 of the Income Tax Act. The Tribunal also clarified that registration of a conveyance deed is not a mandatory requirement to claim exemption under Section 54F if the buyer has acquired substantial rights and possession of the residential property.

The Division Bench comprising Judicial Member Anubhav Sharma and Accountant Member Manish Agarwal delivered the ruling while allowing the appeal filed by the assessee, Satya Prasan Rajguru, against the order passed by the National Faceless Appeal Centre (NFAC).

The dispute arose for the assessment year 2021-22. The assessee had filed a revised return declaring total income of ₹1.94 crore and claimed deduction of ₹9.65 crore under Section 54F against long-term capital gains arising from the sale of shares of an unlisted company. The gains were invested in the purchase of a residential apartment in “The Camellias” project in Gurugram, for a total agreed consideration of about ₹32.95 crore.

During the assessment proceedings, the Assessing Officer denied the exemption under Section 54F on the ground that the assessee allegedly owned more than one residential property on the date of transfer of the capital asset. The officer further treated a rebate of ₹9.81 crore received from the developer, DLF Limited, as taxable income under the head “Income from Other Sources” under Section 56 of the Act.

The NFAC upheld the additions, observing that the rebate appeared excessive and could indicate an arrangement between the buyer and the builder. It also held that since the purchase deed for the apartment had not yet been registered in the assessee’s name, the conditions for claiming exemption under Section 54F were not satisfied.

Before the Tribunal, the assessee argued that the rebate was not an arbitrary benefit but part of the contractual terms of the apartment buyer’s agreement. The rebate included several components such as down-payment rebate, move-in rebate, special rebate, and timely payment rebate, which were offered as commercial incentives by the developer for early payments and prompt possession.

The Tribunal noted that the rebate was clearly stipulated in the buyer’s agreement and was not granted after the transaction was completed. It observed that such rebates are common in high-value real estate transactions and are intended to encourage timely payments and early occupation of the property. Therefore, the concession could not be treated as income earned by the purchaser.

The Bench also examined the applicability of Section 56(2)(x), which deals with deemed income arising from purchase of immovable property for a consideration lower than the stamp duty value. It found that the assessee had actually paid ₹23.13 crore for the apartment, whereas the stamp duty value of the property was about ₹14.68 crore as per the applicable circle rate. Since the purchase consideration was substantially higher than the stamp duty value, the provisions relating to deemed income were not attracted.

Accordingly, the Tribunal held that the rebate of ₹9.81 crore could not be treated as income from other sources and deleted the addition made by the tax authorities.

On the issue of exemption under Section 54F, the Tribunal rejected the contention that the assessee owned more than one residential property. It noted that the assessee had transferred his undivided share in two properties — one in “The Magnolias”, Gurugram and another in Geetanjali Enclave, New Delhi — to his wife through gift deeds executed in 2017 and 2018, well before the sale of shares in 2020 that resulted in the capital gains.

The Tribunal observed that the assessee had originally held only a half share in those properties as a co-owner with his wife. The transfer merely converted the wife’s status from co-owner to full owner and could be regarded as part of a family arrangement rather than a colourable device to obtain tax benefits.

The Bench also clarified that co-ownership of a property does not automatically disqualify a taxpayer from claiming exemption under Section 54F.

Addressing the objection that the newly purchased apartment had not been registered, the Tribunal held that the concept of “purchase” under Section 54F must be interpreted pragmatically. Once the buyer has made substantial payments and obtained possession and rights of enjoyment over the property, the requirement of purchase can be considered fulfilled even if the conveyance deed has not yet been registered.

In view of these findings, the Tribunal concluded that the tax authorities had erred both in treating the rebate as taxable income and in denying the deduction under Section 54F. The additions made by the Assessing Officer and upheld by the NFAC were therefore deleted and the assessee’s appeal was allowed.

Case Title: Satya Prasan Rajguru vs DCIT
Case No.: ITA No. 2550/Del/2025