- Saroj Goenka saved Rs 26 crore tax on LTCG by investing in a new residential property.
- The Assessing Officer denied exemption citing existing properties and prior construction start.
- ITAT Kolkata ruled in Goenka's favor, allowing exemption under Section 54F on capital gains.
A ruling by the Income Tax Appellate Tribunal (ITAT) Kolkata has caught social media's attention after a woman managed to legally save Rs 26 crore in taxes on her investment. Kolkata-based Saroj Goenka, linked to the promoter family of Emami, a well-known FMCG giant, sold her block of 36 lakh shares in 2020 for about Rs 33.77 crore and booked long-term capital gains (LTCG) of approximately Rs 26,77 crore, an amount that would trigger a hefty tax running into crores in ordinary circumstances.
Immediately after booking the profits, Goenka invested the proceeds into building a residential bungalow in Queens Park, Kolkata. Since the construction was completed within three years of the date of sale, Goenka claimed 100 per cent of the capital gain as tax-exempt under Section 54F of the Income Tax
The Assessing Officer (AO), however, did not agree with the clever financial engineering by Goenka and denied the exemption. The AO claimed that Goenka, the assessee in the case, already owned two residential properties, which violated the conditions set under Section 54F.
Additionally, the construction on her property had started years before the sale of shares, meaning no exemption should be provided. Lastly, the sale proceeds were not directly used for construction. Consequently, the tax officials served a tax notice of Rs 3 crore to Goenka.
The case then reached ITAT, where Goenka received the ruling in her favour. The 'D' bench of ITAT Kolkata highlighted that Goenka possessed properties that are jointly owned or land that is not classified as residential. It added that the timeframe for completing the construction is stipulated in the law, but there is no provision for when it should start.
Goenka's attorneys also successfully proved that there is no requirement that the same sale proceeds must be directly used for construction.
"Considering the facts and circumstances of the assessee...we hold that the assessee is entitled to exemption of capital gain invested in the construction of new property. Therefore, we are inclined to set aside the Ld. CIT(A) and direct the AO to delete the addition by allowing exemption u/s 54F as claimed by the assessee," the ITAT declared.
What Is Section 54F?
According to Section 54F of Income Tax, an individual can claim tax exemption on LTCG by selling assets like mutual funds, shares, gold or bonds (excluding a residential house) and reinvesting the net sale proceeds into buying or buying a residential house in India within a three-year window.
Though it may seem like a financial loophole, this provision is designed to incentivise housing investments. However, taxpayers must meet strict conditions, and under the amended law, exemptions are capped at Rs 10 crore. This limit was introduced in the Union Budget 2023 via the Finance Act, 2023.
