Motwani sold a block of unlisted shares in 2021, realizing ₹8.31 crore in long‑term capital gains. Within a month, she wired ₹6.91 crore to purchase a residential plot on Juhu Tara Road, Mumbai, through her husband's sole proprietorship, HP Trading. She claimed the investment under Section 54F, expecting the gains to be exempted. The purchase was fully documented, with a registered transfer deed and stamp duty paid.
The Income Tax Department refused to honour the exemption, issuing a notice on December 30, 2022 under Section 143(3) and 144B. The assessing officer argued that the transaction was a colourable device, linking Motwani's ₹6.92 crore claim to her husband's short‑term gains of ₹4.85 crore and subsequent set‑off of ₹3.56 crore against business losses. The department treated the two transactions as a coordinated scheme to shift tax liabilities between spouses.
On July 17, 2026, the Income Tax Appellate Tribunal reversed the assessment. The tribunal found no evidence that the purchase was pre‑arranged as a tax avoidance tool; the consideration had been paid and the deed was registered. It ruled that Section 54F permits a spouse to acquire property from the other and claim exemption, provided the usual conditions are met.
"The tribunal was clear that the transaction was bona fide," said chartered accountant Suresh Surana. "The lack of a statutory bar and the presence of proper documentation meant the tax department's claim was untenable." Surana added that this decision could influence future cases where spouses transfer assets.
Motwani, who still lives at her husband's parental home, says the ruling relieves her of a heavy tax burden that could have strained her family's finances. She explains that the property was intended as a long‑term investment and a potential rental, not a primary residence.
The tax department may file a review petition, but the ruling sets a precedent that spouses can legitimately transfer assets without triggering a disallowed exemption. The case will be closely watched by other taxpayers considering similar moves.