A resident of Koramangala, Bengaluru who sold 17 apartments during April 1, 2019-March 31, 2020, and earned capital gains of ₹11.8 crore has won a tax dispute after he contested tax notices issued by the income tax department due to non-payment of income tax on these gains.
Even though the landowner made substantial profits from the property sales, he did not pay any income tax on these gains as he claimed Section 54 tax exemption on the grounds that he had re-invested all of the ₹11.8 crore gains to acquire five new residential properties, which included four purchased ready-made and one constructed property, The Economic Times reported.
The income tax department, however disagreed with his claim, leading to a prolonged tax dispute between the two parties.
What caused the dispute?
According to the submission, the Bengaluru resident owned two large parcels of land in Kumbena Agrahara. He entered into an agreement with a builder for the development of some properties on those areas.
Under the agreement, the builder constructed two apartment complexes on these land parcels and, in return, allotted 76 apartments in the first project and 46 apartments in the second to the landowner.
He subsequently filed his (ITR) on February 15, 2021, where he had declared a total income of ₹1.76 crore. However, his ITR was subjected to scrutiny under CASS (Computer-Assisted Scrutiny Selection), following which he was slapped with tax notices and proceedings were also held.
The income tax assessing officer (AO) concluded the proceedings on March 30, 2022, and restricted his Section 54 tax exemption claim to investment in one property, which he had purchased for ₹5.91 crore. The remaining capital gains worth ₹5.88 crore ( ₹11,80,61,786 – ₹5,91,80,000) was added back to his income for tax purposes.
Unsatisfied by the order of the AO, the landowner appealed before the CIT(A)-15, Bengaluru. On June 24, 2025, the authority dismissed his appeal and held the AO’s decision to allow tax exemption under Section 54 to only one residential house property.
Still aggrieved by the order, the complainant finally filed an appeal before the ITAT Bangalore. On June 29, 2026, he won the case.
ITAT rules in Bengaluru landowner’s favour
The Income Tax Appellate Tribunal () ruled that where gains arise from the sale of multiple residential houses, the Section 54 tax exemption can be claimed separately for each such transfer, subject to the number of new houses not exceeding the number of houses sold.
of the Income Tax Act, 1961, allows taxpayers to claim an exemption on long-term capital gains arising from the sale of a residential property, given they reinvest the funds in purchasing or constructing another residential house in India. However, the government had amended this provision to restrict the tax exemption claim to investment in only one residential house.
The landowner argued that each of the 17 apartment sales was a separate capital gains transaction, as every flat qualified as an independent capital asset under the Income-tax Act. Therefore, he contended, the limitation introduced by the government through the amendment to Section 54 does not apply to his case. The ITAT Bangalore accepted his argument and ruled in his favour.