An income tax assessee is eligible for capital gains tax exemption under section 54F of the Income Tax even if the assessee did not receive legal title of the newly purchased property due to factors beyond his or her control, the Telangana High Court held.Pronouncing verdict in an appeal challenging the Income Tax Appellate Tribunal order confirming the decision of Hyderabad IT officials imposing penalty for evading capital gains tax, a division bench of the HC held the section 54F in essence was a ‘beneficial piece of provision and has to be liberally construed’. The bench of Justices P. Sam Koshy and Narsinga Rao Nandikonda said the ITAT order was ‘bad in law, arbitrary and therefore illegal’ while setting it aside.A Non-Resident Indian, the petitioner Mettu Sudhakar Reddy — along with 45 others — entered into a joint development agreement with a real estate developer pertaining to 4.5 acres of land in Gutttalabegumpet coming under Serilingampally of Rangareddy district in 2016. The petitioner’s share of income from the agreement was calculated as ₹64.57 lakh over which capital gains tax was to be imposed. As the petitioner did not file IT returns for the year 2016-17, the IT officials issued notices to him to pay the capital gains tax.The petitioner’s counsel, appearing before the IT officials, contended that his client was eligible to claim exemption from capital gains tax under section 51F of the IT Act. However, the IT authorities did not agree with the petitioner’s stand stating that he had not yet received legal title of the villa he had purchased through the agreement with the developers. The petitioner explained that due to differences between the partners of the developers, the villa was not delivered on time and the registration process was not completed.The bench held the IT authorities cannot deny the benefit of tax exemption if the registered sale deed was not executed due to reasons beyond the control of the assessee. Published - August 04, 2026 09:27 pm IST