Introduction

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, in its order dated 9 September 2025, delivered an important ruling on the availability of capital gains exemption under Section 54F of the Income-tax Act, 1961 to a private trust. The Tribunal held that where a trust is created for the benefit of identified beneficiaries, and the capital gains earned by the trust are reinvested in a residential property, the exemption under Section 54F cannot be denied merely because the investment is routed through the trust rather than directly by the individual beneficiaries. This decision clarifies the treatment of private trusts for the purpose of claiming capital gains exemptions and provides much-needed certainty to taxpayers and estate planners using trust structures.

Case snapshot

Case name / CITation (reported): ACIT v. Merilina Foundation — [2025] (reported in Taxmann / TMI summaries). Decision date: 9 September 2025.

Facts (short)

• The assessee was a private trust created for identified beneficiaries (not a public/charitable trust).
• The trust sold a flat and realized long-term capital gains.
• The trust invested the sale proceeds in a residential house and claimed exemption under Section 54F of the Income-tax Act.

Issue before ITAT

Whether a private trust / AOP with identified beneficiaries is eligible to claim exemption under Section 54F (which, on its face, speaks of exemption available to an individual/HUF) when the trust invests capital gains in a residential house.

Tribunal’s reasoning (essentials)

• The Tribunal examined the character of the trust: since beneficiaries were identified, the trust was not a charitable/public AOP but a private trust where income is attributable to beneficiaries.
• If the trust had not existed, the very same transaction (sale → reinvestment) would have been carried out in the names of beneficiaries, who would have been entitled to sec. 54/54F relief. The tribunal applied substance over form and looked at the beneficial ownership/attribution.
• On that basis the Tribunal held that there is no legislative bar to allowing sec. 54F relief to such private trusts/AOPs where amounts are, in substance, income of the beneficiaries.

Holding / Outcome

Sec. 54F exemption upheld — the private trust was allowed exemption from capital gains tax under Section 54F because the capital gains (and reinvestment) were, in substance, attributable to identified beneficiaries.

Practical implications (for practitioners / trustees)

1. Private trusts with identified beneficiaries may claim sec. 54F (and similar capital-gains exemptions) if the facts show beneficial attribution to beneficiaries.
2. Documentation evidencing beneficiary identification, beneficial interest, and the chain of funds (sale proceeds → reinvestment) will be important to substantiate the claim before AO/CIT/Tribunal.
3. Revenue may still contest such claims on facts (e.g., differences in timing, diversion of funds, or if trust resembles an AOP/public trust). So fact-specific analysis matters.