If you sell a house in Mumbai and buy another to save tax, the brokerage you pay on the new flat can reduce your capital gains bill — but only if it is paid in the right way.
The Income Tax Appellate Tribunal, Mumbai, has held that a second cheque to the same broker’s Hindu Undivided Family (HUF) does not become part of the cost of the new house. That means it will not help your section 54 claim.
The order was pronounced on 1 September 2026 in Anjani Ashok Parikh v. Income Tax Officer, Ward 34(1)(1), Mumbai (ITA No. 6650/Mum/2025, Assessment Year 2021-22). The Bench of Pawan Singh (Judicial Member) and Girish Agrawal (Accountant Member) partly allowed the appeal. Jewellery of ₹67.40 lakh was taken out of tax. Brokerage of ₹12 lakh paid to an HUF was not.
For homebuyers and sellers, the second finding is the one to read carefully.
First, what is a section 54 claim?
When you sell a residential house that you have held for more than 24 months, the profit is long-term capital gain. Tax on that gain can be large.
Section 54 of the Income-tax Act gives relief if you:
- sell a residential house, and
- buy or construct another residential house in India within the allowed time.
Time limits are simple:
- buy the new house 1 year before or 2 years after the sale, or
- construct it within 3 years of the sale.
If you cannot buy at once, park the gain in a Capital Gains Account in a bank before the ITR due date, then use that money to buy the new house.
The exemption is linked to the cost of the new house.
If the new house costs as much as the gain, the gain can be fully exempt (subject to other limits).
If the new house costs less, only that much of the gain is exempt. The rest is taxed.
So every genuine rupee spent on buying the new house matters. Stamp duty, registration and real brokerage for finding that house can be added to its cost. A higher cost means a smaller tax bill.
That is the “section 54 claim”: you tell the tax department that part of the profit from the old house has gone into a new house, so do not tax that part.
The Juhu sale behind this case
In January 2021, Anjani Ashok Parikh and two co-owners sold Plot No. 20, Rajkamal Bungalow, 10th Road, JVPD Scheme, Juhu / Vile Parle West, for ₹106 crore. Her one-third share was ₹35.33 crore.
Gain on her share was about ₹30.87 crore. She used two tax routes:
- ₹50 lakh in REC bonds under section 54EC (a separate bond option, capped at ₹50 lakh)
- about ₹20.52 crore under section 54, through a Capital Gains Account and purchase of a flat in Juhu Acropolis, in the same JVPD area
After both claims, she offered about ₹9.85 crore as taxable gain. Declared income: ₹10.21 crore.
The Department did not deny that she had bought a new house. It questioned what she included in the price of that house.
The brokerage split that created the problem
She claimed ₹30 lakh brokerage as part of the cost of the Juhu Acropolis flat. It was paid to three parties:
- ₹12 lakh to Abhiraj Ajit Rao, in his personal name
- ₹12 lakh to Ajit Rao HUF
- ₹6 lakh to Anuradha P. Muranjan
Only the HUF payment of ₹12 lakh was disallowed.
The Assessing Officer’s point was this: finding a flat, taking the buyer for visits and negotiating the price is personal work. An HUF is a family unit, not a person who walks a site. The same man, Abhiraj Ajit Rao, had already been paid ₹12 lakh in his own name for the same deal. The second cheque to his HUF looked like an extra payment, not an extra service.
The first appellate authority agreed. The seller then went to the Tribunal.
What she argued
Her lawyer said:
- the tax officer had written to Ajit Rao HUF under section 133(6)
- the HUF confirmed it had received ₹12 lakh
- it had bills and accounts
- it had shown the amount as business income in its own tax return
- an HUF works through its Karta, so it can earn brokerage
- if the HUF has already paid tax on that money, disallowing it in her hands would tax the same amount twice
She also relied on an earlier Mumbai ITAT order which said there is no blanket ban on paying commission to an HUF.
What the Tribunal held — in plain words
ITAT did not say an HUF can never be a broker. It said: show that the HUF itself did extra work. In this file, that proof was missing.
The Bench used old Supreme Court tests on when money belongs to an individual and when it belongs to an HUF. The idea is simple:
- If a family member earns money because family funds were put into a business, that income can belong to the HUF.
- If he earns money because of his own skill — contacts, site visits, negotiation — that income belongs to him, even if a second invoice is raised in the HUF’s name.
Looking for a Juhu flat and closing the price is personal work. The Tribunal found no evidence that Ajit Rao HUF had invested family money to earn this fee. The work, on her own telling, was done by one person. That person had already been paid ₹12 lakh.
A second ₹12 lakh cheque in the HUF’s name did not prove a second service.
The HUF’s confirmation under section 133(6) only proved receipt. It did not prove that the HUF, separate from the already-paid Karta, had done anything more for the buyer.
Why “but the HUF paid tax” does not save you
This is the mistake many sellers make.
Tax paid by the broker’s HUF is the HUF’s problem.
Whether you can add that fee to the cost of your new house is your problem.
The two assessments are different. ITAT said one does not fix the other. If the payment is not a genuine cost of your new house, it cannot enter the section 54 working, even if the recipient has offered it to tax.
Ground no. 2 was dismissed. The ₹12 lakh stays out of the exemption.
How to pay brokerage if you want the tax benefit
What the Department accepted in this case
- brokerage paid to the individual who did the work
- brokerage paid to a third person, which was not challenged
What it rejected
- an equal second payment to the same broker’s HUF
- the argument that a tax return filed by the HUF is enough
- the argument that “HUFs can receive commission” without showing a separate service
A practical checklist for sellers
- Pay the person who actually found the house and closed the deal.
- Take an invoice in that person’s name, with PAN and a bank transfer.
- Write on the bill what was done: property identified, visits arranged, price negotiated.
- Do not split one job into “individual + HUF” only to increase the cost of the new house.
- If you must pay an HUF, keep proof of what the HUF did that the individual did not already do. A receipt alone will not do.
- Remember: this fight was about brokerage on the new house, which you want to add to section 54 cost. Brokerage on the house you sold is a different line in the capital gains working.
The other finding in the same order
The same assessment had also added ₹67,39,949 as unexplained jewellery under section 69A. She had disclosed it in Schedule AL after the bungalow sale pushed her income above ₹50 lakh.
ITAT deleted that addition. Old wealth-tax returns, valuation reports from 1989, estate workings, a 2015 family division of ancestral jewellery and a 2022 valuer’s report with photographs were held to be a sufficient trail. Not filing wealth-tax returns after 1997-98 did not, by itself, prove the jewellery had been sold.
So she won on jewellery and lost on the HUF brokerage. The appeal was partly allowed.
What this means if you are selling and buying
Section 54 is still available. Selling one house and buying another in time can still cut your tax.
What this order changes is the paperwork around the broker.
In big Mumbai deals, brokerage of 1 per cent or more is common. Once that fee is pushed into the cost of the new house, every extra lakh reduces taxable gain. The Tribunal has now said the Department can ask a basic question: who did the work, and have you already paid that person?
A second cheque to the same broker’s HUF, with no extra work shown, will not save capital gains tax.
Also Read: Mumbai Co-op Housing Society Wins Rs 8.23 Lakh Tax Battle After Filing Return a Day Early
