The Delhi High Court while ruling in favour of the Income Tax Department held that two flats purchased on two different floors cannot be considered as ‘A Residential House’.
The bench of Justice Vibhu Bakhru and Justice Swarana Kanta Sharma upheld the order of the ITAT in which it was held that since the two flats purchased by the assessee were on two different floors and were neither adjacent to each other nor they could have been joined to form a dwelling house, the same could not be considered as ‘a residential house’. The assessee could claim exemption under Section 54F only in respect of one flat.
The bench observed that the assessee was eligible for a partial exemption under Section 54F, in respect of the higher amount invested in the flats, while the remaining amount would be chargeable to tax as long term capital gain.
The bench noted that ‘a residential house’ under Section 54F of the Act was never meant to cover multiple residential units. Be that as it may, this Court is not venturing into the question, initially projected by the assessee, that whether the amendment to Section 54F of the Act was clarificatory or not.
The court interprets ‘a’ or ‘one‘ or ‘singular’ item, entity, object, person, etc. and will not indicate ‘more than one’ or ‘many’. In case the legislature intended to use it in plural connotation, it would have used the word ‘assets‘ instead of ‘a new asset’, and not used the article ‘a’ before the term ‘residential house’.
The appellant/assessee had inherited a property after the demise of her husband in 2005, which had been initially purchased in the year 1983. The assessee sold the Plot during the AY 2013-14. From its sale proceeds, the assessee purchased two apartments.
The assessee filed her return of income for the AY 2013-14, declaring her income as Rs.7,37,560, comprising income of ₹41,565/- as Income from Business, and ₹7,05,996/- as Income from Other Sources. The assessee calculated her Income from Capital Gain at ₹77,21,957/-, after deducting Indexed Cost of ₹53,043/- from the total sale consideration of the Plot of ₹77,75,000/-. The assessee, however, claimed the said income as exempt under Section 54 of the Income Tax Act, or in alternative, under Section 54F of the Income Tax Act.
The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) and a notice under Section 143(2) was issued to her on 23.09.2014. Subsequently, a letter was issued by the learned Assessing Officer wherein it was stated that the sale deed of the Plot indicated that the Plot was a mere piece of land without any structure thereon and thus, the same was only a long term capital asset, and not a residential house.
Therefore, the benefit under Section 54 of the Act could not be claimed. The AO noted that insofar as the alternative claim under Section 54F was concerned, since the assessee had purchased two residential properties i.e. two flats in Noida, the benefit under Section 54F of the Act could also not be claimed.
In response, the assessee furnished her reply stating that to the best of her information, a small dwelling unit had been constructed on the Plot.
The ITAT thus held that the assessee was eligible for a partial exemption under Section 54F of the Act, in respect of the higher amount invested in the flats, while the remaining amount would be chargeable to tax as long term capital gain.
The assessee contended that the term ‘a residential house’ under Section 54F of the Act should be interpreted to include multiple residential units within the same property or house, thereby allowing the exemption on both the residential units i.e. two flats acquired by the assessee.
The assessee relied on the case of Commissioner of Income-tax v. Gita Duggal in which it was held that even if a residential house consisted of multiple floors or units, it could still qualify as a single residential house for the purpose of the exemption, particularly in cases of redevelopment of the plot. The interpretation applies to the present case, as the two flats purchased by the assessee are within the same tower, despite being on separate floors.
The court held that the appellant’s purchase of two distinct, non-adjacent flats, located on diagonally opposite ends of two different floors, even though in a same tower of a residential society, does not fulfill the criteria for exemption under Section 54F of the Act. While it is true that the words ‘a residential house’ used in Section 54F (prior to amendment) were judicially interpreted to allow certain flexibility in cases where more than one residential unit could, in essence, form a single residential house, as seen in Gita Duggal. However, this was premised on the possible practical use of the residential units as a unified residence, the characteristics which are absent in the present case.
The court while dismissing the appeal did not find error in the ITAT’s decision to grant exemption under Section 54F in respect of only one of the two flats purchased by the appellant.
Case Details
Case Title: Mrs. Kamla Ajmera Versus Pr. Commissioner Of Income Tax
Case No.: ITA 246/2019
Date: 03.12.2024
Counsel For Appellant: Harshit Chauhan
Counsel For Respondent: Sanjay Kumar
