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Facts
The assessee sold a residential property and claimed capital gains exemption under Section 54 and Section 54F of the Income Tax Act for purchasing two flats, which were considered as a single residential unit. The Assessing Officer denied exemption under Section 54F, partly due to purchasing another property within a year of the original asset's transfer and also denied the claim for indexed cost of improvement.
Held
The Tribunal held that purchasing multiple flats in the same building can be construed as acquiring a single residential unit for the purpose of exemption under Section 54F. The Tribunal allowed the exemption claimed under Section 54F for Rs. 2,99,47,240. The issue of indexed cost of improvement was left unadjudicated as it had no consequence on the already allowed exemption.
Key Issues
Whether purchasing multiple units in the same building can be considered as a single residential house for claiming exemption under Section 54F, and whether the denial of indexed cost of improvement impacts the capital gains exemption.
Sections Cited
54, 54F, 250, 55, 139, 45
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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI NARENDER KUMAR CHOUDHRY & SHRI PRABHASH SHANKAR
O R D E R Per : Narender Kumar Choudhry, Judicial Member:
This appeal has been preferred by the Assessee against the order dated 17.10.2024, impugned herein, passed by the Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2018-19.
In the instant case, the Assessee sold a residential property at DEONAR on dated 13.12.2017 on a total consideration of Rs.5,56,00,000/- and earned the capital gain of Rs.3,30,86,396/- and claimed the same as exempt within the provision of section 54 of the Act, for the purchase of a residential house property at Runwal Greens numbered as T-6/1402.
Further, the Assessee also transferred her capital asset in the form of office premises at Santacruz on dated 07.07.2017 on a total sale consideration of Rs.4,50,00,000/- with a indexed cost of acquisition at Rs.1,47,82,609/- and consequently earned the capital gain of Rs.2,99,47,240/- and out of which claimed the amount of Rs.2,67,36,488/- qua purchase price of residential house at Runwal Greens numbered as T-6/1502, as exempt under the provisions of section 54F of the Act.
Though the Assessing Officer (AO) allowed the exemption claimed by the Assessee to the tune of Rs.3,30,86,397/- u/s 54 of the Act for the purchase of residential house property numbered as T-6/1402 (Runwal Greens), however, denied the exemption claimed by the Assessee u/s 54F of the Act, for the residential property i.e. T-1502(Runwal Greens), mainly on the following reasons:
“That all the provisions i.e. a(i), a(ii) & a(iii) of section 54 are distinguished in nature as they are separated by the word “or” which means that if the Assessee fails to satisfy either of these clauses, then the Assessee is not eligible for the exemption within the provision of section 54 of the Act. In the instant case of the Assessee, the Assessee has failed to satisfy the clause a(ii) of the proviso to section 54 of the Act, therefore she is not eligible to claim the exemption within the provision of section 54F of the Act. As the Assessee has purchased residential house at Runwal Greens numbered as T-6/1402 on dated 13.12.2017, therefore within the clause a(ii) of the proviso to sub section (1) of section 54 of the Act, the Assessee is not eligible for the deduction claimed u/s 54F of the Act. As the Assessee has purchased another residential house i.e. T-6/1402 within a period of one year after the date of transfer of original asset on 07.07.2017, hence the claim of exemption of the Assessee within the provision of section 54 of the Act of Rs.2,67,36,488/- is denied”.
4.1 Further, the AO also denied the amount of Rs.50,81,123/- being claimed by the Assessee as indexed cost of improvement mainly on the following reason:
“That the Assessee could not submit any documentary evidence in support of its claim of cost of improvement i.e. claim of expenditure incurred for the additions and alterations made to the capital asset. Again the Assessee submitted only the copy of invoices of payment made to securities, which cannot be accepted as expenses incurred on additions and alterations made to the asset”.
The Assessee, being aggrieved, challenged the said additions made by the AO, on account of disallowances of claims made u/s 54F of the act and indexed cost of improvement i.e. claim of expenditure incurred for the additions and alterations made to the capital asset/residential property at Deonar, by filing first appeal before the Ld. Commissioner, however of no avail, as the Ld. Commissioner affirmed the aforesaid additions/disallowances by dismissing the appeal of the Assessee and therefore the Assessee being aggrieved is in appeal before this Court.
The Assessee has claimed that there is no bar to claim the exemption u/s 54 & section 54F of the Act simultaneously. Further, the condition prescribed in the provision of section 54F of the Act (i) restricts owning of more than one residential house other than the new asset on the date of transfer of the original asset and therefore jumping to clause (ii) which prescribes “that if the Assessee purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset, then the provisions contained in section 54F of the Act would not apply”, is not a correct interpretation. The Assessee further submitted that even otherwise the Assessee had purchased two flats i.e. T-6/1402 & T-6/1502 down and above as “duplex house” and there is no bar to purchase two units in the same building consisting one, at a time. The Assessee in support of its claim also relied on various judgments passed by various courts.
6.1 With regard to the claim of cost of improvement/claim of expenditure incurred for the additions and alterations made to the capital asset, the Assessee has submitted that the Assessee had purchased the property at Deonar on dated 01-04-2001 i.e. before more than 17 years from the date of sale made on dated 13.12.2017 on a consideration of Rs.5,56,00,000/-, on which the Assessee has claimed the indexed cost of improvement of Rs.50,81,123/- u/s 55 of the Act. The Assessee successively spent the said amount in the successive years i.e. more than 10 years from the date of the purchase of the property and duly submitted the relevant documents during the assessment proceedings. However, still the AO doubted the said claim of expenditure, which is even otherwise having no effects on the claim of exemption u/s 54 of the Act, as the AO has allowed the complete capital gain, as claimed by the Assessee.
On the contrary, the Ld. D.R. vehemently supported the orders passed by the authorities below. The Ld. D.R. further claimed that the Authorities below have correctly applied the law as applicable to the peculiar facts and circumstances of the case and therefore no fault can be faulted with the orders passed by the authorities below. The Ld. D.R. also argued that Hon’ble Bombay High Court in the case of Commissioner of Income Tax vs. Raman Kumar Suri [2013] 29 taxmann.com 231 (Bombay) has decided the issue that deduction u/s 54 & 54F of the Act can be claimed by the Assessee in case of conjoint residential property, only in a case when two flats (residential property) were joined before the Assessee became owner of said property. In the instant case, it is clear from the purchase agreements for the two flats in Runwal Greens, being T-6/1402 and T-6/1502 that the same were not joined on or before the date of acquisition by the Assessee i.e. on or before 13.12.2017, the date on which the Assessee became owner of said properties. The above said two flats were separate units as per the purchase deeds and the Assessee has not been able to show the plans passed by the Municipal Corporation of Greater Bombay, when these facts were joined before 13.12.2017.
The Ld. D.R. also refuted the claim of the Assessee raised u/s 55 of the Act, with regard to the cost of improvement by submitting that the Assessee has not substantiated her claim qua cost of improvement. Even otherwise, the exemption u/s 54 of the Act has been allowed by the AO to the tune of Rs.3,30,86,397/- in total as claimed by the Assessee and therefore disallowance on account of improvement of indexed cost to the tune of Rs.50,81,123/- having no effect on the claim of exemption u/s 54 of the Act, which infact has already been allowed.
We have heard the parties and perused the material available on record. Coming to the denial of claim u/s 54 of the Act, we observe that the AO by taking refuge of the clause a(ii) to proviso to section 54F(1) of the Act and mainly on the reason that the Assessee during the assessment year under consideration and within a period of one year, after the date of transfer of original asset on 07.07.2017, has also purchased a residential house i.e. T- 6/1402 (Runwal Greens) by claiming exemption of capital gain of Rs.3,30,86,397/- earned on sale of house property at Deonar on dated 13.12.2017 for a total sale consideration of Rs.5,56,00,000/- and therefore the Assessee is not entitled for the claim of exemption within the provision of section 54F of the Act to the tune of Rs.2,67,36,488/-, which was claimed as long term capital gain being exempt. For brevity and ready reference, the provisions of section 54F of the Act are reproduced herein below:
“54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this sub-section shall apply where— (a) the assessee,— (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property": 59[Provided further that where the cost of new asset exceeds ten crore rupees, the amount exceeding ten crore rupees shall not be taken into account for the purposes of this sub-section.]
Explanation.—For the purposes of this section,— "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred. (4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub- section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall 60[, subject to the second proviso to sub-section (1)] be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i) the amount by which— (a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid: 60[Provided further that the net consideration in excess of ten crore rupees shall not be taken into account for the purposes of this sub- section.] Explanation. —[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]” 8.1 From the clause a(i) it appears, if the Assessee owns more than one residential house, other than the new asset, on the date of transfer of the original asset, then the Assessee shall not be entitled for the claim of exemption u/s 54 of the Act. As per clause a(ii), if the Assessee purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset, then also the Assessee is not entitled to claim the exemption u/s 54F of the Act.
8.2 The Assessee has claimed that she had purchased two units i.e. 1402 & 1502 on a total consideration amount of Rs.7,60,00,000/- {Rs. 380,00,000/- each} for both the flats being duplex on the very same date i.e. 08.12.2017 and paid the amount of Rs.5,00,00,000/- (Rs. Five Crores) vide HDFC bank cheque no. 745086 dated 08-12-2017 towards earnest money, as it appears from the allotment letter dated 08-12-2017 and receipt (bill of supply) dated 11-12-2017 and agreed to pay balance amount of Rs. 2,60,00,000/- and subsequently got executed the agreements for sale dated 12.12.2017, which were subsequently got registered on dated 13.12.2017 from the office of Sub Registrar Kurla-Bandra, Mumbai. There is no bar for claiming both the exemptions u/s 54 & 54F of the Act simultaneously and therefore the Assessee claimed the exemptions u/s 54 & 54F of the Act simultaneously.
8.3 We observe that the only controversy for not denying the benefit u/s 54F of the Act by the Revenue Authorities is that the clause a(ii) of the proviso to sub section (1) of section 54 of the Act is attracted in the instant case, because the Assessee has also purchased another property within a period of one year after the date of transfer of original asset on dated 07.07.2017 and therefore the Assessee is not entitled for the claim of exemption u/s 54F of the Act.
On the basis of decisions made by the Authorities below and rival claims of the parties, following question emerge for consideration:
“Whether the claim u/s 54F the Act can be allowed qua purchase of multiple floors/flats/units in the same building being part of one house OR multiplex house consisting of multiple floors/flats/units in the same building”.
We observe that the Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs. Gita Duggal (2013) 30 taxmann.com 230 (Del.) has also dealt with the identical issue, wherein the Assessee purchased several independent residential units consisting of basement, ground floor, first floor & second floor and claimed the same as one unit of house, being exempt u/s 54 of the Act, which was denied by the then AO. On appeal, the then Ld. CIT(A) allowed the claim of the Assessee and the decision of the Ld. CIT(A) subsequently affirmed by the Tribunal and therefore the Revenue Department went in appeal before the Hon’ble High Court.
10.1 The Hon’ble High Court affirmed the decision of the Tribunal by interpreting and holding that there is nothing in sections 54/54F, which requires the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for the commercial use. If there is nothing in the section, which requires that the residential house should be built in a particular manner, and therefore the Income Tax Authorities cannot insist upon that requirement. A person may construct a house according to his plans and requirement. Most of the houses are constructed according to the needs and requirements and even compulsions.
10.2 The aforesaid judgment of the Hon’ble High Court of Delhi subsequently affirmed by the Hon’ble Apex Court by dismissing the appeal filed by the Revenue Department, vide order reported in (2014) 52 taxmann.com 246 (SC).
We further observe that Hon’ble Bombay High Court in the case of Commissioner of Income Tax-12 Vs. Raman Kumar Suri (supra) has also dealt with the identical issue “wherein the Assessee had purchased two flats bearing numbers 416A and 516A situated at Mittal Park, Juhu, Mumbai, which were joined together and made into one flat and consideration of which was claimed as deduction u/s 54 of the Act”, however, the same was denied by the AO. On appeal, the then Ld. CIT(A) allowed such claim of the Assessee by considering two flats bearing No.416A & 516A as one unit, being duplex. On appeal, the Tribunal affirmed the decision of the Ld. Commissioner in allowing the claim of the Assessee u/s 54 of the Act. Subsequently, on appeal by the Department, the Hon’ble High Court affirmed the decision of the Tribunal in affirming the decision of the then Ld. CIT(A) in holding “that where the Assessee has acquired one residential house consisting of two flats, it cannot be said that the Assessee had purchased two residential houses”.
We further observe that Hon’ble Karnataka High Court in the case of Navin Jolly [2020] 117 taxmann.com 323 (Karnataka) has also dealt with the provision of section 54F(1) of the Act and the issue wherein the Assessee owned two apartments of 500 sft. in the same building and therefore the Hon’ble High Court treated two apartments as one residential unit and ultimately allowed the claim of the exemption sought by the Assessee u/s 54F(1) of the Act.
The Hon’ble High Court of Andhra Pradesh in the case of Commissioner of Income Tax-II, Hyderabad Vs. Syed Adil, dealt with a situation, wherein the Assessee had purchased two adjacent flats separately and claimed the consideration amount of the same as exempt u/s 54 of the Act. The Hon’ble High Court affirmed the decision of the Tribunal, in allowing such exemption by holding that even though flats are located on different floors, when they could be combined, it should be construed as single residential accommodation only.
13.1 The Hon’ble Andhra Pradesh High Court has also considered the decision of the Hon’ble Karnataka High Court in the case of D. Ananda Basappa (2009) 180 taxmann.com 4 (Kar.) wherein Hon’ble Karnataka High Court has held that the expression “a residential house” in section 54(1) of the Act has to be understood in a sense that building should be of residential nature and “a” should not be understood to indicate a singular number and where an Assessee had purchased two residential flats, he is entitled to exemption u/s 54 in respect of capital gains on sale of its property on purchase of both the flats, also when the flats are situated side by side and the builder has affected modification of the flats to make it as one unit, despite the fact that the flats were purchased by separate sale deeds.
From the aforesaid analyzations and the judgments of the Hon’ble High Courts, it has become clear that the claim u/s 54F of the Act can be allowed qua purchase of multiple floors/flats/units being part of one house in the same building OR duplex or triplex house consisting of multiple floors/flats/units in the same building. Thus, the question posed is answered accordingly.
Coming to the instant case, the Assessee had purchased two flats down and above being duplex, as claimed and established through payment receipt of Rs. 5,00,00,000/- (Rs. Five crores) vide HDFC bank cheque no. 745086 dated 08-12-2017 towards earnest money, out of total amount of consideration of Rs. Rs.7,60,00,000/, coupled with bank statements, allotment letter and registered agreements for sale dated 12-12-2017 registered on dated 13-12- 2017 etc.. It is admitted fact that the Assessee has sold another residential property situated at DEONAR only on 13-12-2017, whereas both the flats were purchased on 08-12-2017 by making substantive payment of Rs. 5,00,000,000/- (Rs. Five Crores) as earnest money and executing the Sale Agreements on dated 12-12- 2017, therefore the said fact, also supports the case of the Assessee that the Assessee had purchased 02 flats in the same building being one unit, as residential house on the very same day i.e. 08-12-2017. Even otherwise, there is no evidence is available on record to controvert such clam of the Assessee and therefore it cannot be construed that the Assessee has purchased any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset. Thus bar as prescribed under clause a(ii) of section 54F(1) of the Act, would not be applicable to the instant case.
15.1 For the sake of brevity, we again reiterate that Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs. Gita Duggal (supra) has categorically held “that there is nothing in the sections 54 and 54F of the Act, which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, then the income tax authorities cannot insist upon that requirement. A person may construct a house according to his plans and requirements”.
15.2 The Hon’ble Delhi High Court also reminded “that most of the houses are constructed according to the needs and requirements and even compulsions. For instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post- retirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. Therefore, the fact that the residential house consists of several independent units, cannot be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. It is neither expressly nor by necessary implication prohibited”.
15.3 We reiterate as observed above that the Hon’ble High Court of Andhra Pradesh in the case of Commissioner of Income Tax-II, Hyderabad Vs. Syed Adil, (supra) has also dealt with a situation wherein the Assessee had purchased two adjacent flats separately and claimed the consideration amount of the same as exempt u/s 54 of the Act. The Hon’ble High Court affirmed the decision of the Tribunal in allowing such exemption by holding that even though flats are located on different floors, when they could be combined, it should be construed as single residential accommodation only.
15.4 The Hon’ble Karnataka High Court in the case of D. Ananda Basappa (2009) 180 taxmann.com 4 (Kar.) as well, has held “that the expression “a residential house” in section 54(1) of the Act has to be understood in a sense that building should be of residential nature and “a” should not be understood to indicate a singular number and where an Assessee had purchased two residential flats, he is entitled to exemption u/s 54 in respect of capital gains on sale of its property on purchase of both the flats situated side by side and purchased by separate sale deeds”. Admittedly, the provisions of section 54 of the Act are beneficial provisions for the benefits of the Assessees and therefore the same are requires to be construed liberally and thus liability cannot be fastened on the Assessee, to prove its case by strict proof. And therefore simply on the reason that the Assessee has not shown the sanctioned plan as claimed by the Ld. DR and therefore the Judgment in the case of Commissioner of Income Tax- 12 Vs. Raman Kumar Suri, is not applicable to the instant case, is not enough to disallow the bonafide claim of the Assessee, which has otherwise duly been established by the Assessee by producing relevant documents and in view of various judgments referred to above, relevant to the issue as involved in the case.
Thus, on the aforesaid analyzations and considerations, the claim of the Assessee to the tune of Rs.2,99,47,240/- as claimed being exempt u/s 54F of the Act, is liable to be allowed. Thus, the same is allowed. Consequently, the addition of Rs.2,99,47,240/- made by the AO and affirmed by the Ld. Commissioner, is deleted.
Coming to the second issue, which pertains to the claim of Rs.50,81,123/- being indexed cost of improvement. As noted above, both the parties have submitted that as the AO has already allowed the total amount of Rs.3,30,86,397/- as claimed on account of capital gain, being exempt u/s 54 of the Act and therefore denial of Rs.50,81,123/- being indexed cost of improvement, in effect, has no consequence and therefore we are inclined not to go into the controversy with regard to such claim as adjudication of the same would prove to be futile exercise. Thus, the same is left un- adjudicated.
In the result, the Assessee’s appeal is partly allowed.
Order pronounced in the open court on 23.05.2025.