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Facts
The assessee sold an industrial plot and invested the capital gains in purchasing a residential property. The Assessing Officer denied exemption under Section 54F, stating the assessee already owned more than one residential house, considering each floor as a separate unit. The assessee contended that different floors of the same house do not constitute separate residential units.
Held
The Tribunal held that the expression 'a residential house' under Section 54F refers to a single residential house, and different floors of the same building, even if capable of independent use, are not to be considered separate residential houses. Thus, the assessee was eligible for the exemption.
Key Issues
Whether different floors of a single residential building can be considered as separate residential units for the purpose of denial of exemption under Section 54F of the Income Tax Act.
Sections Cited
54F, 46A, 234B, 234C
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Income Tax Appellate Tribunal, DELHI BENCH “C”, DELHI
Before: SHRI VIKAS AWASTHY & SHRI M. BALAGANESH
Assessee by : Shri Nirbhay Mehta & Ms. Vanshika Mehta, Advocates, S/Shri Anup Mehta & Hitesh Ambani Chartered Accountants Department by : Shri Om Prakash, Sr. DR सुनवाई क� ितिथ/ Date of hearing : 02/07/2025 घोषणा क� ितिथ/ Date of pronouncement : : 23/09/2025 आदेश/ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-38, Delhi [in short ‘the CIT(A)’] dated 16.02.2018, for Assessment Year 2014-15.
Shri Nirbhay Mehta, Advocate appearing on behalf of the assessee narrating facts of the case submitted that, the assessee was the sole owner of free hold Industrial plot bearing no. 71/7 situated at Industrial Area, Najafgarh Road, New Delhi admeasuring 400 sq yards. The assessee sold aforesaid plot (original capital asset) to four persons by way of separate registered sale deeds for an aggregate sale (A.Y. 2014-15) consideration of Rs.2,62,00,000/-. The details of date of sale and the buyers along with sale consideration is as under:- Sr. No Date of execution of Area in sq yard Name of buyer Full value of sale deed consideration as per sale deed 1 26.04.2013 55 sq yard Reeta Kandhari Rs.36,00,000/- 2 26.04.2013 55 sq yard Sumit Kandhari Rs.36,00,000/- 3 03.07.2013 140 sq yard Monica Rastogi Rs.98,00,000/- 4 03.07.2013 150 sq yard Rajesh Kumar Rs.92,00,000/- Total Rs.2,62,00,000/- The aforesaid sale deeds are available at page no. 27 to 98 of the paper book. The assessee along with her husband as co-owner had acquired part of residential property bearing no. 5/21 at Roop Nagar, Delhi in the year 2011 vide two registered sale deeds of even date i.e. 11.02.2011. The said sale deeds are at pages 140 to 157 of the paper book. The property purchased in joint names in the year February 2011 comprised of ground floor plus one half of the first floor, plus one half of second floor. Thereafter, on 22.04.2013 the assessee along with her husband purchased remaining one half share in the first floor and one half share in second floor of the residential property bearing no. 5/21 at Roop Nagar, Delhi for a total consideration of Rs.2,10,00,000/ and claimed deduction u/s. 54F of the Income Tax Act,1961(hereinafter referred to as ‘the Act’) on the capital gains arising on the sale of original asset i.e. industrial plot at Najafgarh Road, Delhi. The assessee’s claim of exemption u/s. 54F of the Act was rejected by the Assessing Officer (AO) for the reason that the assessee was already having a residential house. Since, each floor of the residential house is independent of each other, therefore, each floor constitutes a separate residential unit. Consequently, the assessee is having more than one residential house. The conditions laid down u/s. 54F of the Act is not satisfied as the assessee is not eligible for the benefit of exemption u/s. 54F of the Act. To rebut the (A.Y. 2014-15) findings of AO, the ld. Counsel submitted that each floor of the residential house does not constitute a separate residential unit. In support of his submissions, the ld. Counsel placed reliance on the decision in the case of PCIT vs Lata Goyal, 174 taxmann.com 535 (Del.). 2.1. The ld. Counsel for the assessee further pointed that the AO in para 4a and 4b of the assessment order has erred in recording the fact that the property 5/21, Roop Nagar, New Delhi was purchased by the assessee in her own name and there is no other co-owner of the said property. Referring to the sale deeds, the ld. Counsel pointed that it is clearly mentioned in the sale deeds dated 11.02.2011 and dated 22.04.2013 that the property was purchased in the joint names of Nagesh Jain s/o Milap Chand Jain and Smt. Jyoti Jain w/o Shri Nagesh Jain. He further pointed that the AO has erred in recording the fact that the assessee in her return of income for AY 2009-10 has shown income from house property. Referring to the return of income for AY 2009-10 filed by the assessee, the ld. Counsel asserted that the assessee has not declared any income from house property in the return of income for AY 2009-10. The AO has recorded wrong facts while making the assessment. 2.2. The ld. Counsel further submitted that in ground no. 5 of appeal, the assessee has assailed findings of the CIT(A) in confirming disallowance of Rs.1,51,74,950/- on account of cost of construction. The ld. Counsel submitted that admittedly during assessment proceedings, the assessee could not furnish relevant documents to substantiate cost of construction. The assessee while filing appeal before the CIT(A) also filed an application u/s. 46A of the Act and furnish additional evidences pertaining to investment of Rs.1,51,74,950/- towards construction of house no. 5/21, Roop Nagar, Delhi. The CIT(A) has not given any finding on the said issue.
(A.Y. 2014-15) 3. Per contra, Shri Om Prakash representing the department vehemently defended the impugned order and prayed for dismissing appeal of the assessee. The ld. DR submitted that the provisions of section 54F of the Act are plain and unambiguous. The benefit of exemption u/s. 54F of the Act is available only where the assessee does not own more than one residential house other than the new asset on the date of transfer of original asset. It is assessee’s own admission that the assessee owns residential house comprising of ground floor, first floor and second floor. Each floor is an independent residential unit thus the assessee owned more than one residential house at the time of purchase of remaining one half of share of first and second floor of residential house.
Both sides heard, orders of the authorities below examined and the documents referred to by the assessee during the course of submissions considered. It is an undisputed fact that during the period relevant to assessment year under appeal, the assessee sold one industrial plot admeasuring 400 sq yard for a total consideration of Rs.2,62,00,000/-. The assessee invested capital gain arising from the sale of original asset towards purchased of residential property bearing no. 5/21, Roop Nagar, Delhi comprising of one half share of first and ½ share of second floor for a consideration of Rs.2,10,00,000/-. The said residential property was purchased jointly by the assessee with her husband. It is also an admitted position that the assessee jointly with her husband in the year 2011 had already purchased part of the residential property bearing no. 5/21, Roop Nagar, Delhi comprising of ground floor plus one half share of first floor and one half share in the second floor. Now, the assessee vide sale deed dated 22.04.2013 purchased remaining part of residential house i.e. one half share of first floor and one half share in the second floor and claimed deduction u/s. 54F of the Act on the capital gains arising from sale of original (A.Y. 2014-15) asset. The Revenue has denied benefit of deduction u/s. 54F of the Act solely for the reason that the assessee is already having more than one residential house on the date of sale of original asset. To come to such conclusion, the AO treated each floor of residential house as separate residential unit. Such approach of the Assessing Officer is flawed. The Hon’ble Jurisdictional High Court in the case of PCIT vs. Lata Goyal (supra) while dealing with somewhat similar issue after placing reliance on various decisions held:- “19. It is clear from the above that separate floors of the singular house bearing the address D-6/5 Vasant Vihar, New Delhi, were purchased by the family members of the Assessee. The fact that different floors may be owned or partly owned would not detract from the fact that the portions owned were required to be considered 'one residential house'.
In CIT v. D. Ananda Basappa [2009] 180 Taxman 4/309 ITR 329 (Karnataka), the Karnataka High Court considered the admissibility of exemption under Section 54 of the Act in a case where the Assessee had sold a residential house and purchased two adjacent apartments. The Court held that "the expression 'a' residential house should be understood in a sense that building should be of residential in nature and 'a' should not be understood to indicate a singular number". However, in the facts of the said case, the court noted that two apartments had been joined to make one unit by opening a door between the two apartments and therefore, the same could be construed as one unit.
In Pawan Arya v. CIT [2011] 11 taxmann.com 312/200 Taxman 66 (Punjab & Haryana)/2010 SCC OnLine P&H 12590, the court distinguished the decision in D. Ananda Basappa (supra) and stated that the exemption under Section 54F of the Act would not be applicable where the units are located at two different locations. In the aforesaid context, the court observed as under:- "4. As regards claim for exemption against acquisition of two houses under Section 54 of the Act, the same is not admissible in plain language of statute. In the judgment of Karnataka High Court in CIT v. D. Ananda Basappa [2009] 309 ITR 329 (Kar), referred to in the impugned order, exemption against purchase of two flats was allowed having regard to the finding that both the (A.Y. 2014-15) flats could be treated to be one house as both had been combined to make one residential unit. The said judgment, thus, proceeds on a different fact situation."
It is also relevant to refer to the decision of the coordinate bench of this court in CIT v. Gita Duggal [2013] 30 taxmann.com 230/214 Taxman 51/357 ITR 153 (Delhi)/2013 SCC OnLine Del 752 where this court has held as under: - "11. There could also be another angle. Section 54/54F uses the expression "a residential house". The expression used is not "a residential unit". This is a new concept introduced by the Assessing Officer into the section. Section 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the section should be taken to have been satisfied. There is nothing in these sections 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, it seems to us that the Income-tax authorities cannot insist upon that requirement. A person may construct a house according to his plans and requirements. 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 postretirement. 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. We are therefore, unable to see how or why the physical structuring of the new (A.Y. 2014-15) residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house. We do not think that the fact that the residential house consists of several independent units can 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."
This court in Mrs. Kamla Ajmera v. Pr. CIT [2024] 169 taxmann.com 119 (Delhi)/Neutral Citation No.: 2024:DHC:9342-DB, referred to the decision in Geeta Duggal (supra), and held that in certain circumstances, multiple residential units may be considered as a single residential house for the purposes of exemption under Section 54F of the Act. The court observed as follows: - "39. This assumes significance in the backdrop of our opinion that the word 'a' used in Section 54F of the Act denotes one singular residence, along with the caveat that in case the floors or houses are so constructed as to be used as one singular unit or capable of being used as such, they may fall within the definition of a residential house."
The Madras High Court also held a similar view in CIT v. Gumanmal Jain [2017] 80 taxmann.com 21/394 ITR 666 (Madras)/2017 SCC OnLine Mad 13653.
The aforesaid decisions were rendered in the context of construing whether the new asset purchased is 'a residential house' - an expression used in Section 54 and 54F of the Act. However, the said decisions would be equally applicable for construing the term 'one residential house' as used in clause (i) of the proviso to Section 54F of the Act. We say so because in Pawan Arya (supra) as well as in Gita Duggal (supra) and Mrs Kamla Ajmera (supra), the term 'a residential house' has been construed to mean 'one residential house'. We find it difficult to accept that, in the given facts, different floors of a house are required to be considered as multiple residential houses.
In view of the above, we find no infirmity with the decision of the learned ITAT in holding that the Assessee could not be denied the deduction under Section 54F of the Act on the ground that she holds more than one residential unit.”
The Hon’ble Delhi High Court thus made it clear that the expression ‘residential house’ used in section 54F of the Act denotes one residential house and different floors of the one residential house cannot be considered as separate (A.Y. 2014-15) residential houses. In light of facts of the case and the decision referred above, we find merit in the ground no. 2 of appeal. The AO is directed to grant benefit of exemption u/s. 54F of the Act to the assessee in the impugned assessment year. The assessee succeeds on ground no. 2 of appeal.
The second issue raised in the appeal by way of ground no. 5 is disallowance of Rs.1,51,74,950/- on account of cost of construction claimed by the assessee. Undisputedly, no material was placed by the assessee before the AO. To substantiate expenditure incurred on construction of a residential house, the assessee furnished additional evidences before the CIT(A) and filed application under Rule 46A for admissions of additional evidences. This fact is emanating from the impugned order para 3.1 where the submissions of the assessee are recorded by the CIT(A). The assessee had filed application dated 25.09.2017 under Rule 46A for the admission of additional evidences pertaining to investment of Rs.1,51,74,950/- towards construction of house on plot no. 5/21 Roop Nagar, Delhi. The assessee has raised a specific ground of appeal
i.e. ground no. 11 before the CIT(A). However, we see no finding of the CIT(A) on the said ground of appeal. Therefore, we deem it appropriate to restore this issue to the CIT(A) for consideration. The CIT(A) shall decide the issue after affording reasonable opportunity of making submissions to the assessee, in accordance with law. In the result, ground no. 5 of appeal is allowed for statistical purpose.
7. In so far as grounds of appeal no. 1, 3, 4, 6 and 7 are concerned, they are in support of the primary issues raised in ground no. 2 and 5 of appeal, hence, require no separate adjudication.
(A.Y. 2014-15) 8. In ground no. 8 of appeal, the assessee has assailed charging of interest u/s. 234B and 234C of the Act. Levy of interest u/s. 234B and 234C of the Act are mandatory and consequential, hence, ground no. 8 of appeal is dismissed.