Assessee[1] is an individual and has inherited a property after the demise of her husband in 2005, which had been initially purchased in the year 1983. During AY 2013-14, the assessee sold the inherited property for ₹77,75,000/-. Out of the sale proceeds, the assessee purchased two apartments, i.e. A-1501 and A-1602 in Noida for a consideration of ₹44,13,775/- and ₹42,39,275/- respectively.
While filing the return of income for AY 2013-14, the assessee claimed exemption under section 54 or in the alternative, under section 54F of the IT Act on the capital gains arising from sale of inherited property.
During the assessment proceedings, Assessing Officer (“the AO”) sent a letter wherein it was stated that the sale deed of the original property (i.e. inherited property) indicated that the it was a plot which 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 further noted that insofar as the alternative claim under Section 54F of the Act 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 to the AO’s letter, the Assessee furnished her reply on stating that to the best of her information, a small dwelling unit had been constructed on the Plot.
The AO thereafter sought information under Section 133(6) of the Act from the purchasers of the original property, who informed that they had purchased only a piece of plot, and were raising a construction on the said Plot. The assessee, subsequently, reiterated that the Plot would qualify as a residential house, and that after selling the Plot, she had purchased two flats in the same society. However, the assessee also stated that if it was to be assumed that the Plot was a vacant land and could not be called as a residential house, then the assessee would be eligible for the benefit under Section 54F of the Act, inter alia, on the ground that the entire consideration was invested by her in ―the residential property having two numbers 1501 & 1602 but comprising of one house She further stated that in many other cases, more than one flat had been considered as a residential house‘ by the Revenue or held as such by the Courts. Assessee placed reliance on following decisions:
- Decision rendered by High Court of Madras in case of Gumanmal Jain[2], wherein it was held that the exemption under Section 54F of the Act could apply to multiple apartments purchased as long as the same were located within the same address or location, on the same piece of land, and their division into separate units or blocks did not disqualify them from exemption under Section 54F of the Act.
- Decision of High Court of Karnataka in case of Ananda Basappa[3]
- Decision of the Coordinate Bench in Gita Duggal[4], wherein 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.
AO thereafter, deputed an Inspector to make inquiries with regard to the two flats purchased by the assessee. The Inspector submitted his report on 02.11.2015, inter alia, stating that the two flats were located on two different floors at two different ends in the same block/tower of the society.
After considering the material on record and the submissions made on behalf of the assessee, the AO passed an assessment order under Section 143(3) of the Act and concluded that the two flats purchased by the assessee were not adjacent to each other so as to be converted into one unit. The AO also observed that by virtue of The Finance (No. 2) Act, 2014 [hereafter “the Finance Act, 2014”], an amendment had been brought in Section 54F of the Act, whereby the words ‘a residential house‘ had been replaced with ‘one residential house‘, and thus, the legislature had clarified that the intention was always to allow exemption in respect of one residential house only. Therefore, the AO denied any benefit to the assessee under Section 54F of the Act since the assessee had purchased two flats i.e. two residential houses. Reliance was placed on the decision rendered by the High Court of Punjab & Haryana in Pawan Arya[5].
The assessee assailed the assessment order passed by the AO before the Commissioner of Income Tax (Appeals)-19 (“the CIT(A)”). CIT(A) upheld the order passed by AO holding that that the two flats purchased by the assessee could not be construed as one residential house since they were neither adjoining nor connected. The CIT(A) also observed that the amendment to Section 54F of the Act was clarificatory in nature, which had clarified that the benefit under the provision was intended only in respect of one residential house. Thus, the appeal filed by the assessee was dismissed by the CIT(A).
Aggrieved by the aforesaid order, the assessee preferred an appeal before the learned ITAT. By way of the impugned order, the appeal was partly allowed.
The learned ITAT was of the opinion 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 learned ITAT held that the assessee could claim exemption under Section 54F of the Act only in respect of one flat. The learned 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 flat, while the remaining amount would be chargeable to tax as long term capital gain.
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[1] Mrs. Kamla Ajmera versus PR. CIT [ITA 246/2019]
[2] Commissioner of Income-tax, Non Corporate Ward-10(2), Chennai v. Gumanmal Jain: 2017 SCC OnLine Mad 13653
[3] Commissioner of Income-tax v. D. Ananda Basappa: 2008 SCC OnLine Kar 693
[4] Commissioner of Income-tax v. Gita Duggal: 2013 SCC OnLine Del 752
[5] Pawan Arya v. Commissioner of Income Tax: 2010 SCC OnLine P&H 12590
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