CIT Vs Gita Duggal (Delhi High Court)
Multiple Units in a Single Building Qualify as ‘Residential House’ for Section 54/54F Exemption: Delhi HC
Delhi High Court has dismissed an appeal filed by the Income Tax Department against Gita Duggal, an individual assessee, reaffirming that the exemption under Section 54 of the Income Tax Act, 1961, can be claimed even if the new residential house consists of multiple independent units. This ruling addresses a long-standing point of contention between taxpayers and the revenue authorities regarding the interpretation of “a residential house” in capital gains exemptions.
The case involved Gita Duggal, who had declared long-term capital gains from a collaboration agreement for the redevelopment of her property. Under the agreement, M/s Thapar Homes Ltd., the developer, was to construct a new building on her land, and in return, Ms. Duggal would receive `4 crores in cash, plus the ground, first, and second floors of the new building. The third floor was retained by the builder.
The Assessing Officer (AO) initially added the cost of construction incurred by the developer (3,43,72,529/-) to the4 crores cash consideration, bringing the total sale consideration to `7,43,72,529/-. Ms. Duggal then claimed that if this additional sum was considered part of the sale consideration, it should also be deemed reinvested in the new residential house (the floors she received), thus qualifying for exemption under Section 54.
The AO rejected this claim, contending that the two floors received by Ms. Duggal were independent and self-contained units, and therefore could not be considered “one unit of residence” for the purpose of Section 54 exemption. The AO allowed relief under Section 54F for only one unit, leading to an addition of `98,20,722/- to her income.
However, the Commissioner of Income-Tax (Appeals) [CIT(A)] sided with the assessee, citing a Karnataka High Court judgment, and allowed the full deduction under Section 54. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)’s decision, reiterating that the phrase “a residential house” in Section 54 does not imply a single physical unit and that, by virtue of Section 13(2) of the General Clauses Act, a singular can include the plural.
Judicial Precedents Cited:
The Delhi High Court, in its ruling, heavily relied on and affirmed the interpretation provided by the Karnataka High Court in CIT Vs. B. Ananda Basappa (2009) 309 ITR 329. This decision, notably, had been upheld by the Supreme Court with the dismissal of the Revenue’s Special Leave Petition. The Karnataka High Court had explicitly stated that the expression “a” residential house in Section 54 should not be construed as meaning “one” single residential house, but rather refers to a building of residential nature. It also highlighted that Section 13(2) of the General Clauses Act allows for the plural interpretation of a singular term. This view was subsequently followed by the Karnataka High Court in CIT Vs. Smt. K.G. Rukminiamma (ITA No.783/2008 dated 27.08.2010).
The Delhi High Court further elaborated that Section 54/54F uses the expression “a residential house,” not “a residential unit,” a distinction the AO introduced. The Court observed that there is nothing in the Act that dictates how a residential house must be constructed. It recognized common practices where individuals build houses with multiple independent units for various reasons, such as renting out a portion or accommodating family, without losing the character of a “residential house.”
Concluding its judgment, the Delhi High Court found no infirmity in the Tribunal’s view and stated that no substantial question of law arose for its consideration, thereby dismissing the Revenue’s appeal.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
The revenue has filed the appeal under Section 260A of the Income Tax Act, 1961 against the order dated 07.06.2001 passed by the Income Tax Appellate Tribunal in ITA 3613/Del./2010 for the assessment year 2007-08.
2. The assessee which is the respondent in the appeal is an individual. In the computation of income filed along with the return of income, she declared long term capital gains of Rs. 2,68,25,750/- in the following manner :-
“Income from Capital Gain
Long Term
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