Vivek Juneja Vs ACIT (ITAT Mumbai)
Section 54—Expenses to Make New House Habitable, Investment in Multiple Houses and CGAS Deposit Allowed: Mumbai ITAT
Summary: In an important decision concerning the scope of exemption under section 54, the Mumbai Bench of the Income-tax Appellate Tribunal has held that expenditure incurred on civil and electrical works necessary to make a newly purchased house habitable qualifies for deduction. The Tribunal further held that, under section 54 as it stood prior to AY 2015-16, exemption could be claimed for investment in more than one residential house. It also clarified that an amount validly deposited in the Capital Gains Accounts Scheme (CGAS) cannot be taxed prematurely in the original assessment year merely because it is subsequently not fully utilised.
The decision was rendered in Vivek Juneja v. ACIT, ITA No. 8512/Mum/2025, order dated 29 May 2026, relating to AY 2013-14.
Facts of the case
The assessee and his mother jointly owned an immovable property. Upon its sale, the assessee received ₹23.76 crore as his 50% share in the sale consideration. He declared long-term capital gain and claimed deductions under sections 54 and 54EC.
The assessee purchased a residential flat in the building known as “Raj Classic” for ₹4.90 crore. At the time of purchase, the flat was not in a habitable condition. The assessee therefore incurred ₹40.44 lakh on various civil and electrical works required to make it suitable for occupation.
The assessee produced invoices and a letter from the interior designer describing the works required to make the flat habitable. Nevertheless, the Assessing Officer was of the view that some of the expenditure related to air conditioning, painting, polishing, furniture, kitchen cabinets, bedroom furniture and kitchen appliances. He therefore allowed expenditure of only ₹20 lakh on an estimated basis and disallowed the balance ₹20.44 lakh. The NFAC confirmed the disallowance.
After claiming deduction for the investment already made, the assessee deposited the remaining ₹8.43 crore in CGAS. Subsequently, he withdrew the amount and invested ₹12.20 lakh in a plot at Mhow, where construction of a house was commenced, and ₹25.74 lakh in another property at Sylvanus.
The AO denied the additional deduction on the ground that the assessee had already purchased one residential house at Raj Classic and had claimed exemption under section 54. According to the AO, once deduction had been claimed for one house, no further exemption was available for the CGAS deposit or investment in other properties.
Expenses necessary to make the house habitable
The Tribunal found that the newly acquired flat was not in a habitable condition at the time of purchase. The interior designer’s letter had identified the works required to make it habitable and had estimated the total expenditure at ₹3.24 crore.
The invoices produced by the assessee demonstrated that the disputed ₹40.44 lakh represented civil and electrical works carried out in the new flat. Therefore, the conclusion of the lower authorities that the expenditure was not incurred for making the house habitable was contrary to the evidence available on record.
The Tribunal accordingly deleted the entire disallowance of ₹20.44 lakh.
The decision reinforces the principle that the cost of a new house for the purposes of section 54 is not necessarily confined to the price mentioned in the purchase agreement. Where a house is acquired in an incomplete or uninhabitable condition, expenditure genuinely incurred to make it habitable may form part of the qualifying investment. However, expenditure on movable furniture, appliances or purely decorative items would still require careful examination.
Multiple residential houses—position prior to AY 2015-16
The second controversy related to whether the assessee could claim exemption for investment in more than one residential house.
For AY 2013-14, section 54 used the expression “a residential house.” The words were substituted by “one residential house in India” by the Finance (No. 2) Act, 2014, with effect from AY 2015-16.
The Tribunal relied upon the Bombay High Court decision in Krishnagopal B. Nangpal v. DCIT, which held that, under the unamended provision, the expression “a residential house” was not necessarily restricted to one house. The subsequent amendment expressly substituting the word “one” showed that the restriction to a single house was introduced prospectively.
The Tribunal also referred to the Karnataka High Court decisions in CIT v. D. Ananda Basappa, CIT v. Khoobchand M. Makhija and Arun K. Thiagarajan, as well as the Madras High Court decision in Tilokchand & Sons. These decisions recognised that the expression “a residential house” under the pre-amended provision could include more than one residential unit.
Therefore, for AY 2013-14, the assessee’s exemption could not be restricted merely because investments were made in multiple residential properties.
The Tribunal also noticed that in the case of the assessee’s mother, arising from the same sale transaction and for the same assessment year, the first appellate authority had already allowed deduction for investment in more than one house. This further weakened the inconsistent stand taken by the Department in the assessee’s case.
CGAS deposit cannot be taxed prematurely
The Tribunal’s observations concerning CGAS are equally significant.
The assessee had deposited the unspent amount of ₹8.43 crore in CGAS in accordance with section 54(2). The Tribunal held that the amount validly deposited could not be taxed in the original assessment year merely because the assessee had already claimed exemption for another residential house.
According to the Tribunal, the plain language of section 54(2) protected the amount deposited in CGAS. If the deposited amount was ultimately not utilised within the prescribed period, the disallowance could be made only after expiry of the statutory three-year period and not in the original year of transfer.
The Tribunal noticed that the assessee had himself offered the remaining unutilised CGAS balance of ₹2.49 crore to tax in AY 2016-17. Therefore, there was no justification for taxing the amount prematurely in AY 2013-14.
This finding is important because section 54(2) creates a specific statutory year of taxation. Where the CGAS deposit is not wholly utilised for purchase or construction within the prescribed period, the unutilised amount becomes taxable in the previous year in which three years from the date of transfer of the original asset expire. The exemption granted in the original year cannot ordinarily be withdrawn merely on the basis of subsequent non-utilisation.
Author’s Comments
The decision lays down three useful propositions.
First, expenditure incurred to make a newly acquired residential house habitable should be considered as part of the qualifying investment under section 54, provided it is supported by proper invoices, photographs, technical reports or correspondence demonstrating the condition of the property. Purely personal, decorative or movable items may not enjoy the same treatment.
Second, the benefit of investment in multiple houses is relevant only under the law applicable before AY 2015-16. After the amendment, exemption is ordinarily restricted to one residential house in India, subject to the special option permitting investment in two houses where the statutory conditions are satisfied.
Third, and most importantly, a valid CGAS deposit cannot be taxed in the original year merely because the amount is later withdrawn or remains partly unutilised. The Act itself fixes the later year in which the unutilised amount becomes taxable.
Thus, the Department cannot accelerate the charge of capital-gains tax contrary to the specific deeming provision. Deposit in CGAS protects the exemption in the original year; non-utilisation attracts tax only in the year expressly prescribed by section 54(2).
Cases Discussed
- Krishnagopal B. Nangpal Vs DCIT — Bombay High Court held that the expression “a residential house” in unamended section 54(1) includes more than one residential house.
- Arun K. Thiagarajan Vs CIT — Karnataka High Court held that under the unamended provision the expression “a residential house” was not confined to a single residential house.
- Tilokchand & Sons Vs ITO — Madras High Court held that prior to the amendment effective from 1 April 2015, “a residential house” could include plural residential houses.
- CIT Vs Khoobchand M. Makhija — Karnataka High Court precedent considered on the interpretation of “a residential house” under unamended section 54.
- CIT Vs D. Ananda Basappa — Karnataka High Court precedent considered in support of deduction under section 54 for more than one residential unit.
- CIT Vs Geeta Duggal — Delhi High Court decision referred to while considering the plural interpretation of “a residential house”.
- CIT Vs Ram Kishan Das — Supreme Court decision referred to on the nature and effect of amending legislation.
- K.C. Kaushik — Bombay High Court decision distinguished while considering whether section 54 restricted investment to one residential house.
- ITO Vs Ms. Sushila M. Jhaveri — Special Bench decision considered in the Bombay High Court precedent reproduced by the Tribunal.
- Mavilayi Service Coop Bank Ltd. — Supreme Court decision referred to in the reproduced Bombay High Court judgment concerning interpretation of beneficial provisions.
- Pawan Arya Vs CIT — Punjab and Haryana High Court decision considered and distinguished in the reproduced Bombay High Court judgment.
- Raman Kumar Suri — Decision considered in relation to residential flats forming a residential unit.
- CIT Vs Devdas Naik — Bombay High Court decision considered concerning two flats converted into one residential unit.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This is an appeal by the assessee against order dated 24.11.2025 passed by National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year (AY) 2013-14.
2. In Ground No.1, the assessee has challenged disallowance of expenditure incurred of Rs.20,44,105/- on improvement of newly purchased house property.
3. Briefly the facts are, the assessee is a resident individual. In the assessment year under dispute, assessee filed his return of income on 30.07.2013, declaring income of Rs.6,29,24,179/- including ‘Long Term Capital Gain’ (LTCG) of Rs.5,87,73,975/-. In course of assessment proceeding, the assessee furnished a revised computation of LTCG offering income of Rs.6,05,25,425/-. The ‘LTCG’ offered by the assessee was in respect of 50% share received out of the sales consideration on sale of an immovable property jointly held with the mother of the assessee. While computing LTCG, in addition to the deduction claimed under section (u/s.) 54 and 54EC of the Income Tax Act, 1961 (in short the ‘Act’) as also other expenses, the assessee claimed expenditure on account of cost of improvement of Rs.40,44,105/- in respect of a newly acquired property. In course of assessment proceedings, the Assessing Officer (AO) called upon the assessee to furnish supporting evidence qua the claim. In response, the assessee furnished certain documentary evidences including invoices raised by the interior decorator M/s Farida Green Design Services. After verifying the supporting evidences, the AO was of the view that the expenditure included air conditioning, painting and polishing, preferably new furniture, kitchen cabinet, bedroom furniture and kitchen appliances etc. which were not required for making the house habitable. Thus, he held that assessee’s claim cannot be accepted. However, based on the invoice raised by the interior decorator, the AO on estimate basis allowed deduction to the extent of Rs.20,00,000/- while disallowing an amount of Rs.20,44,105/-. Though, the assessee contested the disallowance before the First Appellate Authority however, he was unsuccessful.
4. Before us, learned counsel appearing for the assessee has drawn attention to the supporting evidences furnished before the Departmental Authorities and submitted that the assessee had claimed an amount of Rs.40,44,105/- to make the newly acquired house habitable. He submitted, expenditure incurred was entirely on civil and electrical work alone. Thus, he submitted that there is no reasonable basis for allowing only an amount of Rs.20,00,000/- on a purely adhoc basis.
5. In reply, learned Departmental Representative (DR) submitted, since, the assessee failed to furnished adequate supporting evidence to establish that the expenditure was entirely incurred to make the house habitable, the Assessing Officer partly allowed the claim.
6. We have considered rival submissions and perused the materials on record. As discussed earlier, after sale of a jointly owned house property the assessee received his 50% share in sales consideration, which amounted to Rs.23,76,00,000/-. In the computation of LTCG, the assessee claimed expenditure of Rs.40,44,105/- in the newly acquired house purchased out of sales consideration. Materials on record demonstrate that when the assessee acquired a flat in the building Raj Classic, it was not in a habitable condition. This is evident from letter dated 15.07.2013 of the interior designer, M/s Farida Grade Design Services. In fact, the AO has taken note of this letter. In the said letter, the interior designer has listed the works required to be undertaken to make the newly acquired house habitable and has given an estimate of Rs.3,24,56,800/-. From the invoices placed in the paper book, it appears that the amount of Rs.40,44,105/- is on account of various civil and electrical works undertaken in the newly acquired flat. This is evident from the list of works representing such expenditure. Thus, in our view, the conclusion drawn by the Departmental Authorities that the claim of the assessee is not in respect of civil and electrical work to make the house habitable is not borne out on record. Accordingly, we direct the Assessing Officer to delete the disallowance.
7. The issues raised in Ground Nos. 2,3 and 4 are overlapping and relate to deduction claimed u/s.54(1) and 54(2) of the Act.
8. Briefly the facts are, as discussed earlier, the assessee and his mother were joint owners of an immovable property. In the year under consideration, the said property was sold and the assessee received an amount of Rs.23,76,00,000/-, being his 50% share in the sale consideration. Thereafter, the assessee purchased a new immovable property at Raj Classic for a consideration of Rs.4,90,00,000/- after incurring some expenditure out of the sales consideration of the old property, cost of improvement of the newly acquired property and claiming deduction u/s.54EC and 54(1) of the Act, the left out of amount of Rs.8,43,00,000/- was invested in Capital Gain Account Scheme. Subsequently, the assessee withdrew the amount and invested in purchasing a plot of land at Mhow for Rs.12,20,700/- wherein he started constructing a new house and another property at Sylvanus for cost of Rs.25,74,673/-. While examining assessee’s claim of deduction, the AO observed that in respect of a newly acquired property at Raj Classic the assessee has claimed deduction u/s. 54 of the Act within was one year of the date of sale of the old property. Thus, he observed, since, the assessee had already availed deduction u/s. 54 of the Act, there was no need for him to deposit the remaining capital gain in capital gain account scheme as no further deduction u/s. 54(2) of the Act was available to the assessee. Thus, he did not allow assessee’s claim of deduction u/s. 54(2) of the Act in respect of investment made in capital gain account scheme as also the additional deduction claimed u/s. 54 of the Act in respect of investment made in two other immovable properties. The disallowance so made by the AO was confirmed by the learned First Appellate Authority.
9. Before us, learned counsel appearing for the assessee submitted that there is no bar in Section 54(2) of the Act to the effect that once the assessee has claimed deduction u/s.54(1) of the Act in respect of one house, it cannot claim deduction u/s.54(2) of the Act while investing the balance sale consideration in capital gain account scheme. He submitted, as per the provision contained u/s. 54 of the Act applicable to the assessment year in dispute, there is no restriction on the assessee in investing the capital gain in more than one house for claiming deduction. In support of such contention, learned counsel relied upon the decision of the Hon’ble Bombay High Court in case of ‘Krishnagopal B. Nangpal vs. DCIT’ (2025) 176 taxmann.com 752 (Bombay). He also relied upon the various other decisions as furnished in the case law compilation. Without prejudice, he submitted, even assuming that the assessee was not entitled to claim deduction u/s. 54(2) of the Act for non-utilization of the amount deposited in capital gain account scheme in the purchase of new property, the amount could have been added only after expiry of three consecutive assessment years and not in this year. Further ld. Counsel submitted that under identical facts and circumstances, the First Appellate Authority has decided issue in favour of assessee’s mother while allowing deduction claimed u/s. 54 of the Act in respect of capital gains invested in purchase of more than one house.
10. The learned Departmental Representative (DR) strongly relied upon the observations of the Assessing Officer.
11. We have considered rival submissions and perused the martials on record. We have also applied our mind to the decisions relied upon. It is a fact on record that the assessee along with his mother were joint owners of an immovable property sold in the impugned assessment year. Out of his 50% share, in the sales consideration, the assessee invested in purchase of a new property and deposited the unspent amount in the Capital Gains Account Scheme. Subsequently, the assessee had made investment in two more immovable properties, being a plot of land and a house after withdrawing from capital gains account scheme.
12. The Departmental Authorities have disallowed assessee’s claim of deduction u/s. 54(2) of the Act in respect of the capital gain kept in capital gain account scheme and also the investment made in other two properties, on the reasoning that the assessee having already claimed deduction u/s. 54 of the Act in respect of property acquired in Raj Classic building no further deduction is available to the assessee. It is a fact on record that unspent amount out of the sale consideration was kept by the assessee in capital gain account scheme in terms with Section 54(2) of the Act. Hence, the said amount is not taxable in the impugned assessment year as per the plain meaning of the provision. The only reason, based on which, the deduction u/s. 54(2) of the Act has been disallowed, the assessee having already availed deduction u/s. 54(1) of the Act in respect of one newly acquired property cannot claim any deduction against investment in more than one house property.
13. In our view, such reasoning of the AO is not based on any statutory provision specifically debarring the assessee from claiming deduction. As per the language of Section 54(1) of the Act, the assessee can claim deduction upon investment made in “a residential house”. The expression “a residential house” has been judicially interpreted by Hon’ble courts to mean not a single residential house. In this context, we would like to refer to the following observations of Hon’ble jurisdictional High Court in case of ‘Krishnagopal B. Nangpal vs. DCIT’ (Supra):
“9) The short issue that arises for consideration in the present Appeal is whether the Assessee is entitled to claim exemption under provisions of Section 54(1) of the Act against the entire capital gains of Rs.1,08,30,625/- arising out of sale of his flat in Mumbai, on account of utilization thereof towards purchase of seven row houses in Pune ?To paraphrase, the issue for consideration is whether sale proceeds of one residential house, used for purchase of multiple residential houses, would qualify for exemption under Section 54(1) of the Act ?
10) Before proceeding further, it must be noted that the case pertains to the Assessment Year 1995-96, and accordingly, provisions of Section 54(1) of the Act, prior to its amendment by Finance (No. 2) Act, 2014, are relevant. The unamended Section 54(1) of the Act read thus:
“54. Profit on sale of property used for residence.
(1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head Income from house property (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 a residential house, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,…”
(emphasis supplied)
11) After amendment by Finance (No. 2) Act, 2014, provisions of Section 54 (1) of the Act read thus:
“54. Profit on sale of property used for residence.
(1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property” (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, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say-,…”
(emphasis supplied)
12) For purpose of the present appeal, what is relevant is replacement of the expression ‘a residential house’ by the expression ‘one residential house’ by way of 2014 amendment. Prior to the 2014 amendment, capital gains arising from transfer of a long term capital asset, including a residential house, qualified for exemption if the same was invested for purchase or construction of ‘a residential house’. The department has disallowed the claim of the Assessee for adjustment of the entire capital gain arising of sale of the flat in Mumbai, on the ground that the Assessee has purchased seven row houses in project at Pune. According to the department, exemption under Section 54 (1) of the Act is applicable only in respect of investment made in purchase of only one residential house and is not permissible for the purchase of multiple residential houses. The ITAT has accordingly granted the benefit of Section 54(1) of the Act in respect of one of the seven row houses purchased by the Assessee.
13) In our view, the amendment brought in by Finance (No.2) Act 2014 makes the position clear that after the amendment, the capital gains can be adjusted against purchase of only ‘one’ residential house. The word ‘a’ is consciously replaced by the legislature by the word ‘one’ by way of amendment making the intention clear that after the amendment, it is impermissible to adjust the capital gains arising out of one house towards purchase of more than one houses. If the restriction of adjustment of capital gains against only one house was already there in the unamended Section 54(1), there was no necessity of amendment by specifically using the word ‘one’.
14) The Tribunal has relied on judgment of Single Judge of this Court in K.C. Kaushik (supra) while rejecting Assessee’s claim in respect of all seven row houses and while allowing the same only against one row house. However, while deciding the case in K.C. Kaushik, this Court did not have the benefit of comparing the amended and unamended provisions of Section 54(1) of the Act. Also, the issue involved before Single Judge of this Court in K.C. Kaushik was altogether different. In that case, the Assessee had sold the residential house in the year 1979 and had purchased one residential house in the year 1979, and a second residential house in 1980. The cost of second residential house (brought in 1980) was sought to the set off by the Assessee against the capital gains earned from the sale of original residential property. The Assessing Officer permitted set off for the cost of the first residential house and not the second residential house, and accordingly, granted partial relief under Section 54 of the Act. In a revision application filed under Section 264 of the Act by the Assessee, the Commissioner held that the Assessee was right in claiming set off with respect to the second house. However, since the second house was not occupied by the Assessee and was rented out within 3 years after its purchase, the Assessee was held not entitled to claim relief under Section 54 (1) of the Act. It was this finding of the Commissioner, which became subject matter of challenge in a writ petition filed by the Assessee before the learned Single Judge of this Court. This Court was not called upon to consider correctness of decision of the Commissioner in holding that the Assessee was entitled to set off the cost of acquisition of the second residential house purchased against the capital gains arising out of the sale of the original residential property. The issue of setting off cost of acquisition of multiple residential houses was never involved before this Court. The issue before this Court was about the act of the Assessee of letting out the second residential property within a period of 3 years of its purchase and whether such act would disentitle him from claiming the cost of second residential property as a set off against the capital gain of the original residential property. This issue was answered in favour of the Assessee and against the revenue. In our view therefore, the judgment in K.C. Kaushik cannot be read in support of a proposition that capital gains can be adjusted against only one residential house.
15) On the other hand, the issue involved in the present case appears to be squarely covered by the judgment of the Karnataka High Court in Arun K. Thiagarajan (supra), authored by one of us (The Chief Justice). In the case before Karnataka High Court, the Assessee owned a residential property in Chennai, which was sold on 9th October 2002 and in the return of income, the Assessee declared long term capital gain arising out of the sale of the said property of Rs.15,44,009/- by claiming deduction under Section 54 of the Act in respect of two properties purchased in Bangalore on 23rd September 2002 and 23rd October 2002. The Assessing Officer, however, held that the Assessee was not entitled to claim deduction under Section 54 of the Act in respect of investment made in acquiring two residential properties. The issue for consideration is formulated in paragraph-2 of the judgment as under :-
2. The issue, which arises for consideration in this appeal is whether the assessee is entitled to claim exemption under Section 54 of the Act as he had purchased more than two houses. In order to appreciate the factual background, in which the aforesaid issue arises for considertion, reference to relevant facts is necessary, which are stated hereinafter.
After taking into consideration the unamended provisions of Section 54 of the Act, the Division Bench held in paragraphs 11 to 15 as under :
“11. From close scrutiny of the aforesaid provision, it is axiomatic that property sold is referred to as original asset and the original asset is prescribed as buildings and lands appurtenant thereto and being a residential house. The expression ‘a residential house’ therefore, includes building or lands appurtenant thereto. It cannot be construed as one residential house.
12. A Bench of this court in case of Smt. KG Rukminiamma (supra) dealt with the meaning of expression ‘a residential house’ used in Section 54(1) of the Act while taking into account Section 13(2) of the General Clauses Act, 1897 held that unless there is anything repugnant in the subject or context, the words in singular shall include the plural and vice versa. It was further held that context in which the expression ‘a residential house’ is used in Section 54 makes it evident that it is not the intention of the legislature to convey the meaning that it refers to a single residential house. It was also held that an asset newly acquired after sale of original asset can also be buildings or lands appurtenant thereto, which also should be residential house, therefore, the letter ‘a’ in the context it is used should not be construed as meaning singular, but the expression should be read in consonance with other words viz., buildings and lands. Accordingly, the contention raised by the revenue was rejected. Similar view was taken by a bench of this court in Khoobchand M. Makhijasupra, B. Srinivassupra and in the case of Smt. Jyothi K Mehtasupra. The Madras High Court while dealing with Section 54 of the Act as it stood prior to amendment by Finance Act No. 2/2014 in the case of Tilokchand & Sons supra took the similar view and held that the word ‘a’ would normally mean one but in some circumstances it may include within its ambit and scope some plural numbers also. The Delhi High Court also took the similar view in case of Gita Duggal supra.
13. It is well settled in law that an Amending Act may be purely clarificatory in nature intended to clear a meaning of a provision of the principal Act, which was already implicit. [See: Decision of The Supreme Court In CIT v. Ram Kishan Das [2019] 103 taxmann.com 414/263 Taxman 657/413 ITR 337. In view of aforesaid enunciation of law by different High Courts including this court and with a view to give definite meaning to the expression ‘a residential house’, the provisions of Section 54(1) were amended with an object to restrict the plurality to mean singularity by substituting the word ‘a residential house’ with the word ‘one residential house’. The aforesaid amendment came into force with effect from 1-4-2015. The relevant extracts of Explanatory note to provisions of Finance (No. 2) Act, 2014 reads as under:
20.3 Certain courts had interpreted that the exemption is also available if investment is made in more than one residential house. The benefit was intended for investment in one residential house within India. Accordingly, sub-Section (1) of Section 54 of the Income-Tax Act has been amended to provide that the rollover relief under the said Section is available if the investment is made in one residential house situated in India.
20.5 Applicability:- These amendments take effect from 1st April, 2015 and will accordingly apply in relation to Assessment year 2015-16 and subsequent Assessment years.
Thus it is axiomatic that the aforesaid amendment was specifically applied only prospectively with effect from Assessment year 2015-16.
14. The subsequent amendment of Section 54(1) also fortifies the fact that the legislature felt the need of amending the provisions of the Act with a view to give a definite meaning to the expression ‘a residential house’, which was interpreted as plural by various courts by taking into account the context in which the aforesaid expression was used. The subsequent amendment of the Act also fortifies the view taken by this court as well as Madras High Court and Delhi High Court. It is trite law that the principle underlying the decision would be binding as precedent in a case. In Halsbury Laws of England, Volume 22, Para 1682, Page 796, the relevant extract reads as under:
The enunciation of the reasons or principle on which a question before a court has been decided is alone binding as a precedent. This underlying principle is often termed the ratio decided, that is to say, the general reasons given for the decision or the general grounds on which it is based, detached or abstracted from the specific peculiarities of the particular case which gives rise to the decision.
15. This Court as well as Madras and Delhi High Court have interpreted the expression ‘a residential house’ and have held that the aforesaid expression includes plural. The ratio of the decisions rendered by coordinate bench of this court are binding on us and we respectively agree with the view taken by this court while interpreting the expression ‘a residential house’. Therefore, the contention of the revenue that the assessee is not entitled to benefit of exemption under Section 54(1) of the Act in the facts of the case does not deserve acceptance In view of preceding analysis, the substantial question of law framed by this court is answered in favor of the assessee and against the revenue. In the result. The order passed by the assessing officer and Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal insofar as it deprives the assessee of the benefit of exemption under section 54(1) of the Act are hereby quashed and the assessee is held entitled to benefit of exemption under section 54(1) of the Act. In the result, the appeal is allowed.”
16) The Karnataka High Court took into consideration ratio of Division Bench judgment of Madras High Court in Trilokchand & Sons (supra), in which similar issue was involved. It is held in paragraphs 20 and 21 of the judgment in Tilokchand & Sons as under :
“20. We have discussed about the two decisions from the Karnataka High Court, which, in our opinion, dealt with similar controversy as is raised before us herein. The only difference which we find is that the purchase of the residential houses in the present case is at different address in the same city of Madurai. In D. Ananda Basappa case stated (supra), two flats in question were admitedly adjacent to each other and which were joined to become one residential house. In the case of Khoobchand M.Makhija (supra), two door nos are given viz., 623 and 729, but the complete addresses and even the name of the city is not clear in the facts narrated in the said Judgment. But in our considered opinion, the difference of location of the newly purchased residential house(s) will not alter the position for interpretation of the word ‘a residential house’ to the effect that it may include more than one or plural residential houses, as held by Karnataka High Court, with which we respectfully agree. The location of the newly purchased houses by the same assessee viz., HUF out of sale consideration received on the sale of original capital Asset or a residential house in the given circumstances of availability of such residential houses as per the requirement of the HUF will not alter the position of interpretation.
21. In our understanding, if the word ‘a’ as employed under Section 54 prior to its amendment and substitution by the words ‘one’ with effect from 01.04.2015 could not include plural units of residential houses, there was no need to amend the said provisions by Finance Act No.2 of 2014 with effect from 01.04.2015 which the Legislature specifically made it clear to operate only prospectively from A.Y. 2015-2016. Once we can hold that the word ‘a’ employed can include plural residential houses also in Section 54 prior to its amendment such interpretations will not change merely because the purchase of new assets in the form of residential houses is at different addresses which would depend upon the facts and circumstances of each case. So long as the same Assessee (HUF) purchased one or more residential houses out of the sale consideration for which the capital gain tax liability is in question in its own name, the same Assessee should be held entitled to the benefit of deduction under Section 54 of the Act, subject to the purchase or construction being within the stipulated time limit in respect of the plural number of residential houses also. The said provision also envisages an investment in the prescribed securities which to some extent the present Assessee also made and even that was held entitled to deduction from Capital Gains tax liability by the authorities below. If that be so, the Assessee-HUF in the present case, in our opinion, complied with the conditions of Section 54 of the Act in its true letter and spirit and, therefore was entitled to the deduction under Section 54 of the Act for the entire investment in the properties and securities. Therefore, in our opinion, Judgment rendered by the Karnataka High Court in D Ananda Basappa (supra) & Khoobchand M. Makhija (supra) cited at bar by the learned counsel for the Assessee apply on all fours to the facts of the present case.”
17) Thus, the Madras High Court in Tilokchand & Sons (supra) has held that the word ‘a’ used in Section 54, prior to the amendment and substitution by the word ‘one’ with effect from 1st April 2015, itself means that there was provision in the unamended Section 54 to include plural units of residential houses, which is a reason why the amendment was necessary. The Madras High Court has also held that even if the multiple houses are purchased bearing different addresses, the same did not make any difference, so long as the same Assessee has purchased the same out of sale consideration of the sold house.
18) Both Karnataka High Court in Arun K. Thiagarajan and Madras High Court in Tilokchand & Sons have also referred to another judgment of Karnataka High Court decision in CIT Vs. Khoobchand M. Makhija11. The Madras High Court also took note of another judgment of Karnataka High Court in CIT Vs. D. Ananda Basappa12. The Madras High Court also took note of the fact that the Special Leave Petition preferred by the Revenue against the judgment in D. Ananda Basappa was dismissed by the Supreme Court. The Delhi High Court in CIT Vs. Geeta Duggal (supra) has also adopted the same view. Thus, the issue involved in the present appeal is squarely covered by several judgments as discussed above.
19) Thus, the position appears to be fairly well settled that use of the words ‘a residential house’ in unamended Section 54 (1) of the Act would not mean a single residential house and the contemplated even multiple residential houses. The emphasis in the unamended Section 54 (1) of the Act is on residential nature of the property and the objective was never to restrict the number of residential houses purchased against capital gains. The words ‘a residential house’ were merely descriptive nature of the assets sold/purchased and not restrictive of the number of assets sold or purchased. The position got modified by the Legislature only w.e.f. 01 April 2015.
20) Mr. Sharma has strenuously relied on the judgment of Special Bench of ITAT in ITO Vs. Ms. Sushila M. Jhaveri(supra) which does not bind this Court, and therefore, it is not necessary to discuss the ratio of the said judgment. We have already distinguished the judgment of Single Judge of this Court in K. C. Kaushik which was relied upon by the Special Bench of ITAT in Sushila M. Jhaveri. Also, as against the Special Bench judgment of ITAT, there are subsequent judgments of Division Benches of Karnataka and Madras High Court, which squarely answer the issue involved in the present appeal.
21) Also of relevance is the fact that the provisions of Section 54(1) of the Act are beneficial in nature. The benevolent provision is aimed at encouraging the house purchase activities. It therefore needs to be read literally and reasonably. Therefore, even though two interpretations of the provisions of unamended Section 54(1) of the Act may be possible, the one in favour of the Assessee will have to be accepted. Reliance in this regard by Mr. Thakkar on Apex Court judgment in Mavilayi Service Coop Bank Ltd. (supra) is apposite.
22) What remains now is to deal with three judgments relied upon by Mr. Sharma:
(a) In Pawan Arya Vs. CIT (supra), the Division Bench of Punjab and Haryana High Court has refused to admit the appeal of the Assessee. The attention of the Division Bench was invited to the judgment in Karnataka High Court in D. Ananda Basappa, which was sought to be distinguished by holding that exemption against purchase of two flats was allowed having regard to the fact that both the flats were treated as one house, as both were combined to make one residential unit. However, after the order passed by the Punjab and Haryana High Court in Pawan Arya on 13th December 2010, the Karnataka High Court in Khoobchand M. Makhija (decision rendered in 2014) and Arun K. Thiagarajan (decision rendered in 2020) have interpreted the provisions of unamended Section 54 (1) of the Act for holding that the expression ‘a residential house’ would also include within its ambit and scope, plural number as well. Similarly, at the time of passing the order in Pawan Arya, the Division Bench of Punjab and Haryana High Court did not have benefit of subsequent amendment brought about by the Finance (No.2) Act, 2014. The effect of the said amendment has been discussed by the Madras High Court in Tilokchand & Sons and by Karnataka High Court in Arun K. Thiagarajan. Therefore reliance on the order of Punjab and Haryana High Court in Pawan Arya does not assist the case of Revenue.
(b) The judgment in Raman Kumar Suri (supra), a decision rendered prior to amendment of Section 54 (1) of the Act, has been rendered purely in the facts of the case where two flats were joined together, and therefore, the exemption under Section 54 (1) of the unamended Act was held to be admissible. In fact, in the present case, the Assessee has contended that 6 of 7 row houses were joined by common passage and ought to have been treated as one residential unit, and in that sense, the judgment of this Court in Raman Kumar Suri (supra) may assist the case of Assessee. However, we need not go into that issue as we have held that the expression ‘a residential house’ in unamended Section 54(1) of the Act would also include multiple houses as well.
(c) The judgment of this Court in CIT Vs. Devdas Naik (supra) is again rendered considering peculiar facts where two flats were purchased under two distinct agreements from different sellers but there was a common kitchen for both the flats and the flats were converted into one unit for the purpose of residence of the Assessee.
23) Considering the overall conspectus of the case, we are of the view that the issue involved in the present case is squarely covered by the judgments of Karnataka High Court in Arun K. Thiagarajan and of Madras High Court in Tilokchand & Sons. We are in respectful agreement with the view expressed therein that the expression ‘a residential house’ in unamended Section 54(1) of the Act includes more than one residential house.”
14. As could be seen from the aforesaid observations of the Hon’ble Jurisdictional High Court, claim of deduction u/s. 54 of the Act under the unamended Section 54 of the Act cannot be restricted to one residential house and is available for investment in multiple houses. Notably, while deciding identical nature of dispute in case of assessee’s mother Mrs. Chandrakanta Surendra Nath Juneja in the very same assessment year, the First Appellate Authority, following the decision of the Hon’ble Karnataka High Court in case of ‘CIT Vs. D. Ananda Basappa’ has allowed deduction claimed u/s. 54 of the Act in respect of more than one house. Therefore, the reasoning of the Departmental Authorities that the assessee cannot claim deduction u/s. 54 of the Act in respect of more than one house is contrary to the ratio laid down in the judicial precedents. Therefore, in our considered opinion, the deduction claimed by the assessee u/s. 54 of the Act is allowable. Even otherwise also, the investment made in capital gain account scheme is allowable u/s. 54(2) of the Act. Disallowance, if any, can be made by the AO only after expiry of three years from the year in which, such deposit was made. From the materials placed before us, it is noticed that the assessee himself has offered, the unutilized amount of Rs.2,49,32,649/- out of the deposit made in capital gain account scheme to tax in AY 2016-17.
15. In view of the aforesaid, we direct the AO to allow assessee’s claim of deduction u/s. 54 of the Act. Grounds are allowed.
16. In the result, appeal is allowed.
Order pronounced in the open court on 29/05/2026.
