pri Decoding ‘One House’, ‘One Unit’ Concept in Section 54F Decoding ‘One House’, ‘One Unit’ Concept in Section 54F

Much Ado About ‘A’ House: Decoding The ‘One House’, ‘One Unit’ Concept in Section 54F of The Income Tax Act, 1961


Sec 54F ‘Capital Gain on transfer of certain capital assets not to be charged in case of investment in residential house’, was introduced vide the Finance Act, 1982, w.e.f 01.04.1983. Way back in 1982, it was felt that there was a dearth of house owning and housing construction activities. To overcome this situation, this section was introduced with a vision that it would encourage people to invest in houses. The Budget Speech of Hon’ble Finance Minister for the year 1982 – 83 spells as under:

“88. There is an acute shortage of housing, and house building activity has to be given impetus. With a view to providing an incentive to taxpayers who do not own a residential house, I propose to exempt from tax long-term capital gains arising from the transfer of other assets where the net consideration is invested by the taxpayer in a residential house”.

 Hence vide Finance Act, 1982, Sec 54F was introduced.

Conditions precedent for claim of exemption:

The following basic conditions are stipulated in Sec. 54F that needs to be satisfied to claim the exemption:

1. ‘A residential house’ has to be purchased within 1 year before or after the date of transfer of the original asset; or one residential house has to be constructed within 3 years from the date of transfer of the original asset. The house so purchased or constructed must be situated in India.

2. The Assessee shall not own more than one residential house, other than the new asset purchased, as on date of transfer of the original asset.

It is important that, in the cases above, the income from the residential house (other than the one owned on the date of transfer of the long term capital asset) is chargeable under the head ‘Income from house property’.

3. The newly acquired residential house or property should not be transferred within a period of 3 years from the date of purchase or construction. If done so, the Assessee forgoes the exemption claimed on the transfer of original asset and it shall be chargeable to tax in the previous year in which the residential house is transferred.

4. The Assessee should not purchase another residential house or property in the time frame of 1 year from the date of transfer of the original asset, nor should he construct another residential house within 3 years from the date of transfer of the original asset.

It is important that, in the cases above, the income from the residential house (other than the one owned on the date of transfer of the long term capital asset) is chargeable under the head ‘Income from house property’.

5. In case an assessee purchases or constructs an additional residential house as stipulated in the previous point, the Capital Gains, if not chargeable to tax, shall be chargeable to tax in the previous year in which the house is purchased or constructed.

6. 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 in Capital Gains Accounts Scheme.

The spine of discussion here is the 1st point where the Legislature says that such an exemption shall not be available for more than ‘ONE’ residential house.

“A” House – Definition and meaning

The word ‘house’ has nowhere been defined under the Income Tax Act. But in general parlance we can mean it to be a ‘place of permanent residence’. That is how the Courts have been interpreting the word ‘house’.

This brings us to the question of what is actually ‘a’ or rather ‘one’ residential house. Oxford English Dictionary defines the word ‘a’ to be ‘indefinite article used before countable or singular nouns referring to people or things that have not already been mentioned.’

To quote P. Ramanatha Aiyer: ‘A’ sometimes has the effect of ‘one’. Thus the phrase “a year’s rent” was held to be equivalent to “one year’s rent”. (Amer.Cyc.) A license to fish “with a rod and line” does not justify more than one rod and line. (Cambridge Vs. Harrison 72 LT 592; 64 LJMC 175).

Hence, we may see that ‘a’ and ‘one’ sound synonymous and are often used interchangeably. But what was the need for the Legislature to subsequently spell explicitly that the exemption shall be available only for ONE residential house. A brief look at the various Courts’ interpretation of the word ‘a’ in the context of residential houses as occurring in Taxation Laws will give us the much needed insight.

In the case of Shiv Narain Chaudari Vs. CWT (108 ITR 104), the Allahabad High Court held that one house may consist of more than one self-contained dwelling units and even if the same is occupied by different persons, that alone will not make that house into several houses. Though this decision was rendered in the context of Sec. 5 of Wealth Tax Act, 1957, it provided a clear cut distinction of what is ‘a house’ and ‘a residential unit’.  It is pertinent to note that in the facts of this case, a crucial observation made by the Court was that the two portions of the same building in dispute are contiguous, situated in the same compound, within common boundaries and have unity of structure and thus there is no reason why they should not together be regarded as constituting one house.

The Bombay Bench of ITAT, in the case of Fourth Wealth Tax Officer Vs. M.V Patel (21 ITD 104) gave a definition of what is ‘a house’ as used u/s 5(1)(iv) of the Wealth Tax Act, 1957. The relevant portion reads as under:

“14. It appears to our mind that the meaning of the word ‘house’ is not restricted or controlled to a single residential unit and we see no controlling provisions in the statute and the word, it seems to us, takes into itself the whole physical erection or amalgamated building without any reference to the interior or internal arrangement created for occupation of several tenants”

 A careful analysis of the above judgment shows that the Hon’ble Tribunal has gone one step ahead in holding that what is to be considered is the ‘whole physical erection or amalgamated building’. But here, we must hasten to see that the Tribunal has specifically noted that there are no controlling provisions in the Statute.

The Gujarat High Court, in the case of CWT Vs. S.D. Jadeja (283 ITR 45) held that if the different dwelling units are adjoining each other and situated in a contiguous land having unity of structure, then the same has to be construed as one house. But again, this was delivered in the context of Sec. 7 of the Wealth Tax Act, 1957.

Section 54F: Interpretation by the Courts and the 2014 Amendment:

With the passage of time, a lot of the conditions in Sec. 54F came to be approached in a liberal manner and a pragmatic view was taken by the Courts in awarding this exemption. Here, we can safely conclude that the legislative intent of giving people a permanent shelter was the top priority in doing so. This resulted in some amendments to the Section. What we are now focusing is on the amendment brought about vide Sec. 22 of the Finance Act, 2014. The same reads as under:

 “Amendment of section 54.

22. In section 54 of the Income-tax Act, in sub-section (1), for the words “constructed, a residential house”, the words “constructed, one residential house in India” shall be substituted with effect from the 1st day of April, 2015.”

 One of the early cases to take a contrary stand in the issue of ‘a residential house’ was the case of Mrs. Gulshanbanoo R. Mukhi Vs. JCIT (83 ITD 649), wherein the Court held that ‘a residential house’ as occurring in Sec 54 of the IT Act means only ‘one residential house’ and that the section was clear and unambiguous. Interestingly, in the facts of this case, 1 flat was located in 8th floor and the other flat was located in 10th floor. Conveniently we can say that there was no ‘unity of structure’ or contiguity as enumerated in all the preceding cases. But there was no explicit discussion about this angle.

In D. Anand Basappa Vs. ITO (91 ITD 53), it was again held that u/s 54 of the Act, there was no impediment to acquire multiple residential units. It was here that the Tribunal had made a clear demarcation between a residential unit and a residential house. Quite interestingly, the Tribunal observed that they are unable to subscribe to the views taken in the case of Gulshanbanoo R. Mukhi (supra), It observed that there is no mention of ‘one residential house’ in the statute. Placing reliance on Sec. 13 of the General Clauses Act to state that singular shall include plural and vice versa, it held that ‘a residential house’ can contain more than one residential unit and still can be considered ‘a residential house’ only. This view was reiterated by the High Court of Karnataka in the appeal preferred by the Department (309 ITR 329) and also in the case of CIT Vs. Smt. K.G. Rukminiamma (331 ITR 211). A vital fact enumerated in Anand Basappa’s case (supra) is that the two flats were situated side by side and was infact modified by the builder to be give a common access between the 2 flats. The Court was thus of the opinion that it is to be construed as ‘one house’, though they were purchased by 2 different sale deeds.

In the case of Pawan Arya Vs. CIT (237 CTR 210), the Punjab & Haryana HC distinguished Anand Basappa case (supra) and denied the exemption u/s 54F to the assessee since the 2 houses were 2 different independent houses located in completely different locations altogether.

A striking departure from the ‘unity of structure’ concept was taken by the Madras High Court in the case of CIT Vs. Gumanmal Jain (394 ITR 666), wherein it was held that though the multiple flats were in different blocks or different towers, as long as they are constructed on the same piece of land having the same address, the assessee could be granted exemption u/s 54F. This was also rendered for an assessment year prior to 01.04.2015. The logic behind holding so was spelled out by the High Court to be that irrespective of whether it is one flat or many flats, the assessee gets proportionate undivided share in land only for the same piece of land. Therefore, it was held that the assessee does not buy more than one property in that sense of the matter and that flats, apartments are completely based on co-ownership.

By now, it was fairly well settled that ‘a residential house’ can mean ‘multiple dwelling units’. The question of whether the amendment of 2015  was prospective or retrospective was also answered by the High Court of Madras in the case of CIT Vs. V. R. Karpagam (373 ITR 127), wherein it held that the amendment is only w.e.f 01.04.2015 and nor prior to that.

A landmark judgment on this issue was delivered by the Delhi High Court in the case of CIT Vs. Gita Duggal (357 ITR 153). While reiterating the principles already laid down in Anand Basappa and K.G. Rukminiamma (supra), what makes this decision one of a kind is that it analyses the modern needs and ways of a house construction.

Pausing here, we can see that in today’s world, a large number of people prefer to live independently due to a lot of factors. As a result, several independent units may be constructed in the same premises. Let us assume a scenario where an elderly couple has an ancestral property in their native place and have three married sons. All of them have a share in the ancestral property and prefer to reside in the city. In such a situation, they may sell the ancestral property, purchase a large piece of land in the city and construct a big house with 4 separate residential units to accommodate the 4 families. These separate dwelling units may be private to each couple and yet be together as one house, with common entrance, unity of structure and being capable of merged or amalgamated into one ‘building’ as a whole. In such a scenario, we cannot call this as 4 houses because in sum and substance this is actually ‘one house’.

Let us assume another situation, wherein an apartment with 4 self-sufficient bedrooms are rented to 4 different tenants.  In such a situation, we cannot say that just because the bedrooms are rented to different people owing to the fact that the bedrooms are self sufficient, they are different houses altogether.

Hence the Delhi High Court, in Gita Duggal (supra) stipulated several scenarios where it would be upto the assessee to construct his house in any manner he wants and it would not be an impediment to claim exemption u/s 54F as long as they are independent units of a same house.  The relevant portion of the order reads as under:

9. 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 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. We are therefore, unable to see how or why the physical structuring of the new 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.”

The SLP filed by the Department was also dismissed (228 Taxman 62).

To join this list is the latest judgment of the Karnataka High Court in the case of Navin Jolly Vs. ITO (ITA No. 320 of 2011 dtd 18.06.2020). Here, the Court has interpreted ‘one residential house’ as occurring in the Proviso (a)(i) to Sec. 54(1). Brief apropos facts are that the Assessee earned Long Term Capital Gains from the sale of shares. Thereon, he constructed a residential property and claimed exemption u/s 54F. The AO denied exemption for the reason that the Assessee owns 9 residential flats, income from which is declared under the head ‘income from house property’ and hence he is hit by the Proviso (a)(i) to Sec. 54(1), since he owns more than one residential property as on date of transfer of the original asset. After continuous denial of exemption till the stage of Tribunal, The High Court has given the assessee relief on the basis that out of those 9 flats, 7 were sanctioned for commercial use as service apartments. With respect to the remaining 2, while observing that income from any building (regardless of usage) is declared under income from house property, the Court has held that the remaining 2 flats are also used in a commercial manner and hence it is not an impediment to claim the exemption.

An interesting angle here is that the Court has held that alternatively, the Assessee owns 2 flats of 500 sq. ft and hence they are 2 residential units forming a part of one residential house. Here, the Court has relied and concurred with the decision of Delhi High Court in the case of Gita Duggal (supra).


The points to drive home here are that in today’s world, the needs of people have evolved and hence their preferences of residences and the manner of construction of houses have also undergone paradigm shifts. To conclude, we may say that assesses wanting to claim exemption u/s 54F should ensure that there is unity of structure and they are indeed just independent units and not independent houses altogether that are located in different places. If so, then the amendment of 2014 would come into play. Other than that, the way and manner of construction is left to the assessee and such construction of multiple dwelling units would not deprive the assessee of claiming exemption u/s 54F.

Disclaimer: The contents of this article are for information purposes only and does not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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Company: M/s .V. Ramachandran, Advocates
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  1. Chetan says:

    Hi sir,

    Is there any rule or law saying , we can claim exemption under 54F only once in a life time . I didn’t come through any specific mention about this in section

  2. vswami says:

    To reiterate and reinforce :


    6. The Revenue filed Second Appeal before the Income Tax Appellate Tribunal, which allowed the Appeal filed by the Revenue by its impugned order dated 27.02.2009 and restored the order passed by the Assessing Officer. The operative portion of the order passed by the Tribunal is quoted below for ready reference:-

    “Therefore, in view of the facts, circumstances, relevant provisions of law and ratio of the above decision of the Hon’ble Bombay High Court in the case of K.C.Kaushik V. P.B.Rane, Fifth Income Tax Officer and others [supra], hich is direct on the point, it is held that the Assessing Officer is legally correct in restricting the claim of the assessee under Section 54 with respect to the investment out of LTCG made in one residential house only to the extent of Rs.43,45,000/- as indicated in the assessment order, in the absence of assessee having given preference with regard to any other house, thereby disallowing the claim with respect to other two properties as well as investment made in the CGAS and the ld. CIT(A)’s action in giving different interpretation to the provisions is found to be not legally and factually correct to allow the entire claim of the assessee, as such, while accepting the appeal of the Department, we reverse the impugned order and restore that of the Assessing Officer.

    8.As a result, the appeal of the Revenue gets accepted.”
    In one ‘s independent perspective, the observations and the view taken by the ITAT in the second appeal as recorded in paragraph 6 of the Judgment do prima facie make every sense; besides, in substance, by any sane reasoning and sound logic makes for a better view; in that, appeals to common sense.
    Premised so, the contrarian view taken by the other authorities, and, in every other case thus far adjudicated upon,- also upheld up to the stage of the HC in some of those cases – lastly in the case of Navin Jolly, therefore, cannot, in own firm longstanding conviction, be rightly regarded to have conclusively set at rest, once for all, the ongoing controversies , sought to be impudently kept alive (that is , to be given a fresh lease of life). More so, after the amendment of the law made by the Finance (N0. 2) Act of 2014.
    For a brief discussion (attempted critique) in the matter, anyone (not barring lawyers), if so inspired, may care to and mindfully go through the Article (though left incomplete) published @ “Law Vs Case Law Role of A Professional (CA And Lawyer)”

    (In the larger profoundly Public Interest)

    *(Comment edited by Tax Guru Team at the request of Comment Author)

  3. vswami says:

    Apropos of the Pr. COMMENT / in continuation thereof :
    ATTENTION, – for sake of courtesy and good order, -is being invited to the additional COMMENT since posted, –
    @ “No capital gain tax on land transfer to co-op society formed by flat purchasers”; and
    @”Multiple independent residential units in same building can be treated as one residential unit for section 54F Exemption”
    In furtherance of an ongoing attempt, me wish to ADD:
    A) It is observed that basically faulty and fundamentally weak ideas have been put across and arguments advanced in some of the cited court cases; and sought to be unwittingly reinforced in the lastly decided case of Navin Jolly, on the assessee’s behalf, and accepted by courts.

    To illustrate, furnished below, is an extract there from:
    A landmark judgment on this issue was delivered by the Delhi High Court in the case of CIT Vs. Gita Duggal (357 ITR 153). While reiterating the principles already laid down in Anand Basappa and K.G. Rukminiamma (supra), what makes this decision one of a kind is that it analyses the modern needs and ways of a house construction.

    Pausing here, we can see that in today’s world, a large number of people prefer to live independently due to a lot of factors. As a result, several INDEPENDENT UNITS may be constructed in the same premises. Let us assume a scenario where an elderly couple has an ancestral property in their native place and have three married sons. All of them have a share in the ancestral property and PREFER TO RESIDE IN THE CITY. In such a situation, they may sell the ancestral property, purchase a large piece of land in the city and construct a big house with 4 SEPARATE RESIDENTIAL UNITS to accommodate the 4 families. THESE SEPARATE DWELLING UNITS MAY BE PRIVATE TO EACH COUPLE AND YET BE TOGETHER AS ONE HOUSE, WITH COMMON ENTRANCE, UNITY OF STRUCTURE AND BEING CAPABLE OF MERGED OR AMALGAMATED INTO ONE ‘BUILDING’ AS A WHOLE. In such a scenario, we CANNOT CALL THIS as 4 HOUSES BECAUSE IN SUM AND SUBSTANCE THIS IS ACTUALLY ‘ONE HOUSE’


    FONT (supplied) –

    Personally, me have been left nonplussed, as to why and how, -even by any straight forward reasoning or simple count, what are known as the natural numbers- one, two, three, so on- duly and strictly constructed UNITS as per the sanctioned plan, for use, as such, as separate living units, could , going by common sense, even ‘in sum and substance’, conceivably be rightly regarded and made to be believed as ‘ÓNE’, to make sense and be accepted.

    To Gist:
    In any view, to say/react in the least offensive manner, any such conclusion as urged and reached, do seem to implicitly make a mockery of the legal formalities, as mandated by the statute/ the rules enacted and in place, on the Rules Book, – in the form, as well as in substance of, – ‘house building rules’ of Urban Development, Town Planning, and/ or other civic authorities, not to speak of the regulatory authority (RERA) .

    And, not to miss the deplorably pathetic flip side of it- i.e. the field reality, it ought not to be bypassed or could be conveniently over sighted that the empowered local authorities have made a move and are in the midst of an ongoing exercise of- say in Bangalore,- what is commonly known as, and given publicity in the guise of, – Legalization of Illegal buildings / its Structures ‘, – with the blessings of courts . Infer ably, that is on the only legal footing that any structural or other alteration in violation of the building plan as per the official sanction / approval is illegal, entailing dire consequences.
    For that matter, even after completion of construction and certification, as has been known, there have been numerous instances, not only in Bangalore ( but also elsewhere- say, in Mumbai- e.g. Adarsh Cooperative Housing ) in which those came to been ordered by courts to be demolished, wholly or partly, on the ground of having been made in clear breach of the governing law / rules.

    To conclude (for now):

    All such and other related issues, having a common weak thread passed through (reference is to the half-spun and faulty ideas, unwittingly put across in the course of arguments and found in the cited cases) , might have to perforce be taken on before the SC in a Writ by the Revenue, for adjudication after consolidation of all disputes / cases wherever pending, in one -go, in order to effectively cry a halt and accomplish the intended purpose of putting an end to all such frivolously ‘stimulated litigation’ (in its bizarre sense), mostly founded on convoluted and in-box thinking, without a proper in-depth study and incisive application of mind.

    In venturing to offer/put across such a suggestion,- which has been reached to the concerned authorities lastly through a Message sent,- one has in view the Landmark, nay truly classical, judgment in Podar Cement case
    (ref. LAW and (‘vs’?) CASE LAW On “FLATS” – A Critical Study )

    Preferably, rather most desirably, anyone really knowledgeable, with reasonable experience and devotedly eminent exposure, if so perchance impelled, – nay inspired / provoked in a like vein, – is welcome / invited to form and share own independent thoughts and viewpoints, if any, to profoundly serve THE COMMON GOOD .

    MASTER Note: For a proper appreciation of the foregoing additional comment, as urged herein before, the host of material available in public domain should be necessarily gone through; and recommend to do so.

  4. vswami says:

    wrt >
    The import and purport, much more the essence of the above extract from the write-up is not quite clear or properly understood.
    Premised so, it is suggested, if so care to and be minded, for getting a reasonably good grip, –
    of the implications of the special provisions of the IT Act, applicable to ‘UNITS’ in a building, in general, and
    wprt the applicability of the provisions of relevance governing taxation of ‘income from house property’ and ‘capital gains’, in particular,
    the host of material available on this website itself may be found to be of sufficient use and guidance.
    As regards the mention made of the 2014 amendment of the law, for a discussion thereof, the published article-(2014) 226 TAXMAN 143 (Mag.) may be gone though.

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