Deduction U/s. 54/54F dallowable for purchase of multiple independent house units

As held in D. Ananda Basappa’s case (1 supra) by the Karnataka High Court, the expression a residential house in Section 54 (1) of the Act has to be understood in a sense that the building should be of residential nature and a should not be understood to indicate a singular number and where an assessee had purchased two residential flats, he is entitled to exemption under Section 54 in respect of capital gains on sale of its property on purchase of both the flats, more so, when the flats are situated side by side and the builder has effected modification of the flats to make it as one unit, despite the fact that the flats were purchased by separate sale deeds. This decision was followed by the Karnataka High Court in CIT Vs. Smt. K.G.Rukminiamma6 where a residential house was transferred and four flats in a single residential complex were purchased by the assessee, it was held that all four residential flats constituted “a residential house” for the purpose of Section 54 and that the four residential flats cannot be construed as four residential houses for the purpose of Section 54. Admittedly the two flats purchased by the assessee are adjacent to one another and have a common meeting point. In the impugned order, the Tribunal has also relied upon the decisions in K.G.Vyas’s case (2 supra), P.C.Ramakrishna, HUF’s case ) and Prakash Bhutani’s case  wherein it was held that exemption under Section 54 only requires that the property should be of residential nature and the fact that the residential house consists of several independent units cannot be an impediment to grant relief under Section 54 even if such independent units were on different floors. The decision in Suseela M.Jhaveri’s case (5 supra) holding that only one residential house should be given the relief under Section 54 does not appear to be correct and we disapprove of it. We agree with the interpretation placed on Section 54 by the High Court of Karnataka in D.Ananda Basappa’s case (1 supra) and Smt. K.G.Rukminiamma’s case (6 supra) and the decisions of the Mumbai, Chennai and Delhi Benches of the Tribunal in K.G.Vyas (2 supra), P.C.Ramakrishna, HUF (3 supra) and Prakash Bhutani (4 supra). We therefore hold that the CIT (Appeals) was correct in setting aside the order of the assessing officer and the Tribunal rightly confirmed the decision of the CIT (Appeals).

ANDHRA PRADESH HIGH COURT

I.T.T.A.No.410 of 2012

20.12.2012

The Commissioner of Income Tax

Versus

Syed Ali Adil

JUDGMENT