Deduction u/s 54F on more than one residential flats received by virtue of a development agreement is allowable

Learned Counsel for the assessee submitted that by virtue of various decisions of the Tribunal and also the jurisdictional High Court in the case of Shri Syed Ali Adil (352 ITR 0418) and also the decision of the Hon’ble Madras High Court in the case of CIT vs.V.R. Karpagam (373 ITR 0127) and the Hon’ble Karnataka High Court in the case of CIT vs.Smt. K.G. Rukminiamma (331 ITR 0211), the assessee was entitled to deduction u/s 54F of the Act in respect of more than one residential flats received by virtue of a development agreement. We find that this issue is now fairly covered by the decision of various High Courts in favour of the assessee. The relevant paragraphs are reproduced here under for ready reference:

i) CIT vs. Smt. K.G. Rukminiamma:

“12. In the instant case, the facts are not in dispute. On a site measuring 30’ x 110’, the assessee had a residential premises. Under a joint development agreement, she gave that property to a builder for putting up flats. Under the agreement eight flats are to be put up in that property and four flats representing 48% is the share of die assessee and the remaining 52% representing another four flats is the share of the builder. So, the consideration for selling 52% of the site is four flats representing 48%. AH the four fiats are situate in a residential building. These four residential flats constitute ‘a residential house’ for the ‘purpose of Section 54. Profit on sale of property is used for residence. The four residential flats cannot be construed as four residential houses for the purpose of Section 54F It. has to be construed only as “a residential house” and the assesses is entitled to the benefit accordingly.

ii) CIT vs. V.R. Karpagam

9. It is relevant to note herein that an amendment was made to the above-said provision with regard to the word ‘a’ by the Finance (No. 2) Act, 2014, which will come into effect from 01.04.2015. The said amendment reads as follows:

32a. Words “constructed, one residential house in India” shall be substituted for “constructed, a residential house” by the Finance (No. 2) Act, 2014, with effect from 01.04.2015.’

10. The above-said amendment to Section 54F of the Income Tax Act, which will come into effect only from 01.04.2015, makes it very clear that the benefit of Section 54F of the Income Tax Act will be applicable to constructed, one residential house in India and that clarifies the situation in the present case, i.e., post amendment, viz., from 01.04.2015, the benefit of Section 54F will be applicable to one residential house in India. Prior to the said amendment, it is clear that a residential house would include multiple flats/residential units as in the present case where the assessee has got five residential flats. We may also mention here that all the Authorities below have clearly understood that the agreement signed by the assessee with M/s. Mount Housing Infrastructure Ltd., is that the assessee will receive 43.75% of the built- up area after development, which is construed as one block, which may be one or more flats. In that view of the matter what was before the Assessing Officer is only equivalent of 56.25% of land transferred, equivalent to 43.75% of built up area received by the assessee. This built up area got translated into five flats. Hence, we are of the opinion that the transaction in this case was not with regard to the number of flats but with regard to the percentage of the built up area, vis-a-vis, the Undivided Share of Land.

iii) CIT vs. Syed Ali Adil

“10. We see no force in the said contention. As held in D. Ananda Basappa’s case (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 v. Smt. K.G. Rukminiamma [2011] 196 Taxman 87/[2010] 8 taxmann.com 121 (Kar.) 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 (supra), P.C. Ramakrishna, HUF’s case (supra) and PremPrakash Bhutani’s case (supra) 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 Ms.Suseela M.Jhaveri’s case (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 (supra) and Smt. K.G. Rukminiamma’s case (supra) and the decisions of the Mumbai, Chennai and Delhi Benches of the Tribunal in K.G. Vyas (supra), P.C. Ramakrishna, HUF (supra) and Prakash Bhutani (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).

11. We hold that no substantial question of law arises for consideration in this appeal and the same is accordingly dismissed. No costs”.

Therefore, the ground of appeal No. 7 is allowed.