Even if a residential house consists of several independent units- Deduction U/s. 54 / 54F can be claimed

V.V.V. Satyanarayana Vs. Income Tax Officer (ITAT Hyderabad)

With reference to the deduction u/s. 54/54F, the AO’s contention that assessee owns more than two residences was not correct. Assessee got eight apartments subsequently, on transfer of one residential house property, by way of development agreement. Nowhere the AO contends that assessee had more than one building as on the date of transfer i.e., on 19-06-200 1. Subsequent acquisition of any number of houses will not prevent assessee claiming the deduction for transfer as on 19-06-2001. Therefore, the AO’s view can not be upheld. Assessee is entitled for deduction u/s. 54/54F. With reference to the claim of deduction, assessee has claimed only for contiguous flats. But law on this as propounded by the Hon’ble High Court of AP in the case of CIT Vs. Syed Ali Adil in ITA No. 410 of 2012, date 20-12-2012 is as under:

“10. We see no force in the said contention. As held in D.Ananda Basappa’s case (1 supra) by the Kamataka 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.Rukminiamma 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. 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 Kamataka in D.Ananda Basappa’s case (l 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)”.

Respectfully following the same, I hold that assessee is entitled for claim u/s. 54/54F on all the flats. AO is directed to allow the deduction as claimed.

Full Text of the ITAT Order is as follows:-

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