Capital Gain benefit available to Only One House Post-Amendment to Section 54F: ITAT [Read Order]

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has held that the capital gain deduction benefit is restricted to only one residential property under section 54F of the Income Tax Act, 1961 after its amendment in the year 2015.

The deceased assessee was represented by her legal heir. During the relevant year, the assessing officer denied the benefit under section 54F of the Act claimed by assessee by holding that assessee had more than one residential house as on the date of transfer. However, the assessee contended that the benefit is available to more than one residential unit as per the relevant provisions. According to the assessee, prior to the amendment, section 54F was liberally constructed ‘a residential house’ to be interpreted as applying to each and every one of residential houses and villas received by the assessee. Also, as per JDA registered on 23/05/2005, the assessee received 35% of the total built-up area, i.e, 35% of apartments constructed along with 35% of car parking and 35% of terrace and garden rights earmarked for private use as against common use in consideration for transferring 65% of undivided interest. The assessee claimed exemption under section 54F on the value of the 35% of the constructed area which was denied by Ld. AO.

Before the Tribunal, the assessee contended that she is eligible for exemption under section 54F on the 35% of constructed area received in view of the land she had parted with.

The Tribunal relied on the orders of the Madras and Karnataka High Courts wherein the Courts had categorically held that amendment to section 54F with regard to ‘a” by Finance (No.2) Act, 2014 w.e.f. 01/04/2015 withdrawing deduction for more than one flat (residential house).

“Courts have consistently held that post amendment benefit of section 54F will be applicable only to one residential house in India whereas prior to the amendment residential house would include multiple residential house/units,” the Tribunal added.

With regard to the deduction in respect of the constructed area, the Tribunal further observed that “in view of consistent view taken by jurisdictional High Court, as well as other High Courts, we are of the opinion that assessee is entitled to deduction under section 54F of the act in respect of 35% of constructed property received by her.”