The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has held that the capital gain exemption under section 54F of the Income Tax Act, 1961 is allowable to separate independent liveable residential units on a single piece of land.
The assessee, Shri Venkatesharaiyer Subramanian, during the relevant year, invested in three residential units. In floor-wise plan approval, it was mentioned that there are three tenements in the building one each on ground, first and second floor. Accordingly, the approval was taken for construction of 3 residential houses. The building plan approval was also granted for 3 units of residential house, Further, the assessee had taken 6 domestic electricity connections. The assessee claimed capital gain exemption in respect of all the three units. However, the department rejected the same by holding that the exemption is allowable to a single house as per the provisions of the Act.
A division bench of Shri V. Durga Rao (Judicial Member) and Shri Manoj Kumar Aggarwal (Accountant Member) observed that “It is also evident that the ground floor has been occupied by the assessee himself whereas each of the other two floors are occupied by two tenants each. The same is one of the factors as considered by Ld. AO to deny the deduction. However, the conclusion of Ld. AO would necessarily mean that the assessee was debarred from making separate units on a single piece of land and secondly, it raises a presumption that complete building should have been used by the assessee for its own residential purposes as a single unit. However, the same is not the intention of the legislature. The only requirement is that the assessee should make investment in one residential house.”
Allowing the exemption, the Tribunal held that “In our considered opinion, there is nothing in the statutory provisions which debar the assessee to make separate independent livable units on a single piece of land or obtain more than one electricity connection to claim the deduction. There is also not a condition that the property should be, at all times, used exclusively by the owner himself for his own residential purposes and the same could not be let out. As long as the property is one residential house, the fragmentation of the same into different livable units and to let them in part would not make the assessee ineligible to claim the deduction. Accordingly, the lower authorities, in our considered opinion, has misconstrued the statutory provisions. We would hold that the assessee is eligible to claim the deduction on investment of Rs.249.98 Lacs which shall proportionately stand reduced to Rs.244.30 Lacs as held by Ld. AO in para-14 of assessment order in view of the fact that full sale consideration was not invested in the new house.”
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