Different Floors of Single Building cannot be Counted as Separate “Residential Houses” u/s 54F of Income Tax Act: Delhi HC [Read Order]

The Delhi High Court recently dismissed the income-tax department’s appeal, affirming an ITAT order that granted the taxpayer a ₹90-crore exemption under Section 54F of the Income-tax Act. A bench of Justices Vibhu Bakhru and Tejas Karia ruled that different floors of a single building cannot be counted as separate “residential houses” for denying the “rollover” relief from capital gains taxation under Section 54F of the Income Tax Act.

The department argued Ms Goel was ineligible because she co-owned the basement and second floor of property when she sold shares of FIITJEE Ltd. in 2011. It cited clause (i) of the Section 54F proviso, which withholds relief if an assessee owns more than one dwelling on the transfer date. Officers also reopened her 2011-12 assessment in March 2017, beyond four years, on the same ground.

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Rejecting the appeal, the bench said the statute speaks of “one residential house”, not “one residential unit”. Citing CIT v. Gita Duggal and CIT v. D. Ananda Basappa, it observed that split-level accommodation serves a single residential purpose, even if ownership titles are recorded floor-wise. Therefore, Ms Goel’s partial interests in the Vasant Vihar structure did not bar her from availing the exemption.

The court also ruled the 2017 notice under Section 148 void, finding “no failure” by the assessee to disclose material facts. Her return already detailed the share sale and the purchase of a new house at E-27, Vasant Vihar. Attempting to revisit the issue so late amounted to a change of opinion, the judges said, adding that “no substantial question of law arises”.

Addressing field officers, the judgment emphasised that modern homes are often constructed in segments for convenience, yet remain one residence. Relief cannot be denied merely because a building is vertically divided or jointly owned, nor is Section 54F breached simply because the exact sale proceeds are not paid directly to the seller if investment conditions are met.

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It was observed by the bench that, “In view of the above, we find no infirmity with the decision of the learned ITAT in holding that the Assessee could not be denied the deduction under Section 54F of the Act on the ground that she holds more than one residential unit.

Further, it was also found that there has been no failure on the part of the Assessee to truly and fairly disclose all the material facts in her return. The Assessee had fairly disclosed about the sale of the original asset, in respect of which capital gains had arisen as well as about the house property purchased from the said sale proceeds.

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It was further noted that the configuration of ownership of the property, as recorded in the South Delhi Municipal Corporation records for D-6/5, does not lead to the conclusion that there was any failure on the part of the Assessee in disclosing the material facts relevant for claiming the deduction sought by the Assessee.

No substantial question of law arising for consideration, the bench dismissed the appeal of the department.

The author expects the ruling to deter aggressive reopenings involving split-floor properties and to clarify that capital gains need not be traced rupee-for-rupee once parked in a capital-gain account.

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