The Income Tax Appellate Tribunal (ITAT) Delhi bench has held that the capital gain exemption under section 54 of the Income Tax Act, 1961 should be given to more than one houses when the property of an HUF is sold.
Before the Tribunal, the assessee contended that the explanation “a” residential house used in the section should be understood in a sense that the building should be of residential in nature and “a” should not be understood to indicate a single number. It was contended that as long as the assessee acquires a building which may be constructed in such a manner as to consists of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of section should be taken to have been satisfied.
The Tribunal noted the decision of the Karnataka High Court wherein it was held that the contention of the Revenue is that the phrase “a” residential house would mean one residential house and it does not appear to the correct understanding.
“The expression “a” residential house should be understood in a sense that building should be of residential in nature and “a” should not be understood to indicate a singular number. The combined reading of sections 54(1) and 54F of the IT Act discloses that, a non-residential building can be sold, the capital gain of which can be invested in a residential building to seek exemption of capital gain tax. However, the proviso to s. 54 of the IT Act, lays down that if the assessee has already one residential building, he is not entitled to exemption of capital gains tax, when he invests the capital gain in purchase of additional residential building. When an HUF’s residential house is sold, the capital gain should be invested for the purchase of only one residential house is an incorrect proposition. After all, the HUF property is held by the members as joint tenants. The members keeping in view the future needs in event of separation, purchase more than one residential building, it cannot be said that the benefit of exemption is to be denied under s. 54(1) of the IT Act,” the Tribunal said.
On facts, it is shown by the assessee that the apartments are situated side by side. The builder has also stated that he has effected modification of the flats to make it as one unit by opening the door in between two apartments. The fact that at the time when the Inspector inspected the premises, the flats were occupied by two different tenants is not the ground to hold that the apartment is not a one residential unit. The fact that the assessee could have purchased both the flats in one single sale deed or could have narrated the purchase of two premises as one unit in the sale deed is not the ground to hold that the assessee had no intention to purchase the two flats as one unit.
Hence, keeping in view the fact that primarily the assessee is eligible for deduction u/s. 54F and purchased the plots and constructed residential dwellings on those plots, we hereby hold that the assessee is eligible for the deduction and confirm the order of the ld. CIT(A) to that extent.
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