In a recent ruling, the Income Tax Appellate Tribunal ( ITAT ) in Mumbai granted Section 54F exemption under the Income Tax Act 1961 ( ITA ) to an assessee/ appellant, Mr. Nakul Aggarwal, recognizing that his purchase of one residential house with modifications of two adjacent properties amounts to a single residential house.
The assessee, who filed his return for the assessment year 2017-18 with a declared income of Rs. 1,01,52,950, claimed deductions on capital gains under section 54 of the ITA. The case was selected for scrutiny due to concerns regarding his capital gains exemption claim, which involved investments in immovable property.
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The main issue arose from the assessee’s purchase of two adjacent units, 1401 and 1402, in the Terra West C, Rustomjee Elements building, Andheri (W), Mumbai. The Assistant Commissioner of Income Tax (ACIT) initially denied the full exemption, arguing that the purchase did not meet Section 54F’s requirement of a single residential unit, as it involved two separate flats.
Aggrieved, the assessee appealed to the Commissioner of Income-tax (Appeals) [CIT(A)], submitting a revised plan approved by the Maharashtra Housing and Area Development Authority (MHADA) that showed the two units as a single, integrated dwelling.
The CIT(A) partially allowed the claim, accepting the integration on a pro-rata basis and directing the ACIT to adjust the exemption accordingly. However, both parties escalated the matter to the ITAT.
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Before the Tribunal, in defense, the assessee argued that his intent had been to acquire a single residence, noting that the flats had only been registered separately due to the builder’s constraints, not by choice. He supported his position by citing relevant case law, including CIT vs. Devdas Naik (2014) and CIT vs. Anantha Basappa (2009), where courts allowed exemption for adjacent properties deemed as a single residence.
After reviewing the evidence and the MHADA-approved plan, the ITAT bench of Smt Beena Pillai and Smt Renu Jauhri accepted that the assessee’s purchase constituted a single residential unit. It noted that the structure met the conditions of a unified dwelling with one kitchen and contiguous design, thus satisfying the requirements of Section 54F of the tax legislature. The tribunal dismissed the revenue’s objections, ruling that the separate registration did not indicate intent to maintain two independent units.
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In result, in its decision, the ITAT instructed the ACIT to grant full exemption under section 54F of the tax statute, allowing the assessee’s appeal and dismissing the revenue’s cross-appeal.
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