In a significant ruling, the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has held that tax benefit under section 54 of the Income Tax Act is available to the assessee for selling multiple flats to purchase a new one in India, within the stipulated time.
Under section 54 of the Income Tax Act, if the investment is made in one house in India, in the stipulated period (see table for conditions prescribed), then to the extent of this investment, the taxable component of the LTCG is reduced, which results in lower tax outgo.
Assessee, Bipin N Sagar sold three adjoining flats and claimed exemption under Section 54. These flats were used as a single unit, with just one kitchen. But the Income Tax officer sought to deny the Section 54 benefits on the grounds that LTCGs arose on the sale of three flats, and not just one, as the sale was via three separate agreements.
During the assessment, he added back a sum of Rs 1.88 crore to the income of the taxpayer for 2010-11. The ITAT observed that in this case, the I-T officer had not disputed the evidence submitted by Sagar that the three adjoining flats were in fact united as one single unit. Notwithstanding this fact, there is no restriction placed anywhere in Section 54 that exemption is available in relation to the sale of only one residential house, it added. Incidentally, the interim budget has provided for additional relaxation. It proposes to allow investments to be made in two house properties in India, but this option can be exercised only once in a lifetime.
The ITAT agreed with the contention of the taxpayer that Section 54 of the I-T Act has an inbuilt restriction that the capital gain arising from the sale of a residential house cannot be invested in more than ‘one’ residential house, in India. However, there is no restriction that the capital gains arising from the sale of more than one residential houses can be so invested.
“The provision of Section 54 is applied to the transfer of any number of residential houses by the taxpayer provided the capital gains arising therefrom are invested in a proper manner within the prescribed time period,” the bench said.
