Multiple Floors in Same Redeveloped Building Qualify as ‘One Residential House’ for Section 54 : ITAT [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that multiple floors received by an assessee in a single redeveloped building would qualify as “one residential house” for the purpose of deduction under Section 54 of the Income Tax Act, 1961.

The assessee, Ms. Seeta Nayyar along with her husband, was the owner of a residential property situated on a 500 sq. yard plot in New Delhi.

In October 2012, they entered into a redevelopment agreement with a builder under which the old residential structure was to be demolished and replaced with a new building comprising ground plus three floors.

The developer was to construct the building at its own cost and, in consideration, receive one floor along with 22.5% undivided share in the land. The remaining three floors and 77.5% undivided share in the land were to vest with the assessee and her husband. Additionally, they were to receive monetary consideration.

In the income tax returns filed, for the Assessment Year 2015-16 the assessee declared long-term capital gains and claimed deduction under Section 54 amounting to ₹4.40 crore, setting off the computed capital gains.

The Assessing Officer, however, restricted the indexed cost of acquisition to 22.5% of the land, corresponding to the portion transferred to the developer.

The department further denied the Section 54 deduction on the ground that the assessee had received more than one residential unit (multiple floors), whereas the provision permits investment in only “one residential house.”

The First Appellate Authority that is the CIT(A) affirmed the additions.

The bench of Arun Khodpia (Accountant member) and Saktijit Dey (Vice president) held that merely because the assessee received two floors in the same building, it cannot be said that she owned more than one residential house.

According to the tribunal, “fact remains that except one floor given to the builder, rest of the building remained in the possession of assessee and her husband. It is not a case where the builder was given the authority and freedom to develop the property for sale to outsiders. Therefore, two floors given to the assessee are part of one residential house and cannot be considered as more than one in number.”

Therefore, the tribunal ruled that the assessee eligible to claim Section 54 deduction. Thus, allowed the appeal.

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