Seven Adjacent Residential Units on Same Floor Constitute ‘One Residential House’ u/s 54 of Income Tax Act: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) ruled that seven adjacent residential units on the same floor in a complex constitute “one residential house” under Section 54 of the Income Tax Act,1961.

Saroj Rani,appellant-assessee,had filed her return of income on 20.07.2016 under Section 139(1), declaring a total income of ₹5,27,260, including salary, rental income, and long-term capital gains.

The case was selected for limited scrutiny to verify the correctness of capital gains computation and the deduction claimed under Section 54. The Assessing Officer (AO )allowed a deduction of ₹36,54,821 for one adjacent unit but denied the remaining exemption of ₹1,86,36,599 and added it to the income.

The assessee challenged the order before the Commissioner of Income Tax(Appeals)[ CIT(A)], but the appeal was dismissed.The assessee then appealed before the tribunal.

The two member bench comprising Madhumita Roy (Judicial Member) and Naveen Chandra (Accountant Member) examined the submissions and reviewed the material on record. The appeal involved the partial denial of deduction under Section 54 of the Act on long-term capital gains arising from the sale of a residential house in Punjabi Bagh, Delhi, for ₹2,70,60,000.

The assessee had claimed a deduction of ₹2,22,91,420, out of which only ₹36,54,821 was allowed, while ₹1,86,36,599 was disallowed on the ground that the investment was made in seven residential units.

The appellate tribunal noted that the assessee had invested ₹2,55,83,750 in seven adjacent residential units on the same floor in a complex developed by Aura Buildwell Pvt. Ltd. The AO and CIT(A) had allowed deduction only for one unit, allocating the total cost equally, and denied the balance claim by applying the amended provision from 01.04.2015, which substituted the phrase “a residential house” with “one residential house.”

However, the tribunal referred to the Delhi High Court’s rulings in Gita Duggal, Lata Goel, and Kamla Ajmera, which clarified that multiple adjacent units forming a single functional residence could still be treated as “one residential house” for the purpose of Section 54/54F.

It observed that there was no requirement in law mandating a specific physical structure or layout of the house as long as the property was intended for residential use.

Considering these findings, the tribunal held that the seven adjacent units constituted “one residential house” within the meaning of Section 54. Accordingly, it set aside the order of the CIT(A) and directed the AO to delete the addition of ₹1,86,36,599 and allow the full deduction as claimed.

The appeal was therefore allowed.

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