Mumbai ITAT rules two separate flats can qualify as one residential house for tax relief
The Mumbai Income-Tax Appellate Tribunal has held that two flats on different floors of the same building can be treated as a single residential house for deduction under Section 54F. The ruling, in favour of a taxpayer who bought both units for family accommodation, overturns a disallowance of near
The Mumbai bench of the Income-Tax Appellate Tribunal (ITAT) has held that two residential flats on different floors of the same building can qualify as ‘one residential house’ for claiming deduction under Section 54F of the Income-Tax Act. Section 54F provides for exemption from long-term capital gains arising from the transfer of a long-term capital asset (other than a residential house), where the net sale consideration is invested in purchasing or constructing ‘a residential house’ in India, subject to prescribed conditions.
The case involved taxpayer S Shah, who sold six commercial units during the financial year 2019-20, resulting in a long-term capital gain of nearly Rs 5 crore. He subsequently purchased two flats on different floors in Wing A of a housing complex, each with a purchase price of more than Rs 2.5 crore, directly from the developer. The Income-Tax officer allowed the Section 54F deduction for one flat but disallowed the Rs 2.5 crore attributable to the second.
The Commissioner (Appeals), National Faceless Appeal Centre, upheld the disallowance, citing that the flats were separate units on different floors, with separate entrances and separately assessed for stamp duty. However, the taxpayer argued that the two flats were acquired as a single residential accommodation for his family, noting that adjacent flats were not available in Mumbai’s limited residential market and that the family opted for units in the same wing connected by a common lift.
The ITAT bench ruled in favour of the taxpayer, noting that both flats were bought on the same date from the same developer, in the same wing, with identical areas and identical considerations. The bench observed that Section 54F does not require a residential house to be evidenced by a single registered instrument or to comprise one undivided physical unit. The fact that the flats were on different floors did not, by itself, defeat the tax benefit claimed, the tribunal said.
The ruling is expected to provide support to many taxpayers who have acquired multiple units to accommodate extended families, following the principle established by the Delhi High Court that the expression ‘a residential house’ should be examined by looking at the substance and functional character of the accommodation.
