Long Term Capital gain arising from sale of many properties and invested in just one House property: Whether capitalgain Admissible?


Long Term Capital gain arising from sale of many properties and invested in just one House property: Whether capitalgain Admissible?

Long Term capital gain arising from sale of any capital asses can be claimed as exempt if taxpayers invests the amount for purchase or construction of the house property.

It may be noted that Section 54F of the IT Act allows an exemption on capital gain from sale of any property other than a residential house. (On sale of residential house property, exemption can be claimed u/s 54). This exemption is subject to certain conditions which are:

  1. Taxpayer should invest the net sale proceeds of the property in purchase of a new residential house.
  2. The new residential property must be purchased either 1 year before the sale or years after the sale of the property/asset Or the new residential house property must be constructed within 3 years of sale of the property
  3. Taxpayer should not own more than one residential house on the date of transfer, other than the one bought for claiming exemption under this section.

Some of the most common issues raised are:

  1. If multiple properties are sold to buy a new residential house,then whether the exemption on capital gains arising on sale of all such properties will be allowed against the purchase of same residential house property or not?.
  2. Also if multiple properties are sold in different years to construct a residential property,whether exemption in multiple yearu/s 54F will be admissible against the under construction one house property alone?

It may carefully be noted that there is no bar in section 54F for claiming deduction second or third time also for the same property if the cost of the property is within the capital gain arising to the taxpayer.In the above case ,the total capital arising to the taxpayer in all the three years 2009-10 to 2011-12 was less than the cost of construction of the residential property at Mehendi Farms,New Delhi

Income Tax Appellate Tribunal (ITAT) Delhi in New Delhi v Mohinder Kumar Jain IT APPEAL NO. 5254 (DELHI) OF 2014 has allowed capital gain exemption in multiple-years for an under construction house.  It has concluded that the taxpayer can invest capital gains for the second, third or fourth time also towards the same new house property. The brief facts of the case were as under:

  1. Taxpayer sold his commercial property and invested the proceeds in the construction of a house at Mehendi Farm.He  claimed a deduction of Rs 47.84 u/s 54F in 2008-09  against the investment made in construction of a farm house.
  2. In 2010-11,Taxpayer again sold five properties and invested further in the construction of the same house at Mehendi Farm. He claimed a deduction of Rs 1.59 crore under section 54F in his I-T returns for 2010-11 against the investment made in the same house.
  1. Section 54F shall not apply where the taxpayer owns more than one residential house, other than the new asset on the date of transfer of the original asset. In this case,taxpayer was having one residential house at D-3/8 , Vasant Vihar Delhi and the other house at Mehendi Farms was under construction at the time of sale of five properties in the year 2010-11

Delhi ITAT has held as under:


The  Income Tax Appellate Tribunal (ITAT) Delhi allowed the deduction of Rs 1.59 crore under section 54F against the investment made in the construction of house at Mehendi Farms.

Taxpayer did not own more than one residential house on the date of sale of commercial property. Taxpayer had one house at D-3/8 Vasant Vihar, New Delhi, the same was let out during the year, which is also evident from the computation of income for the relevant assessment year, wherein the rental income from the same house has been declared as income from house property. This indicates that the taxpayer was not using that house as his residence during the relevant assessment year. At the same time, the construction of residential house at 9, Mehendi Farms, Chhatarpur New Delhi was also not complete and the taxpayer was residing during the relevant period in a residential property in the name of Hindu undivided family at E-222,Naraina Vihar, New Delhi. This fact is also evident from the documents such as telephone bill, copy of passports and copy of correspondences with IFCI.