Navin Jolly v. ITO – [2020] 117 323 (Karnataka)

Assessee had sold shares of a company and derived long term capital gain.

He declared before Assessing Officer (AO) that he had constructed a residential property and claimed exemption under section 54F.

AO held that assessee was owner of nine residential flats. Income derived from said residential properties was declared under the head income from house property.

Therefore, AO held that assessee was not eligible to claim exemption under section 54F.

AO further held that the properties owned by assessee were two residential apartments, therefore section 54F exemption was denied.

Assessee contended that submitted that out of nine flats, seven flats have been sanctioned for commercial purposes and only two flats have been sanctioned as residential units which were being used for commercial purposes later.

On appeal, ITAT held that the assessee should not have more than one residential unit on the date of transfer of original asset.

 It further held that it was immaterial as to how the residential units were utilised by assessee so long as these were recognised as residential units.

Therefore, it was held that the assessee couldn’t claim the benefit of exemption under section 54F.

On further appeal, Karnataka HC held assessee owned two apartments in same building and therefore, it had to be treated as one residential unit.

Further, the usage of property has to be considered for determining whether the property is a residential property or a commercial property.

Assessee’s claim for deduction under section 54F was to be allowed where two apartments owned by him even though had been sanctioned for residential purpose, yet same were in fact being used for commercial purpose as service apartments.