Can purchase of more than one residential unit by HUF qualify for Sec 54 benefits?

 

Situation:

1. Consider a situation where an HUF, sold a residential flat and purchased two residential flats adjacent to each other under two different sale deeds.

2. However, the seller of the flats has certified that he has made necessary modifications to the two flats to make it one residential apartment.

3. Assuming all other conditions of Sec 54 are satisfied, can we claim deduction U/S 54?

Probable reply:

A. Hon Karnataka High Court in case of D Ananda Basappa v CIT (2009) (309 ITR 329) in a similar case had held as below:

1. The Hindu undivided family property is held by the members as joint tenants. The members keeping in view the future needs in the event of separation, purchase more than one residential building, it cannot be said that the benefit of exemption is to be denied under section 54(1) of the Income-tax Act.

2. The term “residential house” has to be understood in a sense that the building should be of residential nature and “a” should not be understood to indicate a singular number and where an assessee had purchased two residential flats, he is entitled to exemption under section 54 in respect of capital gains on sale of its property on purchase of both the flats, more so, when the flats are situated side by side and the builder has effected modification of the flats to make it as one unit, despite the fact that the flats were purchased by separate sale deeds

B. Similar judgement was held by the Madras High Court in the case of M/S Trilokchand and Soms (2019) 03 MAD CK 0055

C. Thus the benefit of Sec 54 could be available to a HUF in case adjacent floors are purchased for the members, after a residential flat is sold.