Capital Gain exemption under section 54F: Income Tax Act speaks of ‘one residential house,’ not ‘one residential unit.
In a landmark judgment, the Delhi High Court has provided much-needed clarity on the interpretation of “one residential house” under Section 54F of the Income Tax Act, 1961.
Let us have a Short Overview of the case:
Case Overview:
Assessee: Ms. Lata Goel
Assessment Year: 2011–12
Capital Gains: Arising from the sale of shares in FIITJEE Ltd.
Claimed Exemption: ₹90 crore under Section 54F
Property in Question: Ownership of basement and second floor in a building at Vasant Vihar, New Delhi
Tax Department’s Argument:
The Income Tax Department contended that Ms. Goel owned more than one residential house at the time of the share sale, citing her co-ownership of multiple floors in the Vasant Vihar property. They argued this disqualified her from claiming the exemption under Section 54F, which stipulates that the assessee should not own more than one residential house (other than the new asset) on the date of transfer.
High Court’s Ruling:
The bench, comprising Justices Vibhu Bakhru and Tejas Karia, dismissed the department’s appeal, affirming the ITAT’s decision in favor of Ms. Goel. The court observed that:
“The statute speaks of ‘one residential house,’ not ‘one residential unit.’ Split-level accommodations serving a single residential purpose, even if ownership titles are recorded floor-wise, constitute one residential house.”
They further noted that modern homes are often constructed in segments for convenience, yet remain one residence.
Implications:
This judgment sets a significant precedent, clarifying that owning multiple floors in a single building does not equate to owning multiple residential houses for the purposes of Section 54F. It offers relief to taxpayers who invest capital gains into properties structured across multiple floors, ensuring they are not unjustly denied exemptions due to technical interpretations of property ownership.
Key Takeaway:
Taxpayers can now confidently claim exemptions under Section 54F when investing in multi-floor properties within a single building, provided the property functions as a single residential unit.
The copy of the order is as under:
