No Capital gain exemption where more than one flat purchase is on separate floors, located at diagonally opposite ends of the same tower.
Whether the benefit as conferred by Section 54F of the Act and which uses the expression “a residential house” would stand confined to a singular unit or could it also be read as contemplating a plural interpretation?
The Delhi High Court in Mrs. Kamla Ajmera v. Pr. Commissioner of Income Tax (ITA 246/2019, decided on December 3, 2024) clarified the scope of the term “a residential house” under Section 54F of the Income Tax Act, 1961. The case addressed whether this phrase permits exemption for multiple residential units or is confined to a single unit.
Key Analysis and Findings
1. Literal Interpretation and Legislative Intent:
• Section 54F uses the expression “a residential house”, which prima facie denotes a singular unit.
• The amendment introduced by the Finance (No. 2) Act, 2014, effective from Assessment Year 2015-16, replaced “a residential house” with “one residential house” to clarify the legislative intent: the exemption is restricted to investment in a single residential property within India.
2. Practical Usage and Integration:
The Court acknowledged earlier judicial precedents where multiple residential units were treated as a single residential house when they were physically and functionally integrated. For example:
• In CIT v. Gita Duggal (Delhi HC, 2013), multiple floors in the same building qualified as one house because they were integrated into a single residence.
• In D. Ananda Basappa (Karnataka HC, 2008), adjacent flats modified into a single cohesive unit were treated as one house.
• In Gumanmal Jain (Madras HC, 2017), multiple units built on a single piece of land were considered a single residential property.
However, in this case, the flats purchased by the assessee:
• Were on separate floors, located at diagonally opposite ends of the same tower.
• Were legally and physically distinct, as confirmed by the builder.
• Could not be physically or functionally integrated into a single residential unit.
These factors made the earlier precedents inapplicable.
3. CBDT Circular Clarification:
The Court referred to the CBDT Circular dated January 21, 2015, which explained the purpose of the amendment to Section 54F. It stated that the exemption is available only for investment in one residential house, addressing misinterpretations by courts that had allowed exemptions for multiple houses before the amendment.
4. Applicability of Judicial Precedents:
The Court distinguished this case from precedents like Gita Duggal and D. Ananda Basappa because the flats in question were not adjacent or capable of being used as a single unit. The principle of practical integration, central to those decisions, was absent here.
The Court held that the two non-adjacent flats purchased by the assessee, despite being located in the same tower, were distinct and independent units. As a result, they could not be considered as “a residential house” for the purpose of exemption under Section 54F
The copy of the order is as under:
