Facts of the Case

The assessee, Mrs. Kamla Ajmera, inherited a plot of land in Jaipur after the demise of her husband. The plot, originally purchased in 1983, was sold during Assessment Year 2013–14 for ₹77,75,000/-. From the sale proceeds, the assessee purchased two residential flats in Prateek Stylome, Sector 45, Noida, being Flat No. A-1501 for ₹44,13,775/- and Flat No. A-1602 for ₹42,39,275/-.

In her return of income filed on 31.07.2013, the assessee computed long-term capital gains of ₹77,21,957/- and claimed exemption under Section 54 or alternatively under Section 54F of the Income-tax Act, 1961. The Assessing Officer held that the asset sold was a plot and not a residential house, rejected Section 54, and further denied Section 54F on the ground that the assessee had purchased two residential flats.

Issues Involved

Whether exemption under Section 54F of the Income-tax Act, as applicable to AY 2013–14, could be claimed in respect of two residential flats purchased in the same tower but located on different floors and at different ends, and whether such flats could be treated as “a residential house”.

Petitioner’s Arguments

The assessee argued that the expression “a residential house” used in Section 54F (prior to amendment by Finance Act, 2014) permitted a plural interpretation. Reliance was placed on decisions such as CIT v. Gita Duggal, CIT v. D. Ananda Basappa, and CIT v. Gumanmal Jain to contend that multiple units could qualify as one residential house if intended for residential use. It was further argued that the amendment substituting “a residential house” with “one residential house” was prospective and not applicable to AY 2013–14.

Respondent’s Arguments

The Revenue contended that the two flats were independent residential units, situated on different floors and diagonally opposite ends, incapable of being combined into one dwelling unit. It was argued that Section 54F envisages exemption in respect of one residential house only and that the ITAT had correctly granted exemption only for one flat, following the decision in Pawan Arya v. CIT.

Court Order / Findings

The Delhi High Court examined the factual findings recorded by the Assessing Officer, including the builder’s confirmation and the Inspector’s report, which established that the two flats were neither adjacent nor capable of being structurally or legally combined into one residential unit.

The Court distinguished the decisions relied upon by the assessee, holding that in Gita Duggal and similar cases, the residential units were adjacent or capable of being used as a single dwelling unit, which was not the situation in the present case. The Court held that the word “a” in the expression “a residential house” denotes a singular residential unit, subject to limited flexibility where multiple units can practically function as one house.

The Court upheld the ITAT’s view that exemption under Section 54F could be allowed only in respect of one flat, and that the ITAT was justified in granting partial exemption for the higher-valued flat.

Important Clarification

The Court clarified that while the expression “a residential house” may, in certain factual situations, include more than one unit, such interpretation is confined to cases where the units are adjacent or capable of being used as one single dwelling house. Distinct, non-adjacent flats on different floors cannot be treated as one residential house for the purposes of Section 54F.

Final Outcome

The appeal filed by the assessee was dismissed. The Delhi High Court answered the substantial question of law in favour of the Revenue and upheld the order of the Income Tax Appellate Tribunal granting exemption under Section 54F only in respect of one residential flat and denying exemption for the second flat.

 

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769841041_MRS.KAMLAAJMERAVsPR.COMMISSIONEROFINCOMETAX.pdf

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