I got two independent floors from the builder. Is that one residential house for 54?
Yes, for the years this decision governs. So long as the assessee acquires a building of several units that can conveniently and independently be used as residences, section 54 and 54F are satisfied and the exemption is not restricted to a single unit.
Decided by the High Court (Delhi High Court, Badar Durrez Ahmed J and R. V. Easwar J) on 2013-02-21, reported as (2013) 357 ITR 153 (Del); (2013) 214 Taxman 51 (Del); (2013) 257 CTR 208 (Del); ITA 1237/2011, AY 2007-08. It bears on section 54, section 54F of the Income Tax Act 1961, in Capital Gains Exemptions and Capital Gains matters.
It answers the redevelopment and collaboration disallowance, where the owner takes back two or more floors with separate entrances and the AO allows only one. The court's point was that the statute said 'residential house' and not 'residential unit', and nothing in the sections required the house to be built in a particular manner, whether laterally or vertically. Note before using it that this has been superseded by amendment for AY 2015-16 onwards, so it now helps only in older years still under assessment, appeal or reassessment.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee owned A/22 Westend Colony, New Delhi, comprising basement, ground, first and second floors, from which she drew rent. On 8 May 2006 she entered into a collaboration agreement with M/s Thapar Homes Ltd, which was to demolish the existing structure and construct at its own cost a building of basement, ground, first, second and third floors with terrace. The builder was to take the third floor and 22.5 per cent of the undivided interest in the land; the assessee kept the basement, ground, first and second floors and was to receive Rs 4 crores in cash. She returned long-term capital gains of Rs 2,68,25,750, taking the fair market value on 1 April 1981 at Rs 15,75,000 and claiming Rs 50 lakhs under s.54EC. The Assessing Officer added the builder's construction cost of Rs 3,43,72,529 to the sale consideration; the assessee said that if that cost was part of the consideration it had equally been invested in the residential house she received, and claimed s.54. The Assessing Officer held the floors she retained were separate self-contained units with separate entrances, allowed s.54F relief for one unit only, apportioned the construction cost among the four floors in the ratio 1:1:1:0.5 and added Rs 98,20,722. The Commissioner (Appeals) allowed the deduction in respect of the basement, ground, first and second floors, and the Tribunal confirmed that.
The appeal was dismissed, the Court holding that no substantial question of law arose (para 9). Section 54 and s.54F use the expression 'a residential house' and not 'a residential unit', a concept the Assessing Officer introduced into the section. So long as the assessee acquires a building that may, for convenience, be constructed to consist of several units which can, if need arises, be conveniently and independently used as an independent residence, the requirement of the section is satisfied; the only requirement is that the use be residential and not commercial. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the deduction, being neither expressly nor impliedly prohibited (para 9). The Court reached that conclusion in support of, and as an additional angle to, the Karnataka High Court's construction in D. Ananda Basappa and K.G. Rukminiamma that 'a' in 'a residential house' is an indefinite article and, by s.13(2) of the General Clauses Act, the singular includes the plural (para 8).
The Court first adopted the Karnataka High Court's reasoning, quoting D. Ananda Basappa: on a plain reading of s.54(1), and with s.13 of the General Clauses Act declaring that the singular includes the plural, the expression 'a residential house' means a building residential in nature and 'a' is not to be read as a numeral; the proviso to s.54 separately deals with the assessee who already owns a residential building. That decision had been followed in K.G. Rukminiamma, and the assessee pointed out that the Revenue's special leave petition against it had been dismissed (para 8). The Court then offered what it called another angle (para 9): the statute speaks of a residential house, not a residential unit; nothing in ss.54 and 54F requires the house to be constructed in a particular manner, the only requirement being residential rather than commercial use, and the tax authorities cannot insist on a requirement the section does not contain. People build according to need — a ground floor for themselves and a first floor with its own entrance to let, a unit carved out for children and family, a part capable of separate sale later — so the physical structuring of the house, lateral or vertical, cannot stand in the way of treating the building as a residential house.
We do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. It is neither expressly nor by necessary implication prohibited.
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Handle my notice → Ask a CA on WhatsAppYes, for the years this decision governs. So long as the assessee acquires a building of several units that can conveniently and independently be used as residences, section 54 and 54F are satisfied and the exemption is not restricted to a single unit. This was decided by the High Court (Delhi High Court, Badar Durrez Ahmed J and R. V. Easwar J) and bears on section 54, section 54F of the Income Tax Act 1961. It is reported as (2013) 357 ITR 153 (Del); (2013) 214 Taxman 51 (Del); (2013) 257 CTR 208 (Del); ITA 1237/2011, AY 2007-08. It answers the redevelopment and collaboration disallowance, where the owner takes back two or more floors with separate entrances and the AO allows only one. The court's point was that the statute said 'residential house' and not 'residential unit', and nothing in the sections required the house to be built in a particular manner, whether laterally or vertically. Note before using it that this has been superseded by amendment for AY 2015-16 onwards, so it now helps only in older years still under assessment, appeal or reassessment. If it applies to you, the first step is this: Check the assessment year before anything else: if it is AY 2015-16 or later, this decision does not carry the claim.
The assessee owned A/22 Westend Colony, New Delhi, comprising basement, ground, first and second floors, from which she drew rent. On 8 May 2006 she entered into a collaboration agreement with M/s Thapar Homes Ltd, which was to demolish the existing structure and construct at its own cost a building of basement, ground, first, second and third floors with terrace. The builder was to take the third floor and 22.5 per cent of the undivided interest in the land; the assessee kept the basement, ground, first and second floors and was to receive Rs 4 crores in cash. She returned long-term capital gains of Rs 2,68,25,750, taking the fair market value on 1 April 1981 at Rs 15,75,000 and claiming Rs 50 lakhs under s.54EC. The Assessing Officer added the builder's construction cost of Rs 3,43,72,529 to the sale consideration; the assessee said that if that cost was part of the consideration it had equally been invested in the residential house she received, and claimed s.54. The Assessing Officer held the floors she retained were separate self-contained units with separate entrances, allowed s.54F relief for one unit only, apportioned the construction cost among the four floors in the ratio 1:1:1:0.5 and added Rs 98,20,722. The Commissioner (Appeals) allowed the deduction in respect of the basement, ground, first and second floors, and the Tribunal confirmed that. The matter was decided on 2013-02-21 by the High Court (Delhi High Court, Badar Durrez Ahmed J and R. V. Easwar J). On those facts the High Court held as follows. The appeal was dismissed, the Court holding that no substantial question of law arose (para 9). Section 54 and s.54F use the expression 'a residential house' and not 'a residential unit', a concept the Assessing Officer introduced into the section. So long as the assessee acquires a building that may, for convenience, be constructed to consist of several units which can, if need arises, be conveniently and independently used as an independent residence, the requirement of the section is satisfied; the only requirement is that the use be residential and not commercial. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the deduction, being neither expressly nor impliedly prohibited (para 9). The Court reached that conclusion in support of, and as an additional angle to, the Karnataka High Court's construction in D. Ananda Basappa and K.G. Rukminiamma that 'a' in 'a residential house' is an indefinite article and, by s.13(2) of the General Clauses Act, the singular includes the plural (para 8).
The Court first adopted the Karnataka High Court's reasoning, quoting D. Ananda Basappa: on a plain reading of s.54(1), and with s.13 of the General Clauses Act declaring that the singular includes the plural, the expression 'a residential house' means a building residential in nature and 'a' is not to be read as a numeral; the proviso to s.54 separately deals with the assessee who already owns a residential building. That decision had been followed in K.G. Rukminiamma, and the assessee pointed out that the Revenue's special leave petition against it had been dismissed (para 8). The Court then offered what it called another angle (para 9): the statute speaks of a residential house, not a residential unit; nothing in ss.54 and 54F requires the house to be constructed in a particular manner, the only requirement being residential rather than commercial use, and the tax authorities cannot insist on a requirement the section does not contain. People build according to need — a ground floor for themselves and a first floor with its own entrance to let, a unit carved out for children and family, a part capable of separate sale later — so the physical structuring of the house, lateral or vertical, cannot stand in the way of treating the building as a residential house. In the words reproduced by the source cited on this page: "We do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. It is neither expressly nor by necessary implication prohibited." The decision followed or applied CIT v. D. Ananda Basappa [2009] 309 ITR 329 (Kar.) — quoted and relied on (paras 3, 8); CIT v. Smt. K.G. Rukminiamma [2011] 196 Taxman 87 (Kar.) — relied on (para 8).
It was decided by the High Court on 2013-02-21 and is reported as (2013) 357 ITR 153 (Del); (2013) 214 Taxman 51 (Del); (2013) 257 CTR 208 (Del); ITA 1237/2011, AY 2007-08. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 54, section 54F, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The appeal was dismissed, the Court holding that no substantial question of law arose (para 9). Section 54 and s.54F use the expression 'a residential house' and not 'a residential unit', a concept the Assessing Officer introduced into the section. So long as the assessee acquires a building that may, for convenience, be constructed to consist of several units which can, if need arises, be conveniently and independently used as an independent residence, the requirement of the section is satisfied; the only requirement is that the use be residential and not commercial. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the deduction, being neither expressly nor impliedly prohibited (para 9). The Court reached that conclusion in support of, and as an additional angle to, the Karnataka High Court's construction in D. Ananda Basappa and K.G. Rukminiamma that 'a' in 'a residential house' is an indefinite article and, by s.13(2) of the General Clauses Act, the singular includes the plural (para 8). It arises in Capital Gains Exemptions and Capital Gains matters, on section 54, section 54F of the Income Tax Act 1961, and was decided by Delhi High Court, Badar Durrez Ahmed J and R. V. Easwar J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For the earlier years, put on record that the units are residential in intended use and can each be used independently as a residence. Do not let separate entrances or separate floors become the test in your reply; the distinction the court drew was residential against commercial use, not one unit against several. Where the consideration is part cash and part built-up area, keep the two elements separately documented on the file.
Superseded by amendment. The Revenue's special leave petition against this judgment was dismissed: CIT-VII v. Gita Duggal [2015] 228 Taxman 62 (SC), SLP (C) No. 4830 of 2014, decided 29 August 2014 by Madan B. Lokur and C. Nagappan JJ, with delay condoned and the petition dismissed without reasons. That is not an affirmance on the merits, but the decision stands. What displaces it is the statute: the Finance Act 2014 substituted 'one residential house in India' for 'a residential house' in ss.54 and 54F with effect from 1 April 2015, so from AY 2015-16 the multiple-unit line no longer applies and the deduction is confined to one residential house. The Finance Act 2023 separately caps the cost of the new asset at Rs 10 crore from AY 2024-25. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read against the reported judgment. Two corrections of substance. The assessee retained the basement, ground, first and second floors of A/22 Westend Colony; it was the builder, Thapar Homes Ltd, who took the third floor — the earlier record had her receiving the first and second floors. And the Court's first ground was not the structural reasoning but the Karnataka construction of the article 'a' in D. Ananda Basappa, read with s.13(2) of the General Clauses Act; the passage usually quoted from para 9 is expressly introduced as 'another angle'. The appeal was dismissed on the footing that no substantial question of law arose. The Revenue's special leave petition was dismissed by the Supreme Court on 29 August 2014 without reasons. On validity, the Finance Act 2014 substituted 'one residential house in India' in ss.54 and 54F with effect from 1 April 2015, so use this decision only for years up to AY 2014-15; the Finance Act 2023 separately caps the cost of the new asset at Rs 10 crore from AY 2024-25. The decision concerns several independent units within one building. It does not decide the case of units in separate buildings or at separate addresses, and it says nothing about the position after the Finance Act 2014 substitution. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed, the Court holding that no substantial question of law arose (para 9). Section 54 and s.54F use the expression 'a residential house' and not 'a residential unit', a concept the Assessing Officer introduced into the section. So long as the assessee acquires a building that may, for convenience, be constructed to consist of several units which can, if need arises, be conveniently and independently used as an independent residence, the requirement of the section is satisfied; the only requirement is that the use be residential and not commercial. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the deduction, being neither expressly nor impliedly prohibited (para 9). The Court reached that conclusion in support of, and as an additional angle to, the Karnataka High Court's construction in D. Ananda Basappa and K.G. Rukminiamma that 'a' in 'a residential house' is an indefinite article and, by s.13(2) of the General Clauses Act, the singular includes the plural (para 8).
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