2014 (8) TMI 899 - HC - Income Tax

Five independent flats treated as single unit u/s 54F Interpretation of term a residential house - Reinvestment of capital gain for claiming exemption u/s 54F Held that - The word a appearing in Section 54F of the Income Tax Act should not be construed in singular, but should be understood in plural - Relying upon CIT V. Smt. K.G. Rukminiamma 2010 (8) TMI 482 - Karnataka High Court - assessee was eligible for claiming exemption u/s 54F of the Act on the five flats received by her in lieu of the land she had parted with - all the Authorities below have clearly understood that the agreement signed by the assessee with M/s.Mount Housing Infrastructure Ltd., is that the assessee will receive 43.75% of the built-up area after development, which is construed as one block, which may be one or more flats - the built up area got translated into five flats - the transaction was not with regard to the number of flats but with regard to the percentage of the built up area, vis-a-vis, the Undivided Share of Land thus, the property should be assessed as one unit, even though different flats are available Decided against Revenue.

Summary

Issues:
1. Interpretation of Section 54F - Treatment of multiple flats as a single residential unit.
2. Interpretation of "a residential house" in Section 54F for claiming exemption.

Issue 1 - Interpretation of Section 54F:
The case involved a dispute regarding the treatment of five independent flats in a multi-storey construction as a single residential unit under Section 54F of the Income Tax Act. The assessee claimed exemption on the value of these flats, arguing that they constituted one residential unit. The Assessing Officer initially granted exemption for one flat with the largest area. The Commissioner of Income Tax (Appeals) allowed exemption for one single flat with the largest area. However, the Income Tax Appellate Tribunal held that the assessee was eligible for exemption under Section 54F on all five flats received. The Tribunal relied on a decision of the Karnataka High Court, interpreting the word "a residential house" in plural connotation, allowing exemption for multiple units. The Tribunal concluded that the assessee was entitled to exemption on all five flats based on this interpretation.

Issue 2 - Interpretation of "a residential house" for exemption:
The Revenue contended that a residential house should be construed as one unit even if it comprises different flats, as each apartment has separate facilities. The Revenue highlighted an amendment to Section 54F, effective from 01.04.2015, substituting "a residential house" with "one residential house." However, the High Court analyzed the pre-amendment scenario, emphasizing that prior to the amendment, a residential house could include multiple flats. The Court noted that the agreement between the assessee and the developer focused on the percentage of built-up area received, translating into five flats. Referring to previous decisions, the Court held that even if different flats are present, the property should be assessed as one unit. As all the flats shared one door number, they constituted a single residential unit. Consequently, the Court dismissed the appeal, stating that no substantial question of law arose for consideration.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the interpretation of Section 54F and the treatment of multiple flats as a single residential unit for exemption purposes. The Court's analysis focused on the pre-amendment provisions and previous judicial interpretations, ultimately affirming that the assessee was eligible for exemption on all five flats received.