2018 (4) TMI 712 - AT - Income Tax

Claim of exemption u/s 54 - assessee had independently acquired multiple flats, which however, were joined/merged together and used by the assessee as a single residential unit - Held that - Hon ble High Court of Bombay in the case of CIT-21, Mumbai vs. Devdas Naik (2014 (7) TMI 173 - BOMBAY HIGH COURT) had concluded that that where acquisition of two flats had been done independently by the assessee, but however, the said flats were constructed in such a way that the adjacent units or flats could be combined into one, and eventually had been merged into a single unit and were used for the purpose of residence by the assessee, the latters claim of exemption under section 54 could not be denied. - Decided in favour of assessee.

Summary

Issues:
- Interpretation of exemption under section 54 of the Income-tax Act
- Whether multiple flats purchased can be considered as a single residential unit for exemption

Analysis:
1. The appeal was filed by the Revenue against the order passed by the CIT(A)-10, Mumbai, arising from the order passed by the Assessing Officer under Sec. 143(3) of the Income-tax Act, 1961 for A.Y 2009-10. The Revenue challenged the allowance of exemption under section 54 of the IT Act based on the decision of a Special Bench ITAT case without accepting that the assessee invested in four separate flats.

2. The assessee sold a residential bungalow and purchased four flats, claiming exemption under section 54F. The Assessing Officer questioned the exemption, stating that only one flat could be purchased under Sec. 54F. The assessee argued that the four flats constituted a single residential unit, supported by floor plans and society bills. However, the Assessing Officer allowed exemption for only two residential units.

3. The CIT(A) directed a field enquiry, which confirmed that the four flats were merged into one composite flat. Relying on the Special Bench Tribunal's decision, the CIT(A) upheld the assessee's claim for exemption under section 54.

4. The Revenue appealed the CIT(A)'s decision, citing judgments from the Hon'ble High Court of Bombay and Andhra Pradesh. The issue revolved around whether the multiple flats purchased could be considered a single residential unit for exemption under section 54.

5. The Tribunal considered the field enquiry report confirming the merger of the four flats into one unit. Relying on the High Court judgments, the Tribunal concluded that if multiple flats were merged and used as a single residential unit, the claim for exemption under section 54 could not be denied. The Tribunal upheld the CIT(A)'s decision based on the settled legal principles.

6. The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order in favor of the assessee. The decision was based on the established legal precedents regarding the interpretation of exemption under section 54 and the treatment of multiple flats as a single residential unit for tax purposes.

Judgment:
The appeal filed by the Revenue was dismissed, and the order passed by the CIT(A) allowing exemption under section 54 for the assessee's investment in multiple flats merged into a single residential unit was upheld.