Mumbai: The Mumbai bench of the Income-Tax Appellate Tribunal (ITAT) has held that two residential flats on different floors of the same building can qualify as ‘one residential house’ for claiming deduction under Section 54F of the Income-Tax Act.Section 54F provides for exemption from long-term capital gains arising from the transfer of a long-term capital asset (other than a residential house), where the net sale consideration is invested in purchasing or constructing ‘a residential house’ in India, subject to prescribed conditions.S Shah, the taxpayer, sold six commercial units during the financial year 2019-20, which resulted in a long-term capital gain of nearly Rs 5 crore. Subsequently, he purchased two flats (on different floors) in Wing A — each having a purchase price of more than Rs 2.5 crore. The flats were purchased directly from the developer of the housing complex.The I-T officer allowed the section 54F deduction for one flat but disallowed the Rs 2.5 crore attributable to the second. The term ‘a residential house’ has often been discussed by ITAT benches and courts and decided in favour of the taxpayer. However, generally these units are adjoining flats, with a common kitchen.In this case, the Commissioner (Appeals), National Faceless Appeal Centre, upheld the disallowance, reasoning that the flats were separate units, located on different floors, had separate entrances and were separately assessed for stamp duty.The taxpayer argued that the two flats were acquired as a single residential accommodation for his family. Given Mumbai’s limited availability of residential space, adjacent flats were not available, and the family opted for units in the same wing connected by a common lift.Referring to judicial precedents including that of Delhi High Court, the tax tribunal said the expression ‘a residential house’ should be examined by looking at the substance and functional character of the accommodation.The ITAT bench noted that both flats were bought on the same date, from the same developer, in the same wing, had identical areas and identical considerations. The fact that they were on different floors did not, by itself, defeat the tax benefit claimed. The ITAT noted that section 54F does not require a residential house to be evidenced by a single registered instrument or to comprise one undivided physical unit. It ruled in favour of the taxpayer. The order will provide support to many taxpayers who have acquired multiple units to accommodate extended families.
