Multiple Flats Received Under Section 54F Count as One Residential Unit for Capital Gains Exemption

The HC held that multiple flats received in exchange for land under Section 54F should be treated as a single residential unit for capital gains exemption purposes. The term "a residential house" in Section 54F is to be interpreted in the plural. The assessee was entitled to claim exemption on five flats received as reinvestment, as the agreement pertained to a percentage of the built-up area, not the number of flats. The built-up area was considered one block, and thus the flats were assessed as one unit. The decision was against the Revenue.

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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.

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