Section 54F relief covers multiple flats under one development agreement when the property remains residential in character.

Before the amendment to Section 54F, multiple flats received under one joint development agreement could qualify as a single residential house for exemption purposes, even if they were in different blocks or towers, so long as they formed part of the same project and property. The residential character of the flats was not lost merely because they were let to an educational society for student accommodation; the relevant test was the nature of the property itself, not the tenant's business. On that basis, the notes also indicate that the related capital gains and clubbing issues did not require separate interference once the exemption was allowed.

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Issues: (i) Whether the assessee was entitled to exemption under Section 54F in respect of all flats received under the joint development agreement; (ii) whether the flats received pursuant to the development agreement were to be treated as commercial property so as to deny the exemption under Section 54F; (iii) whether the computation of capital gains and clubbing of minors' income required interference.

Issue (i): Whether the assessee was entitled to exemption under Section 54F in respect of all flats received under the joint development agreement.

Analysis: The flats were received as the product of a single development agreement relating to the same property. The settled position, as applied by the Court, was that prior to the amendment to Section 54F, the expression "a residential house" could include multiple residential units or flats obtained under one development arrangement, even if they were situated in different blocks or towers, so long as they formed part of the same project and location.

Conclusion: The assessee was entitled to exemption under Section 54F in respect of all the flats received under the joint development agreement.

Issue (ii): Whether the flats received pursuant to the development agreement were to be treated as commercial property so as to deny the exemption under Section 54F.

Analysis: The sanctioned plan showed residential construction, and the subsequent letting to an educational society did not alter the character of the property where the premises were used for accommodating students. The decisive test was the residential character of the house, not the nature of the tenant's business. On the facts, the property retained its residential character.

Conclusion: The flats were residential in nature, and the denial of exemption on the ground of commercial use was unwarranted.

Issue (iii): Whether the computation of capital gains and clubbing of minors' income required interference.

Analysis: Once exemption under Section 54F was allowable for all the flats, the disputes regarding valuation and capital gains computation did not affect the taxable outcome. As to clubbing, the deduction available under Section 54F had to be considered before bringing any income to tax in the hands of the assessee under the clubbing provision.

Conclusion: No interference was called for in the findings sustaining the assessee's relief on these aspects.

Final Conclusion: The order granting full Section 54F relief to the assessee was upheld, and the revenue's challenge failed.

Ratio Decidendi: Before the amendment to Section 54F, multiple flats obtained under one development agreement could constitute a residential house for exemption purposes, and the residential character of the property is not displaced merely because it is let out to an educational institution for student accommodation.

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