Section 54F exemption covers multiple flats from one development agreement when they retain their residential character.
Section 54F exemption was available, before its amendment, for multiple residential flats received under a single joint development agreement where they formed part of the same project and location. Letting the flats to an educational institution for student accommodation did not convert them into commercial property; the sanctioned residential character, rather than the tenant's business, was decisive. Full exemption therefore applied to all flats, making valuation and capital-gains computation disputes immaterial to the taxable outcome. The Section 54F deduction also had to be given effect before clubbing minors' income. The assessee's full relief was sustained and the revenue's challenge failed.
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.