Adjoining Flats = One House: Exemption for Capital Gains Investment

The Tribunal upheld the CIT(A)'s decision that two adjacent flats constituted a single residential house, allowing the assessee's claim for exemption under Section 54F for Long Term Capital Gains invested in both properties. The revenue's appeal was dismissed, affirming the assessee's entitlement to the deduction for the entire investment in the combined residential unit. The Tribunal emphasized a liberal construction of Section 54F in favor of the assessee, highlighting the beneficial nature of the provision.

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Issues Involved:
1. Deduction under Section 54F for Long Term Capital Gains (LTCG) invested in two residential flats.
2. Interpretation of the amendment to Section 54F effective from 01.04.2015.
3. Classification of two adjacent flats as a single residential house.
4. Reliance on judicial decisions prior to the amendment of Section 54F.

Detailed Analysis:

1. Deduction under Section 54F for Long Term Capital Gains (LTCG) invested in two residential flats:
The primary issue was whether the assessee was entitled to a deduction under Section 54F for LTCG invested in two different residential flats. The revenue argued that post the amendment effective from 01.04.2015, the deduction should be limited to only one residential house. The Assessing Officer (AO) disallowed the exemption for the second flat, treating the investment as two separate properties.

2. Interpretation of the amendment to Section 54F effective from 01.04.2015:
The amendment to Section 54F replaced the term "a residential house" with "one residential house in India," thereby restricting the deduction to one residential property. The AO and the revenue contended that this amendment should limit the assessee's exemption to one flat only. However, the CIT(A) and the Tribunal interpreted the amendment in the context of the assessee's claim that the two flats constituted a single residential unit.

3. Classification of two adjacent flats as a single residential house:
The assessee argued that the two flats, numbered 801 and 802, were combined into a single residential unit with one common entrance, kitchen, electricity meter, and gas connection. The CIT(A) accepted this argument, citing that the flats were used as a single unit despite being purchased through two separate agreements. The Tribunal upheld this view, noting that the structural plan and the housing society's letter supported the claim that the flats were effectively one residential property.

4. Reliance on judicial decisions prior to the amendment of Section 54F:
The revenue criticized the CIT(A) for relying on judicial decisions made before the amendment to Section 54F. However, the CIT(A) and the Tribunal referred to various judicial precedents that supported the interpretation of a single residential unit, even when purchased through multiple agreements. Notable cases included Sanjay B Pahariya vs. ACIT, Deepak S. Bheda vs. ACIT, and Sudha Gurtoo vs. ACIT, which were considered relevant despite being decided before the amendment.

Conclusion:
The Tribunal concluded that the CIT(A) correctly interpreted the facts and the law, considering the beneficial nature of Section 54F. The Tribunal upheld the CIT(A)'s decision that the two flats constituted a single residential house and allowed the assessee's claim for exemption under Section 54F. The revenue's appeal was dismissed, affirming that the assessee was entitled to the deduction for the entire investment in the combined residential unit. The Tribunal emphasized that the provisions of Section 54F should be construed liberally in favor of the assessee.

Order:
The appeal filed by the revenue was dismissed, and the order was pronounced in the open court on 25.02.2022.

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