Deduction under Section 54 allowed for investment in five house properties received through development agreement

ITAT Delhi allowed deduction u/s 54 for investment in five house properties for AY 2013-14. The assessee, a land owner, received five flats as per development agreement representing 43.75% built-up area. Following Madras HC precedent in Karpagam case, the tribunal held that multiple flats in same building constitute single unit for exemption purposes. The amendment restricting deduction to "one residential house" became effective from 01.04.2015, therefore pre-amendment legal position applied. Appeal allowed.

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Issues:
The appeal involves the interpretation of the provisions of section 54 of the Income Tax Act, 1961 regarding the eligibility for exemption/deduction for investment in multiple house properties.

Issue 1: Interpretation of Amendment to Section 54 of the Act
The appellant challenged the disallowance made by the Assessing Officer (AO) regarding the appellant's claims for exemption/deduction under section 54 of the Income Tax Act, 1961. The appellant argued that the amendment made by the Finance Act, 2014, changing "a residential house" to "one residential house" was a prospective amendment, and prior to the amendment, the word "a" was a grammatical reference, not a numeric reference. The AO restricted the exemption to investment in one house property, denying the benefits for investment in multiple properties. The appellant contended that prior to the amendment, investment in multiple houses was permitted, citing various decisions in support. The Tribunal analyzed the legal position and held that the amendment effective from 01.04.2015 clarified that the exemption under section 54 would be available only for one residential house in India post-amendment. The Tribunal allowed the appeal, emphasizing that the restriction of investment in only one residential house was applicable from A.Y. 2015-16, and could not be extended to prior years.

Issue 2: Denial of Exemption for Investment in Multiple Properties
The AO disallowed the appellant's deduction claimed under section 54 of the Act for investment in five house properties, restricting the exemption to one property only. The AO held that the deduction was allowable only for investment in one house property, and not for multiple units unless they could be jointly enjoyed as one unit. The Tribunal considered various case laws and legal positions on the issue. The Tribunal noted that prior to the amendment to section 54, the benefit could be allowed for investment in multiple units construed as a single residential unit. Citing judgments and legal precedents, the Tribunal concluded that the restriction of investing in one residential house was effective only from the assessment year 2015-16, and allowed the appellant's appeal for the assessment year 2013-14.

Separate Judgement by the Judges:
The Order was pronounced in the Open Court on 17/11/2023 by Dr. B. R. R. Kumar, Accountant Member of the Appellate Tribunal ITAT Delhi.

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