Triplex flat with interconnected units qualifies as single residential unit under section 54F for LTCG exemption

The ITAT Mumbai held that a triplex flat purchased by the assessee qualifies as a single residential unit under section 54F for LTCG exemption purposes. Despite the AO's contention that three separate flats were purchased requiring third-party documentary evidence, the tribunal found that the interconnected units with common living area, kitchen, and rooms constitute one residential house. The agreement and floor plan demonstrated the triplex nature was approved by the builder and registered accordingly. The tribunal ruled that identification of separate blocks by the builder for project completion purposes does not negate the single unit nature when modified to meet the purchaser's requirements as one interconnected residential flat.

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Issues involved:
The issues involved in this judgment relate to the claim of deduction under section 54F of the Income-tax Act, 1961 for the assessment year 2020-21, specifically concerning the definition of a "residential house" in the context of the purchase of multiple interconnected flats.

Summary:

Assessing Officer's Observation:
The Assessing Officer observed that the assessee had claimed a deduction under section 54F amounting to a specific sum against Long Term Capital Gain on the sale of shares. The assessee had purchased three flats under a single agreement, claiming them to be a triplex flat serving as one residential house. However, the Assessing Officer rejected this claim, citing that the purchase of multiple residential units under the pretext of a single unit did not meet the criteria of section 54F. The lack of documentary evidence to prove the interconnected flats as a single residential house led to the rejection of the claim.

Commissioner of Income Tax (Appeals) Decision:
The Ld. CIT(A) upheld the Assessing Officer's decision, emphasizing that the three flats purchased by the assessee were distinct units identified in separate sale deeds. Despite internal interconnectivity, the presence of separate kitchens in each flat contradicted the representation of a single residential unit. The Ld. CIT(A) dismissed the grounds raised by the assessee based on these observations.

Appellate Tribunal ITAT Mumbai Decision:
Upon appeal, the Appellate Tribunal considered the submissions and materials presented. It was noted that the assessee had purchased three interconnected flats with a common living area, kitchen, and rooms, satisfying the definition of a residential unit. The Tribunal highlighted that the identification of blocks by the builder did not negate the purchase of a single residential unit. Referring to precedents and the definition of a residential house, the Tribunal concluded that the assessee's purchase qualified for the deduction under section 54F. The Tribunal allowed the appeal, ruling in favor of the assessee.

In conclusion, the Appellate Tribunal ITAT Mumbai allowed the appeal filed by the assessee, overturning the decisions of the Assessing Officer and the Ld. CIT(A). The Tribunal determined that the purchase of three interconnected flats constituted a single residential unit eligible for the deduction under section 54F of the Income-tax Act, 1961.

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