Multiple flats purchased side by side qualify for Section 54F deduction as single residential house

The ITAT Jodhpur allowed the appellant's claim for deduction under Section 54F for investment in three flats (two 1BHK and one 2BHK) located side by side on the same floor of one building, intended to be joined for joint living. The tribunal held that Section 54F requires acquisition of "a residential house" not necessarily a single unit, and multiple flats for residential use satisfy this requirement. The ITAT also allowed deduction for amounts kept in bank for registration, ruling that booking flats under construction constitutes "construction" rather than "purchase," making the appellant eligible for the three-year construction period benefit. Both additions were deleted and the appeal was allowed.

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Issues Involved:
1. Deduction under Section 54F of the Income Tax Act for investment in multiple residential units.
2. Disallowance of deduction for the amount kept in the bank for registration and stamp duty purposes.

Issue-Wise Detailed Analysis:

1. Deduction under Section 54F of the Income Tax Act for investment in multiple residential units:

The appellant challenged the confirmation of disallowance made by the AO regarding the claim of deduction under Section 54F of the Act. The AO disallowed the deduction for the purchase of three flats, restricting it to only one flat, based on the amendment to Section 54F w.e.f. 1-4-2015, which specifies that the benefit is to be given only for one residential house. The CIT(A) upheld this view, citing the amendment and the case of M/S Tilokchand & Sons v. ITO, which clarified that the amendment was meant to end the controversy over the interpretation of "a residential house" in plural terms.

The appellant argued that the flats were purchased to accommodate a large family and were intended to be used as a single residential unit. The appellant cited the case of CIT v. Gita Duggal, where it was held that Section 54/54F talks about a "residential house" and not a "residential unit," and that the requirement is satisfied as long as the building is for residential use, regardless of its internal structuring.

The Tribunal noted that the amendment to Section 54F is not applicable retrospectively and pertains to assessment years post-2015. For the assessment year in question, the law as interpreted by the Delhi High Court in CIT v. Gita Duggal was applicable, which allowed for the interpretation of "a residential house" in a manner that could include multiple units used as a single residence. The Tribunal concluded that the AO and CIT(A) erred in their interpretation and allowed the deduction for the investment in the three flats.

2. Disallowance of deduction for the amount kept in the bank for registration and stamp duty purposes:

The appellant also challenged the disallowance of Rs. 18,74,892/- for the amount kept in the bank for registration and stamp duty, which was not deposited in the Capital Gains Account Scheme (CGAS). The appellant argued that booking a flat with a builder is akin to construction, and the money would be invested as construction progresses. The Tribunal cited several cases, including CIT v. Sunder Kaur Sujan Singh and Kishore H. Galaiya v. ITO, which held that booking a flat with a builder is considered construction, not purchase.

The Tribunal found that the flats were booked for construction and the registry was effected only after completion, making the appellant eligible for the deduction. The Tribunal held that the amount kept for registration and stamp duty was part of the allowable deduction under Section 54F, as it was utilized for the construction of the new house within the stipulated time.

Conclusion:

The Tribunal allowed the appeal of the assessee, holding that the appellant is entitled to the deduction under Section 54F for the investment in the three flats and the amount kept for registration and stamp duty purposes. The additions made by the AO were deleted, and the order was pronounced in accordance with Rule 34(4) of the Income Tax Appellate Tribunal (Rules) 1963.

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