Assessee who bought two separate flats gets Section 54F LTCG exemption for only one flat, not both units

Delhi HC upheld ITAT's decision restricting Section 54F LTCG exemption to only one flat where assessee purchased two separate flats on different floors at diagonally opposite ends of same tower. Court held that "a residential house" in Section 54F refers to singular unit, not multiple units. Legislature's use of "a new asset" and "a residential house" indicates single entity. Two non-adjacent flats incapable of structural connection don't qualify as one residential house. Exemption granted for one flat only, decided in favor of revenue.

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Issues Involved:

1. Interpretation of "a residential house" under Section 54F of the Income Tax Act, 1961.
2. Eligibility for exemption under Section 54F when multiple residential units are purchased.
3. Applicability of amendments made by the Finance Act, 2014 to Section 54F.
4. Judicial precedents relevant to interpreting "a residential house."

Issue-wise Detailed Analysis:

1. Interpretation of "a residential house" under Section 54F of the Income Tax Act, 1961:

The primary issue was whether the term "a residential house" in Section 54F should be interpreted strictly as a single residential unit or if it could encompass multiple units. The court examined the language of Section 54F, noting that the provision refers to "a residential house" and "a new asset," indicating singularity. The court emphasized that the indefinite article "a" tends to carry the concept of singularity, as opposed to plurality. The court concluded that the legislative intent was to allow exemption for a single residential house, not multiple units.

2. Eligibility for exemption under Section 54F when multiple residential units are purchased:

The assessee had purchased two separate flats on different floors of the same tower, claiming them as a single residential house for exemption purposes. The court found that the flats were distinct and separate, as they were located on different floors and opposite ends, making it impossible to combine them into a single unit. The court held that the two flats could not be treated as "a residential house" for the purpose of Section 54F, as they did not meet the criteria of being a unified residential unit.

3. Applicability of amendments made by the Finance Act, 2014 to Section 54F:

The court considered the amendment brought by the Finance Act, 2014, which replaced "a residential house" with "one residential house." The court noted that the amendment was introduced to clarify that the benefit was intended for investment in one residential house, resolving any ambiguity that may have existed. The court did not delve into whether this amendment was clarificatory or not, as the facts of the case did not support the assessee's claim even under the pre-amendment provision.

4. Judicial precedents relevant to interpreting "a residential house":

The court reviewed various judicial precedents, including the cases of Gita Duggal, D. Ananda Basappa, and Pawan Arya. In Gita Duggal, the court had allowed exemption for multiple units constructed on a single plot as a single house, based on their adjacency and potential for integration. However, in the present case, the court distinguished these precedents, emphasizing that the flats purchased by the assessee were not adjacent or capable of being combined into a single unit. The court concluded that the precedents did not apply to the facts of the present case.

Conclusion:

The court dismissed the appeal, holding that the assessee was not entitled to exemption under Section 54F for both flats, as they did not constitute "a residential house." The court upheld the decision of the ITAT, which allowed exemption for only one flat, reinforcing the interpretation that "a residential house" refers to a singular residential unit.

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