One residential house can include separate floors, with eligible construction expenditure qualifying for capital-gains exemption.

Capital-gains exemption may apply where separate floors form part of the same residential building. The expression "one residential house" can encompass different floors of a single building, even if each floor is independently usable, provided they remain part of the same residential property. Investment in both the ground and first floors may therefore qualify as investment in one residential house. Construction expenditure incurred for that residential house also forms part of the eligible investment, supporting full exemption for the qualifying residential investment and construction cost.

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Issues: Whether the ground and first floors of the same building constituted one residential house eligible for exemption; and whether construction cost incurred on that residential house qualified for exemption.

Issue (i): Whether the ground and first floors of the same building constituted one residential house eligible for exemption.

Analysis: The expression "one residential house" encompasses different floors of the same building. The physical arrangement of a residential building into independently usable units or floors does not, by itself, make them separate residential houses where they form part of the same residential property.

Conclusion: The ground and first floors constituted one residential house, and exemption was allowable for both floors in favour of the assessee.

Issue (ii): Whether construction cost incurred on that residential house qualified for exemption.

Analysis: The cost incurred for construction of the residential house formed part of the eligible investment in the residential property.

Conclusion: The construction cost was allowable for exemption in favour of the assessee.

Final Conclusion: The assessee was entitled to full capital-gains exemption for the investment in both floors and for the construction expenditure.

Ratio Decidendi: Separate floors forming part of the same residential building may constitute one residential house, and eligible construction expenditure on that house forms part of the qualifying investment for capital-gains exemption.

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