TaxTMI 
TaxTMI 
2026 (7) TMI 122
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....ed CIT(A) 15, Bangalore erred in confirming the said disallowance. 2.2 The learned income tax authorities erred in restricting and allowing the exemption under section 54 to purchase of only one residential house property amounting to Rs. 5,91,80,000. 2.3 The learned income tax authorities erred in not appreciating that, during the year under consideration, the appellant sold 17 flats resulting in long term capital gains and invested the said capital gains in purchase of 4 residential properties and construction of one other residential property, thereby eligible for exemption under section 54 in respect of all 5 new residential properties. 2.4 The learned income tax authorities erred in not appreciating that (i) exemption under section 54 is allowed in respect of capital gains arising from transfer of a long term capital asset, being buildings or lands appurtenant thereto, being a residential house and the assessee purchases or constructs one residential house in India; (ii) since the appellant has sold 17 residential flats, the appellant is eligible for exemption under section 54 in respect of purchase or construction of 17 or less than 17 residential h....
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.... No. 71, Nallurahalli, Bengaluru. Similarly, another JDA was entered into by the assessee with M/s Reddy Structures Private Limited on 6.11.2012 to construct residential apartments in the land situated at Survey No. 172, Kumbena Agrahara, Bengaluru. The apartment complex at Survey No. 71, Nallurahalli was named 'Mahaveer Tranquil' and the apartment complex at Survey No. 172, Kumbena Agrahara was named 'Mahaveer Willet'. As per the sharing agreements, the assessee was allotted 76 apartments at 'Mahaveer Tranquil' and 46 apartments at 'Mahaveer Willet'. 3.2 During the year under consideration, the assessee sold 17 flats from both the aforesaid projects resulting in long-term capital gain aggregating to Rs. 11,80,61,786/-. The details of capital gain are tabulated as below: Sl. No. Particulars Long term Capital Gain (Rs.) 1. Flat 501A, Mahaveer Willet 56,34,326 2. Flat 106B, Mahaveer Willet 33,36,568 3. Flat 406B, Mahaveer Willet 37,85,453 4. Flat 803B, Mahaveer Tranquil 75,71,767 5. Flat 205B, Mahaveer Tranquil 75,55,502 6. Flat 103A, Mahaveer Tranquil 63,87,937 7. Flat 501E, Mahaveer Tranquil 82,66,312 8. ....
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.... submissions and case laws relied upon by the assessee. 7. Before us, the ld. A.R. of the assessee CA. H Padamchand Khincha appearing for the assessee contended that the exemption under section 54 of the Act is allowable in respect of capital gains arising from transfer of each residential house. The ld. AR of the assessee relied upon the CBDT letter No 207/24/76-IT(A-II), dated 25.3.1977 to contend that capital gains arising on transfer of each residential house is eligible for exemption under section 54 of the Act. Further relying on the decision of ITAT Special Bench in the case of JCIT v Montgomery Emerging Markets Fund [2006] 100 ITD 217, it is argued that capital gains arising from transfer of each and every residential house is a separate source of income and consequently exemption under section 54 of the Act should also be allowed separately for each capital gains. The memorandum explaining the provisions of Finance No 2 Bill 2014 was relied on to argue that the memorandum does not state that exemption is allowable in respect of one residential house even if the assessee has sold multiple residential houses during the year. The ld. AR of the assessee further submitted th....
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....ential house property although 17 flats were sold during the year under consideration. The ld. CIT(A) has confirmed the action of the AO in restricting the investment to only on residential house property. 9.1 As per section 45 of the Act, any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as other wise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. In the present case, the exemption is claimed by the assessee under section 54 of the Act. Section 54(1) of the Act which thus becomes relevant and as applicable for AY 2020-21 reads as under- Profit on sale of property used for residence. 54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house p....
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.... a long-term capital asset, being a residential house. The capital gains arising from transfer of a long-term capital asset, being a residential house is chargeable to tax under section 45 of the Act. As discussed above section 45 of the Act which is a chargeable section provides that any profits and gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income tax under the head Capital gains. Further, Section 48 of the Act provides for computation mechanism of income chargeable under the head Capital gains. Full value of consideration received or accruing as a result of the transfer of the capital asset is the starting point for such computation. The provisions of section 45 and 48 of the Act envisages computation of capital gains for each capital asset. In other words, profits and gains arising from each and every capital asset is chargeable under the head Capital gains. In holding so, we are getting guidance & support of the decision of the ITAT Special Bench in the case of JCIT v Montgomery Emerging Markets Fund [2006] 100 ITD 217 wherein it....
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....ve transactions are again different sources of income. When section 70 provides that a loss falling under a source of income can be set off against income from any other source under the same head, it means that the long term capital loss being a separate source can be set off against short term capital gains, which is another separate source of income. Within the provisions of law contained in section 70, there is no further identification of sources of income against which alone loss of a particular source can be set off. What is mentioned in the law is only source of income. As far as the head of income "capital gains" is concerned, the sources could be transfer of short-term capital asset as well as transfer of long term capital assets and transfer of different assets will be different sources of income. There is no further identification or qualification with respect to any source so that the law would presume any sort of restriction on set off of loss arising from one source against income arising from any other source. Therefore, the contention of the assessee that irrespective of the identity of the source of income, it is possible for the assessee to set off the loss of a ....
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....assessee or which could not be occupied by the assessee because of his employment/business/profession being carried on at some other place. Based on such provisions contained in section 23(2), income from any number of properties being residential houses which are self-occupied will have to be treated as exempt. But a restriction has been placed in section 23(4) which provides that where the property referred to in sub-section (2) consists of more than one residential houses, exemption would be available only in respect of one house and other self-occupied residential houses will be treated as let out. There is no such provision in section 54 to restrict the exemption of capital gain only to sale of one residential house. The authorities below have taken the view that whenever more than one option is given to the assessee the word used is "any". The reference has been made to the provisions of section 54E etc. We find from perusal of the said sections that the word "any" has been used because the assessee has option to invest in any of the assets mentioned therein. For instance, section 54E provides exemption in respect of capital gain arising from transfer of a long-term capital a....
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....a. It does not provide that exemption will be limited to one residential house in respect of long term capital gain arising from transfer of more than one residential house. Second proviso to section 54EC and 54EE of the Act specifically states that exemption under the said sections is limited to Rs. 50 lakhs in respect of capital gains arising from transfer of one or more original assets during the financial year in which the original asset or assets are transferred and in the subsequent financial year. Similarly, section 23(4) of the Act specifically provides that annual value of any two houses occupied for assessee's own residence shall be taken as NIL and the annual value of self occupied houses in excess of 2 houses at the option of the assessee shall be computed as per section 23(1) of the Act as if such house or houses had been let. Thus, wherever legislature wanted to curtail exemption to a particular limit, it has specifically provided so. Unlike second proviso to section 54EC and 54EE of the Act, section 54 of the Act does not provide that exemption will be limited to one residential house in respect of long term capital gain arising from transfer of more than one residen....
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....ich exemption is claimed under section 54 of the Act cannot exceed the number of residential houses transferred resulting in long term capital gains. For instance, in the present case, assessee has declared long term capital gains from transfer of 17 residential houses. Thus, the assessee will be eligible for exemption under section 54 of the Act if he purchases or constructs 17 or less than 17 residential houses in India. From the schedule of investment made in the new residential houses, it is evident that the assessee has used the capital gains on sale of 17 flats in acquiring 5 new houses/flats. The number of new residential units are less than the number of flats sold. Thus, we are of the considered opinion that the conditions of section 54 of the Act are not violated. 9.8 The Bombay High Court in Krishnagopal B Nangpal v DCIT reported in [2025] 176 taxmann.com 752 examined the claim of exemption under section 54 of the Act for AY 1995-96 i.e., for a case prior to amendment by Finance No 2 Act 2014. The assessee therein sold his flat in Mumbai and invested in seven row houses in Pune. The Bombay High Court allowed the exemption under section 54 of the Act for all seven row ....
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....under section 54 of the Act in respect of each and every long term capital gains. The assessee declared long term capital gain from transfer of 17 residential flats and the exemption claimed under section 54 of the Act in respect of each and every long term capital gains in the income tax return filed by the Assessee. [Placed at pages 72 to 83 of PB]. Thus, the format of the income tax return also providing for the claim of exemption under section 54 of the Act qua each long term capital gains from transfer of a residential house lends support to the argument that benefit of exemption under section 54 of the Act in the form of purchase or construction of one residential house in India is appliable for each and every long term capital gains from transfer of a residential house. 9.11 Further, it is contended that for AY 2018-19 and AY 2019-20, the assessee sold multiple flats and claimed exemption under section 54 of the Act for investing in multiple residential houses. The return of income filed for AY 2018-19 was selected for limited scrutiny to examine the issue of capital gains deduction claimed vide notice under section 143(2) of the Act dated 28.9.2019. The notices under sec....