Capital gain from sale of house

Originally posted by : pjrao
	u/s 54 can the assesse utilise capital gains from sale of one residential house in : 1. purchase of more than two residential houses,even if he is already having one residential house . 2. If ,yes then two new houses purchased should be in the same location or different locations in the same City. 3. or can the houses be purchased in different Cities. PJRAO	You can claim tax exemption under Section 54 on the long-term capital gain on the sale of a house. "To avail of this exemption, you must use the entire profit to either buy another house within two years or construct one in three years. If you had already bought a second house within a year before selling the first one, you could still avail of the tax exemption. You can buy any city. location is not important. worth & date of purchase of the property is to be consider.

IF THE ACQUISITION IS OF RESIDENTIAL UNITS (MORE THAN ONE) SITUATED SIDE BY SIDE AND A DOOR IS FIXED IN-BETWEEN THESE UNITS AND THE POSSIBILITY OF USING THE UNITS AS A SINGLE RESIDENTIAL UNIT, THE ELIGIBILITY REQUIREMENTS ARE SATISFIED.
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In ITO v. Ms. Sushila M.Jhaveri [2000] the taxpayer acquired two adjoining flats and by removing the intermediate walls with a common kitchen it was used as one residential house. Since both the units were combined and made into one unit, investment in two flats was held as eligible for exemption under section 54.
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In CIT v. D. Ananda Basappa [2009] the taxpayer transferred a residential building and invested the long-term capital gain in acquisition of two residential flats situated side by side by means of two separate registered sale deeds and claimed exemption for both the residential units acquired. Both the units were in the occupation of two different tenants. The Court held that the apartments were situated side by side and the builder had made necessary modifications to make them one unit by fixing opening door in between those two apartments. The mere fact that when the Inspector visited the premises they were occupied by two different tenants was not a ground to hold that the apartments were not one residential unit. The aspect of one registered sale deed or more than one deed could not be determinative of the building being considered as one residential unit or otherwise.
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In CIT v. Smt.Jyothi K.Mehta [2011] the taxpayer sold a residential house and acquired two flats and claimed exemption under sections 54 and 54F of the Act. The Assessing Officer held that the taxpayer was already owner of a residential flat at Bombay and she had purchased two flats out of the sale proceeds. Hence, the taxpayer was not entitled to claim exemption from the capital gains. The Commissioner (Appeals) factually found that the two flats were utilized as a common residence and, hence, the taxpayer was eligible for exemption under section 54.
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In CIT v. Smt.K.G.Rukminiamma [2011] it was held that the expression 'a residential house' used in section 54 does not convey the intention of the Legislature to mean a single residential house as eligible for exemption. If that was the intention, the Legislature might very well have used the word 'one' instead of 'a residential house'.

IF THE RESIDENTIAL UNITS ARE LOCATED AT DIFFERENT PLACES, THE TAXPAYER IS ELIGIBLE FOR EXEMPTION ONLY FOR THE AMOUNT INVESTED IN ONE RESIDENTIAL UNIT AS THEY WERE NOT ADJOINING AND COULD NOT BE TREATED AS ONE UNIT.
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In Dy. CIT v. Ranjit Vithaldas Lokupavan [2008] the taxpayer reinvested the capital gain in two different places. The taxpayer claimed that, though the flats were located at different places, a common kitchen and common prayer place were held for being treated as single unit. The Tribunal rejected the taxpayer's claim for the reason that they were not contiguous and could not be treated as one unit. In result, the taxpayer became eligible for exemption only for the amount invested in one residential unit.

Inputs from Article by CA. V.K. SUBRAMANI