Section 54 - exemption from long term cap gains

S. 54 Relief available to multiple sales & purchases of residential houses

The assessee sold two separate flats and earned long-term capital gains of Rs. 1.74 crores. The assessee boughttwo different flats for a consideration of Rs. 1.77 crores and claimed that the LTCG of Rs. 1.74 crores was exempt u/s 54. The AO & CIT (A) followed the judgement of the Special Bench in ITO vs. Sushila Jhaveri 292 ITR (AT) 1 and held that the benefit of s. 54 was available in respect of only one flat and not two flats. On appeal to the Tribunal, HELD allowing the appeal:

(i) Though s. 54 refers to capital gains arising from “transfer of a residential house”, it does not provide that the exemption is available only in relation to one house. If an assessee has sold multiple houses, then the exemption u/s 54 is available in respect of all houses if the other conditions are fulfilled;

(ii) The decision of the Special Bench in ITO vs. Sushila Jhaveri 292 ITR (AT) 1 is distinguishable. There the issue was whether if one house is sold and the proceeds are invested in several houses, the exemption u/s 54 is available and it was held that the exemption was available only for one house. But, if more than one house is sold and more than one house is bought, a corresponding exemption u/s 54 is available;

(iii) However, the exemption is not available on an aggregate basis but has to be computed considering each sale and the corresponding purchase adopting a combination beneficial to the assessee.