Section 54/54F uses the expression "a residential house" and not "a residential unit", says ITAT

Last updated: 09 March 2021

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The Income Tax Appellate Tribunal (ITAT) has clarified the interpretation of 'a residential house' under Section 54F of the Income Tax Act. The Assessing Officer (AO) rejected the assessee's claim for deduction, arguing that a gifted property comprising multiple units (garage, 1BHK flats, single rooms) constituted more than one 'house'. The ITAT's decision hinges on whether these individual units qualify as separate 'residential houses' for the purpose of the deduction, which is disallowed if the assessee owns more than one such property.

Court :
ITAT Bangalore

Brief :
The appeal filed by the assessee is directed against the order dated 29-11-2019 passed by Ld CIT(A)-7, Bengaluru and it relates tothe assessment year 2015-16. The solitary issue urged in this appealis whether the Ld CIT(A) was justified in rejecting the claim for deduction u/s 54F of the Income-tax Act,1961 ['the Act' for short].

Citation :
ITA 194/BANG/2020

IN THE INCOME TAX APPELLATE TRIBUNAL
“B’’ BENCH: BANGALORE

BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER
AND
SMT. BEENA PILLAI, JUDICIAL MEMBER

ITA No.194/Bang/2020
Assessment Year: 2016-17

Halesh K.C.
No.948, 28th Main,
Jayanagar, 9th Block
Bangalore-560 069
PAN NO : AVHPK3392F
APPELLANT

Vs.

ITO Ward-7(2)(1)
Bangalore
RESPONDENT

Appellant by : Shri H. Guruswamy &
Shri M. Ravi Kumar, A.Rs
Respondent by : Shri Priyadarshi Mishra, D.R.

Date of Hearing : 24.02.2021
Date of Pronouncement : 24.02.2021

O R D E R

PER B.R. BASKARAN, ACCOUNTANT MEMBER:

The appeal filed by the assessee is directed against the order dated 29-11-2019 passed by Ld CIT(A)-7, Bengaluru and it relates tothe assessment year 2015-16. The solitary issue urged in this appealis whether the Ld CIT(A) was justified in rejecting the claim for deduction u/s 54F of the Income-tax Act,1961 ['the Act' for short].

2. We heard the parties and perused the record. The assessee along with other family members had sold an immovable propertylocated at Bommanahalli, Bangalore on 20-08-2015. The assesseeworked out long term capital gain of Rs.1,50,20,000/- and claimed deduction of entire amount u/s 54F of the Act. The AO noticed that the assessee had received a building by way of gift on 13.8.2015 andthe said building consisted of ground floor, first floor and secondfloor. The AO also deputed his inspector to physically inspect theproperty. The Inspector reported that the Ground floor is having agarage and one residential unit; first floor is having two 1BHK flats and second floor is having 2 single (with bath) units. The AO, accordingly, took the view that each of the unit is separate house. Since deduction u/s 54F of the Act is not permitted, if the assesseeis having more than one house property, the AO rejected the claim for deduction u/s 54F of the Act. The Ld CIT(A) also confirmed thesame and took support of decision rendered by Bangalore bench of Tribunal in the case of Ramaiah Harish (ITA No.789/Bang/2019 dated 04-09-2019).

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FAQ :

The case concerns whether a property divided into multiple units, such as a garage, flats, and single rooms, qualifies as 'a residential house' for the purpose of claiming deduction under Section 54F of the Income Tax Act.

The AO rejected the claim because the assessee received a gifted property that was divided into several distinct units, which the AO considered to be separate 'house properties', thus violating the condition that the assessee should not own more than one house property to claim the Section 54F deduction.

The ITAT is examining whether the individual units within a larger building (like flats or single rooms) should be treated as separate 'residential houses' or if the entire building, as a single structure, is considered 'a residential house'.

The assessee sold an immovable property and claimed the entire long-term capital gain as a deduction under Section 54F of the Income Tax Act.

Yes, the Commissioner of Income Tax (Appeals) confirmed the Assessing Officer's decision to reject the Section 54F deduction claim.