MUMBAI: In a significant judgment, the income tax appellate tribunal (ITAT), Mumbai bench, ruled in favour of N Aggarwal, a taxpayer, granting him full tax benefit for investment made in two adjoining flats, which were treated as a single unit.
Aggarwal had claimed a tax deduction of several crores under Section 54-F of Income Tax (I-T) Act, following his investment in two adjoining flats in a gated estate in Andheri. Under this section, if a taxpayer sells long-term assets (other than house property) and invests the entire net sales consideration in ‘one’ residential house, within the specified period, the entire long-term capital gain arising from the sale of the original assets is exempt from tax.
In case the entire net sale consideration is not invested and only a part of it is invested in a residential house, tax exemption is allowed proportionately. Post an amendment in 2015, Section 54-F allows exemption only when the taxpayer purchases or constructs one residential house.
In this case, the issue raised by the I-T department was that the taxpayer had purchased two flats under two separate agreements and, thus, the intention to treat it as one single house was not met.
On the other hand, Aggarwal maintained that these two flats were always meant to be used as a single residential unit. Since the builder originally obtained approval in the form of two independent units, the agreement was entered separately for each flat. Subsequently, the plan was amended—treating both flats as a single unit—and approved by Maharashtra Housing and Area Development Authority (Mhada).
“As long as the house is used by the taxpayer as one single unit, though by conversion, in our view, the exemption cannot be denied under Section 54F,” said the ITAT bench. The bench took the fact pattern into consideration. It noted that the builder originally got the plan approved as two separate units and the plan was subsequently revised in order to suit the requirement of the buyer to use it as one single unit.
The revised plan very categorically identifies one kitchen and other necessary structures to be used as a single dwelling unit. The revised plan was not opposed by the I-T authorities with any contrary evidence.
Tax experts said that the exact facts of each case determine the eligibility of claims under Section 54-F. Last month, in another case, the ITAT Mumbai bench had remanded the matter back to the I-T officer to physically verify whether the flats were indeed combined into a single residential unit.
