Capital gain deduction u/s 54 for purchase of two flats on different floors allowed by ITAT

Capital gain deduction u/s 54 for purchase of two flats on different floors allowed as flats were one above the other and converted into a single residential duplex unit

The instant appeal was filed by the appellant assessee against he order of the CIT(A) in upholding the action of the Assessing officer making disallowance u/s 54 of the Income Tax Act, 1961 9the Act) for two residential flats.

ABCAUS Case Law Citation:
ABCAUS 2382 (2018) 06 ITAT

The assessee had declared long term capital gains (LTCG) on sale of House Property and had claimed exemption u/s 54 of the Act for purchase of two flats.

The Assessing Officer observed that these two flats purchased by the assessee were located at different floors of the apartment and according to him they did not constitute a single unit entitling the assessee, benefit of exemption u/s 54 in respect of one residential housing.

Assessing Officer further noted that for the one flat, the assessee had not made the full payment.

The AO restricted the exemption u/s 54 in respect of the flat for which full payment had been made and placing reliance on the judgment of decision of Mumbai Tribunal, taxed the balance amount as long term capital gains.

Before the Tribunal the assessee submitted that Section 54 entitles him for a full deduction against the two flat purchased which were adjoining with each other as was evident from the flat numbers.

The Tribunal noted that the Mumbai Tribunal had held that where more than one unit purchased which are adjacent to each other and are converted into one house for the purpose of residence by having common passage, common kitchen etc., it would be a case of investment in one residential house.

It was observed that in the instant case the appellant had purchased two flats at different floors one above the other and made it one single residential duplex unit. Therefore, the assessee was entitled to exemption in respect of investment in both the flats.

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