Two flats on two different floors not a single dwelling unit – ITAT rejects exemption u/s 54

Two flats on two different floors not a single dwelling unit – ITAT rejects exemption u/s 54

In a recent judgment, ITAT Delhi has rejected the claim of capital gain exemption u/s 54 holding that two flats on two different floors can not be considered as a single dwelling unit.

ABCAUS Case Law Citation:
4338 (2024) (12) abcaus.in ITAT Delhi

In the instant case, the assessee had challenged the order passed by the CIT(A) National Faceless Appeal Centre (NFAC) in confirming rejection of deduction/exemption u/s 54 of the Income Tax Act, 1961 (the Act).

The assessee had sold Long Term Capital Asset during the relevant Financial Year. Immediately thereafter, the assessee purchased two flats and claimed benefit of exemption u/s. 54 of the Act on both the flats.

The Assessing Officer (AO) granted benefit of exemption u/s 54 of the Act on one flat and denied exemption on the second floor. The assessee carried the issue in appeal before the CIT(A) to claim exemption u/s 54 of the Act on second flat. The CIT(A) rejected assessee’s claim.

The assessee submitted that she had purchased two flats in the same building i.e. 1st Floor and 2nd Floor. Since, two flats purchased by the assessee were together, she was eligible to claim benefit of exemption u/s 54 of the Act in respect of both the flats. In support of her contention, the assessee placed reliance on the decision of the Co-ordinate Bench.

The Revenue contended that the provisions of section 54 of the Act were amended by the Finance (No.2) Act, 2014 w.e.f 01.04.2015. As per amended provisions, benefit of section 54F of the Act is allowed only on one residential house in India. The AO and the CIT(A) had granted benefit of section 54 of the Act to the assessee on a flat having higher purchase cost.

The Tribunal observed that the contention of the assessee was that since both flats were in the same building on two consecutive floors, the assessee is eligible for the benefit of exemption u/s. 54 of the Act on both flats, even after amendment of the provision of section 54 of the Act by Finance (No. 2) Act, 2014.

The Tribunal noted that the assessee had not been able to substantiate as to how these two flats were interconnected to be used as a single residential unit. In the decision relied upon by the assessee, the benefit of section 54 was granted as two adjacent flats were purchased to be used as a single dwelling unit. Hence, the Tribunal granted benefit of section 54 of the Act to the assessee.

The Tribunal further observed that in the present case the flats were on different floors. The assessee had failed to show as to how the two flats on two different floors can be used as a single dwelling unit; hence the ratio laid down in said case cannot be applied in the facts of the instant case.

Accordingly, the appeal of the assessee was dismissed.

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