Capital Gain deduction u/s 54F

Principal Commissioner of Income-tax - Central vs. Lata Goel - [2025] 174 taxmann

Facts:

The assessee is an individual had filed her return of income for the relevant assessment year, declaring the income and claiming a deduction under Section 54F. the case was selected for scrutiny by the Assessing Officer and issued a notice for scrutiny assessment proceedings.

During the assessment proceedings AO noticed that the assessee purchased different floors of a residential property. property consist floors of a residential building as more than one residential property, and consequently AO denied the claim of deduction of Rs 90 crore under section 54F.

The learned ITAT had noted the description of the sale deeds pertaining to the different floors of the property bearing the address D-6/5 Vasant Vihar, New Delhi. The same are reproduced below:

"a. D-6/5, Basement, Vasant Vihar, New Delhi was purchased by Mr. K.K. Goel HUF along with assessee vide registered sale deed dated 02.07.2001. In this, the assessee was having 50% share in the capacity of co-owner.b. D-6/5, Second Floor, Vasant Vihar, New Delhi was purchased by Ms Monila Goel (assessee's daughter in law) and assessee vide registered sale dated 28.01.2008. In this, the assessee was having 50% of share in the capacity of co-owner.c. D-6/5, Ground Floor, Vasant Vihar was purchased by Ms. Monila Goel (daughter in law) along with Mr. DK Goel (assessee's son) vide registered sale deed 02.07.2001. Both parties are having equal share in the said property.d. D-6/5, First Floor, Vasant Vihar, New Delhi was purchased by Ms Monila Gael. Physical possession of the said property was taken over on 02.09.2014, but not registered as 100% payment is made to the seller only in financial year 2013-14."

Hon Delhi HC held as below:

1. The configuration of ownership of the property, as recorded in the municipal corporation records, does not lead to the conclusion that there was any failure on the assessee’s part to disclose the material facts relevant for claiming the deduction. The assessee had fairly disclosed the sale of the original asset, for which capital gains had arisen, as well as the house property purchased from the sale proceeds.

2. Section 54F requires the assessee to acquire a residential house. This condition will be considered satisfied if the assessee acquires a building which, for the sake of convenience, is constructed in such a manner that it comprises multiple units. These units should be capable of being used, if necessary, as separate and independent residences. As long as this condition is met, the requirement under Section 54F shall be deemed to have been fulfilled.

3. Nothing in section 54F requires the residential house to be constructed in a particular manner. The only requirement is that it must be for residential use, not commercial. If nothing in the section requires that the residential house be built in a particular manner, the Income-tax authorities cannot insist upon that requirement.

4. Accordingly, the assessee could not be denied deduction under section 54F on the ground that she held more than one residential unit.

There could also be another angle. Section 54/54F uses the expression "a residential house". The expression used is not "a residential unit". This is a new concept introduced by the Assessing Officer into the section. Section 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the section should be taken to have been satisfied. There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems to us that the Income-tax authorities cannot insist upon that requirement. A person may construct a house according to his plans and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. For instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly postretirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. We are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house. We do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under section 54/54F. It is neither expressly nor by necessary implication prohibited."

the appeal of the revenue is dismissed as there is no new question of law in the present application