Section 54 deduction for multiple resdential houses is allowable if units are in the same physical location

Facts and Issue of the Case

The Revenue has taking the following grounds of appeal:-

1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing deduction u/s 54 of the IT Act amounting to Rs. 3,55,40,000/-.

2. The Ld. CIT(A) erred in holding that the expression ‘a house’ mentioned in section 54 of the IT Act 1961, may mean several contiguous houses.

3. The Ld. CIT(A) failed to appreciate that in the present case the assessee had purchased three independent residential plots and had constructed three independent houses each having all facilities like kitchen, living rooms, toilets etc. Three separate plans were approved by municipal authorities for these houses. In fact three separate purchase deeds were signed for purchase of three residential plots which were next to each other.

The facts in brief are that the assessee was a non-resident Indian (NRI) who expired on 30.01.2014 in Kuwait. The return for AY 2013-14 was e-filed on 30.07.2013 by his son Mr. Heera Lal Bhasin, in his capacity as Legal Heir of his deceased father declaring income at Rs. 6,98,170/-. The assessee had sold his residential property in New Delhi for Rs. 7,00,00,000/- on 2.11.2012 resulting in Long Term Capital Gain of Rs. 6,70,18,000/- which the assessee claimed as exempt u/s 54 of the Income Tax Act, 1961 as he invested Rs. 9,44,34,110/- in purchase of three plots in Gurgaon, Haryana and constructed houses on them after getting approved the floor plans from the District Town Planner. During assessment proceedings, the assessee contended before the Ld. AO that he purchased three plots of land and constructed a single house on all three plots; that the family of the assessee is using the aforesaid house as a single residential house; that the construction of the above mentioned house on adjacent plots enabled the assessee to build up big house and that the expression ‘a residential house’ in section 54 of the Act is not confined to a single flat or house. The assesee carried the matter in appeal before the Ld. CIT(A) who gave relief to the assessee by holding that the assessee’s claim of deduction under section 54 is justified.

Observation by the court

The court had considered the rival submissions of the parties, perused the orders of the Ld. AO/CIT(A) as also the material available in the records. The case of the assessee all along has been that he sold his house in Delhi which was falling short of his needs and constructed a house on three separate plots adjoining each other to enable him to have a house for himself which could accommodate all his family members and families of his children. The intention of the assessee was to acquire one large piece of land for construction of a large residential house. Therefore, three similar units were constructed contiguous to each other in a single common compound wall. The Hon’ble Madras High Court in the case of Tilokchand & Sons (supra) held that the dislocation of newly purchased residential houses will not alter the position for interpretation of the word “a residential house” to the effect that it may include more than one residential houses.

Relying on the decision of Hon’ble Delhi High Court in the case of Gita Duggal in which the Hon’ble Delhi High Court quoted with approval the decision of Hon’ble Karnataka High Court in Smt. K.G. Rukminiamma’s case, the Ld. CIT(A) held that word ‘a’ may represent the multiple residential units so long as they are in the same building and contiguous to each other and used as single residential house. In the present case the claim of deduction under section 54 of the Act is for a residential house built up on three adjacent contiguous plots. He further observed that the principle of multiple residential houses/units holds good till these units are in same physical location and contiguous to each other. We are inclined to agree with the above observations and findings of the Ld. CIT(A). In view of the foregoing discussion and on the facts and in the circumstances of the case of the assessee, we do not find substance in the contentions raised by the Revenue in its appeal. Hence we hold against the Revenue.