representative image Mumbai: In an important decision, the Income Tax Appellate Tribunal (ITAT), Mumbai bench ruled in favor of N Aggarwala taxpayer, subsidizing his full tax benefits For investments made in two adjacent flats, which were treated as one unit.
Agarwal had claimed tax deduction of several crores of rupees under this. Section 54-F under the Income Tax (IT) Act, following his investment in two adjoining flats in a gated estate in Andheri. Under this section, if a taxpayer sells a long-term asset (other than house property) and invests the entire net sale consideration in ‘a’ residential house, within the specified period, the entire long-term capital gain arising from the sale shall be credited to the original Is exempt from property tax.
If the entire net sale consideration is not invested and only a part of it is invested in a residential house, proportionate tax exemption is allowed. After an amendment in 2015, Section 54-F allows exemption only if the taxpayer purchases or constructs a residential house.
In this case, the issue raised by the IT department was that the taxpayer had purchased two flats under two different agreements and thus, the intention of treating it as a single house was not fulfilled.
Aggarwal, on the other hand, said that both these flats were always meant to be used as a single residential unit. Since the builder originally obtained approval as two independent units, the agreement was made for each flat separately. Subsequently, the plan was amended – treating both the flats as one unit – and approved by the Maharashtra Housing and Area Development Authority (MHADA).
The ITAT bench said, “As long as the house is used by the taxpayer as a single unit, though by conversion, in our view, exemption under section 54F cannot be denied.” The bench took into account the factual nature. It added that the builder had originally approved the plan as two separate units and the plan was later modified to suit the buyer’s requirement to use it as a single unit.
The revised plan very clearly identifies a kitchen and other essential structures to be used as a single dwelling unit. The revised plan was not opposed by IT officials with no evidence to the contrary.
Tax experts said the exact facts of each case determine the eligibility of claims under Section 54-F. In another case last month ITAT Mumbai The bench had sent the matter back to the IT officer to physically verify whether the flats were actually combined into a single residential unit.
