Can Exemption u/s 54F Be Claimed For Buying Two Adjacent Flats Joined By Breaking Internal Wall?
April 22, 2009 by taxworry · 2 Comments
“Whether, the phrase “a residential house” used in sub-section (1) of sections 54 and 54F means one residential house or more than one residential house independently located in the same building/compound/city ?” The tribunal after considering many decisions , held as under The view taken by us in this para is also justified by the decision of the Hon’ble Calcutta High Court in the case of B.B. Sarkar v. CIT [1981] 132 ITR 150, wherein purchase of ground floor of a house and thereafter construction of first floor was held to be an investment in one house only. Their Lordships at page 156 observed as under :
“If a floor is constructed to the new house or if it is renovated it remains a house and this will not be two houses.”
11. In view of the above discussion, it is held that exemption under sections 54 and 54F of the Act would be allowable in respect of one residential house only. If the assessee has purchased more than one residential house, then the choice would be with assessee to avail the exemption in respect of either of the houses provided the other conditions are fulfilled. However, where more than one unit are 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., then, it would be a case of investment in one residential house and consequently, the assessee would be entitled to exemption.
To sum up , the Mumbai Special Bench’s decision was
- Exemption u/s 54 or 54F is allowable for one house only.
- If assessee has purchased more than one house, choice will be with assessee to select on which house he wants to avail exemption u/s 54 or 54 F as the case may be.
- If more than one unit are purchased and made into one unit for the purpose of residence, it will be considered as one house for claiming exemption u/s 54 or 54 F.
- If floor is added to a new house , it remains one house , therefore exemption for both the new house and the house on added floor shall be taken together for claiming exemption u/s 54 or 54F.
Therefore, even if you purchase two adjacent house from two different person , but converts those two house as one by breaking the internal wall, you can claim exmeption u/s 54F for investment in both house.
Recent Decision
The A.O allowed exemption for only one house and the order of A.O was confirmed by the CIT(A).
The Tribunal agreed with the ground of the assesee that both the house although purchased separately , but the builder had carried modification to make it usable as one unit. The Tribunal allowed the exemption on both the house.
The department filed case in High Court and Hon’ble Karnataka High Court upheld the judgment of the Tribunal by accepting the contention of the assessee that both units were modified by the builder to be use as one
The querist had sold equity shares and wants to invest the proceeds in acquiring residential flats. Long-term Capital Gains arising out of sale of equity shares are exempt from tax u/s 10(36) or, as the case be, u/s 10(38). So, when the LTCG itself is exempt from tax, where is the question of deductions u/s 54 & 54F.
Am I wrong in my observation?
Dear Ravi Shankar
Thanks for your comment .
Not all sale of shares are tax free u/s 10(38). For example shares of private limited companies or foreign listed companies or even shares which are listed in stock exchange but not sold through stock exchange , are not tax free.On will have to pay tax on the capital gains on sale of such shares.
You are right that if capital gains on share is tax free , there is no question of exemption u/s 54 or 54F.
But my intention is always to give answer in such a way that it provides answer to other readers’ problem and not just the individual queriest.
Keep commenting!
taxquery