The New Delhi Bench of the Income Tax Appellate Tribunal (ITAT) ruled that where the taxpayer, after demolishing one house, constructed three independent residential units with separate kitchens and earned rental income therefrom, he was held to own more than one residential house and thus not eligible for deduction under Section 54F of the Income Tax Act.
The Tribunal also held that the provisions of Section 54 are very clear that the taxpayer cannot have more than one house, which means that the taxpayer can have one house plus another independent residential house to claim the deduction. The residential house means it should contain a room, a hall and a kitchen. Therefore, what is relevant to treat the independent residential house to mean are there should be a common kitchen, and the number of units may vary.
In the present case, the Tribunal was earning rental income from three independent residential units, which had three separate kitchens, from the building at Karol Bagh, which means that it already has three residential units, and thus, the eligibility to claim the benefit under Section 54/54F fails. The construction of a new building at Pitampura is beyond the eligible units, wherein the taxpayer at the time of sale of the second floor to the developer had more than one property, and therefore, the taxpayer is not eligible to claim a deduction under Section 54 at the entry level itself.
The Division Bench comprising Anubhav Sharma (Judicial Member) and S. Rifaur Rahman (Accountant Member) observed that the appellant had entered into a JV agreement with the joint developer, and as per the agreement, the developer had completed the project during the year under consideration. He had built three floors, and he retained the second floor with 25% of the parking area. The appellant retained the first and third floors, completed the registration formalities during the year, and declared the sale proceeds and claimed the deduction under Section 54F.
Considering the facts on record, the Bench observed that the appellant was earning rental income from three independent units in Karol Bagh and new units constructed under a joint development agreement. The issue is of the claim of deduction under Section 54/54F on the sale of a portion of the Pitampura building, wherein the appellant had retained two portions and sold one portion as per the JV.
The Bench negated the claim of the appellant that the units in the same building should be considered as one house property for deduction under Section 54, and explained that the taxpayer can claim a benefit under Section 54 only when he holds one house and the other house which was disposed of to acquire another residential unit.
Briefly, the appellant was the owner of several house properties, against which he had declared income from house properties and also claimed deductions under Section 24. The appellant had sold two properties and claimed a deduction under section 54F. The AO observed that after the amendment to Sections 54 and 54F, the expression used is “a residential house in India”. Since the appellant owns several house properties/units at different places from where he earns income from house property, he was not eligible to claim the deduction under Section 54F of the Income Tax Act.
Cases Distinguished:
CIT v. Gita Duggal 357 ITR 153
Saroj Rani v. ITO [IT Appeal No 5472(Delhi) of 2024]
Nakul Aggarwal v. Assistant CIT 209 ITD 342 (Mumbai – Trib.)
Pr. CIT – Central v. Lata Goel [2025] 174 taxmann.com 535 (Delhi)
Appearances:
Advocates Dr Rakesh Gupta and Somil Agarwal, along with Cas Saksham Agarwal and Shilpa Gupta, for the Appellant/ Taxpayer
Ajay Kumar Arora, for the Respondent/ Revenue
