Section 54 Deduction on multiple residential houses holds good till these units are in the same physical location: ITAT

The assessee, a non-resident Indian (NRI) who expired in Kuwait. The return for AY 2013-14 was e-filed on 30.07.2013 by his son Mr.re 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 the purchase of three plots in Gurgaon, Haryana, and constructed a single house on all three plots; so the family of the assessee could use the aforesaid house as a single residential house.  It was contended that the construction of the above-mentioned house on adjacent plots enabled the assessee to build up the big house and that the expression ‘a residential house’ in section 54 of the Act is not confined to a single flat or house. Ld. AO disagreed with the assessee that the assessee. AO was of the view that the three houses cannot be considered as ‘one residential house’ as each of them is an independent house consisting of a separate kitchen, bathroom, drawing room, and bedroom. In the assessment under section 147 r.w. 143(3) of the Act, the Ld. AO restricted the deduction under section 54 of the Act to only one house which amounted to Rs. 3,14,78,037 resulting in the addition of Rs. 3,55,40,000 to the income of the assessee.

Appeal before CIT(A): In appeal before the Ld. CIT(A), the assessee was given relief and the assessee’s claim of deduction under section 54 was justified.

Appeal before ITAT: The tribunal relied on the decision of the Hon’ble Delhi High Court in CIT vs. Gita Duggal used by the Ld. CIT(A) and held that word ‘a’ may represent multiple residential units so long as they are in the same building and contiguous to each other and used as a single residential house. In the present case, the claim of deduction under section 54 of the Act was for a residential house built up on three adjacent contiguous plots. It was further observed that the principle of multiple residential houses/units holds good till these units are in the same physical location and contiguous to each other. The tribunal agreed with the observations and findings of the Ld. CIT(A) and dismissed the appeal filed by Revenue.

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