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HomeUpcoming InvestmentsMultiple House Investments Eligible for Section 54 Deduction: ITAT
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Multiple House Investments Eligible for Section 54 Deduction: ITAT

5 hours ago


Multiple House Investments Eligible for Section 54 Deduction: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that, under the unamended provisions of Section 54 of the Income Tax Act, 1961, deduction on capital gains cannot be restricted to investment in a single residential house. The Tribunal also allowed the assessee’s claim towards expenditure incurred for making a newly acquired property habitable and deleted the related disallowance.


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“The expression ‘a residential house’ has been judicially interpreted to mean not a single residential house. Under the unamended provisions of Section 54, deduction was available even where capital gains were invested in multiple residential houses.”

The assessee had earned long-term capital gains from the sale of a jointly owned immovable property and received Rs.23.76 crore as his share of the sale consideration. While computing capital gains, he claimed a deduction under Sections 54 and 54EC and also claimed Rs 40.44 lakh as expenditure incurred on civil and electrical works in a newly acquired residential flat.

The Assessing Officer partly disallowed the expenditure, holding that certain items such as air-conditioning, furniture and kitchen-related works were not necessary for making the property habitable. On an estimated basis, only Rs 20 lakh was allowed, and the balance, Rs 20.44 lakh, was disallowed. The NFAC upheld the addition.


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Before the Tribunal, the assessee contended that the expenditure was incurred entirely for civil and electrical works required to make the flat fit for occupation. The Tribunal examined the material on record, including the interior designer’s report and invoices, and found that the newly purchased flat was not in a habitable condition at the time of acquisition.

“Materials on record demonstrate that when the assessee acquired the flat, it was not in a habitable condition. The expenditure claimed was on account of various civil and electrical works undertaken in the newly acquired flat.”

The dispute also involved a deduction claimed under Section 54 in respect of investments made in multiple residential properties. After purchasing one residential property, the assessee deposited the unutilized capital gains in the Capital Gains Account Scheme and subsequently invested the amount in a plot of land for the construction of a house and another residential property. The Assessing Officer denied the claim on the ground that once a deduction had been claimed for one house, no further deduction was available.

Relying on the recent judgment of the Bombay High Court in Krishnagopal B. Nangpal v. DCIT, the Tribunal observed that prior to the amendment made by the Finance (No. 2) Act, 2014, Section 54 used the expression “a residential house”, which had consistently been interpreted by courts to include multiple residential houses.

The Bench further observed that the amount deposited in the Capital Gains Account Scheme was also eligible for deduction under Section 54(2), and any disallowance relating to unutilized deposits could arise only after the expiry of the prescribed three-year period.

Holding that the assessee’s claim was fully supported by the law applicable for the relevant assessment year, the Tribunal directed the Assessing Officer to allow the deduction under Section 54 and deleted the additions made by the department.

Thus, the appeal of the assessee was allowed.

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Tags :capital gainsCapital Gains Account SchemeCost of ImprovementHabitable House.Long-Term Capital GainMultiple Residential HousesSection 54
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