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Courts hold that exemption u/s. 54 is available even for multiple houses, if they are adjacent, lateral or vertical!

The term ‘a residential house’ used in the Sections 54 & 54F of the Income-tax Act has of late drawn quite significant and interesting interpretations from Courts paving way for an investor to invest his taxable capital gains in even more than one residential house and claim exemption, if the residential units are adjacent or have a common point of entry or are located in the same building, though on different floors.

In its very recent decision in the case of CIT vs. Syed Ali Adil 33 212, (2013) the Andhra Pradesh High Court has clarified that the expression ‘a residential house’ has to be understood in a sense that the building should be of residential nature and should not be understood to indicate a singular number. The Court thus held that even where a taxpayer had purchased two residential flats under separate purchase deeds out of the capital gains arising out of sale of his residential house, he was entitled to exemption under Section 54, more so, since the flats were situated side by side and the builder had carried out modifications in the same, so as to make it as one unit.

The Andhra Pradesh High Court disapproved the decision of the ITAT Special Bench (Mumbai) in the case of Sushila M. Jhaveri 107 ITD 327, holding that the view of the Tribunal to the effect that only one residential house should be given relief under Section 54 does not appear to be correct.

On this very issue, the Karnataka High Court in the case of CIT vs. Smt. K.G.Rukminiamma 196 Taxmann 87 has also held that the expression ‘a residential house’ used in Section 54 makes it clear that it was not the intention of the legislation to convey the meaning that it refers to a single residential house. If that was the intention, they would have used the word ‘one’. (more…)


Important amendments under Capital Gains Tax & Wealth-tax provisions under the Finance Act 2013 

Section 2(14) of the Income-tax Act, which defines ‘capital asset,’ excludes from within its purview an agricultural land situated in India at a place having a population of less than 10,000 as per the last preceding census or at an area not comprised within any municipal limits or within a prescribed distance from such municipal limits.

      The Finance Act 2013 has, with effect from F.Y. 2013-14, revised the prescribed distance as being within a range of upto 2, 6 or 8 kms. (such distance being the aerial distance) from the municipal limit, based on the population as described hereunder:

  • Where population is more than 10,000 but not exceeding 1 lakh, 2 kms.
  • Where population is more than 1 lakh but not exceeding 10 lakhs, 6 kms.
  • Where population is more than 10 lakhs, 8 kms. (more…)


ITAT holds that taxpayer can claim simultaneous LTCG exemption for investment in house & bonds!

A taxpayer derived long-term capital gains of Rs. 3.40 crores from sale of his ancestral property. Out of the same, he invested Rs. 2.60 crores in a new house for which he claimed exemption under Section 54F of the Income-tax Act. He also invested Rs. 50 lakhs in the specified REC bonds for which he claimed exemption under Section 54EC.

The Assessing Officer denied claim for exemption in respect of the aforesaid bonds investment of Rs. 50 lakhs under Section 54EC, on the ground that since the taxpayer had availed exemption via investment in house under Section 54F, the balance amount could have only been deposited under the Capital Gains Account Scheme for further investment in house and not for any investment in REC capital gains bonds.

The Commissioner (Appeals) allowed the taxpayer’s claim against which the Department preferred an appeal before the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT). (more…)

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