The tribunal overturned a tax department decision that had rejected a Rs 2.51 crore exemption on a second flat acquired after selling commercial units. Authorities had argued that independent entrances, separate floors, and distinct stamp duty payments disqualified the second property under Section 54F limits. However, the tribunal ruled that units purchased concurrently from the same builder to house one family function legally as a single residential unit.
Key points
Separate floors and independent registration documents do not automatically bar multiple…: Separate floors and independent registration documents do not automatically bar multiple residential units from qualifying for Section 54F tax exemptions.
The critical legal test for property relief is the substance and functional character of…: The critical legal test for property relief is the substance and functional character of the home rather than physical boundaries.
Reinvesting sales proceeds into multiple units for a single family remains eligible for r…: Reinvesting sales proceeds into multiple units for a single family remains eligible for relief when contiguous housing options are unavailable.
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A taxpayer sells commercial properties and invests the proceeds in two residential flats. But the flats are on different floors. Does that automatically mean he can claim capital gains tax relief on only one of them?
In one such case, a taxpayer faced disallowance on capital gains exemption for the second flat. Read on to know why the Income Tax Appelate Tribunal (ITAT) Mumbai ruled in his favour:
What the case is about
A man sold six commercial units in Mumbai and the sales generated long-term capital gains of around Rs 5 crore. He claimed a deduction of the same amount under Section 54F after investing in residential property.
For this purpose, he purchased two flats in Wing A of a building but on separate floors. Agreements for both flats were executed and registered on the same date.
The Assessing Officer accepted the claim for one flat but rejected the deduction relating to the second, taking the view that Section 54F allowed relief for only one residential house. This resulted in a disallowance of Rs 2,51,31,621. The Commissioner of Income…
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