Section 54 and 54F: There would hardly be any section that would not be a subject matter of litigation and with the changing circumstances around the world in the facets of housing industry, the question of what is the meaning of „residential house‟ too gets further deep into controversies. In light of certain amendments and case laws, this topic has gained importance and we have thus chosen this topic for discussion. Now check more details for “Section 54 and 54F ‘Residential House’ Controversy ” from below

Section 54 and 54F ‘Residential House’ Controversy

Provisions of section 54 and section 54F of the Income Tax Act, 1961

Section 54 of the Income Tax Act, 1961 provides for exemption of capital gain arising from the transfer of a residential house being long term capital asset (i.e. held for greater than 3 years) if investment is made in one residential house in India.

Similarly Section 54F of the Income Tax Act, 1961 provides for exemption of capital gain arising from the transfer of a long term capital asset, other than residential house property, if investment is made in one residential house in India.

Concept of Residential House

This term „Residential house‟ has led to litigations time and again with the Tax authorities taking one view and assessee‟s taking another in terms of what exactly constitutes „Residential house‟.

Interpretation is a subjective issue and only when the authorities or courts come out with their stands clearly, that the matter gets settled to some extent and same applies in the case of given scenario. Some of the prominent case laws in this regard are:


CIT v. Ananda Basappa (2009) 309 ITR 329 (Kar.)

In this case, the assessee purchased two residential flats, adjacent to each other from a vendor. The assessee took two separate registered sale deeds in respect of the two flats situated side by side purchased on the same day and claimed exemption u/s 54 for both the flats. The vendor had certified that he had effected necessary modifications to the two flats to make it one residential apartment.

CIT v. Syed Ali Adil (2013) 352 ITR 0418 (A.P.)

The facts of above Ananda Basappa were similar in this case as well, wherein the assessee purchased two adjacent residential flats out of the sale proceeds of house property, and made necessary arrangements so that the flats can be used ABHAY JAIN SRO0355944 as single residence and then claimed exemption under section 54 in respect of investment in the residential flats.

In both the above cases, the courts ruled in the favor of assessees and held that assessees were entitled to deduction since the flats comprised in the same building, adjacent and necessary arrangements/modifications were made so that the flats can be used as single residence.

Further, in the case of CIT v. Gita Duggal (2013) 357 ITR 153 (Delhi), the High Court made a stunning observation that sections 54 and 54F use the expression “residential house” and not “residential unit” and it is the Assessing Officer who had introduced a new concept of “residential unit” into these sections

Thus the courts have clearly rolled the balls in the favor of assessee‟s again and again and the concept of Residential house has been construed widely.

Analysis and conclusion

With the passage of time, new forms of residential house have emerged and flat system and multi-storeyed buildings have been construed as residential houses in general parlance. The concept of „unit‟ has not been accepted by many courts as a tenable point of litigation, as discussed above

An interesting part pertaining to amendment brought out by Finance (No.2) Act, 2014 in section 54 and section 54F is – before Finance (No.2) Act, 2014 was amended, the words “one residential house” were missing and there were litigations pertaining to investment in more than one residential house since the words “a residential house” could be interpreted using one of the laws of interpretation, i.e. „singular includes plural‟. However the amendment has ended this confusion by adding the words “one residential house”

Though the above amendment has ended the „singular and plural‟ confusion but the same has not addressed the issue of whether two of more flats in the same building would constitute „residential house‟ or not and it so appears that even after the amendment the above rulings may continue to hold good, since the restriction is regarding investment in „one residential house‟, and not in „one unit of a residential house‟.

Hopefully this controversy shall be brought to an end either by the Honorable Supreme Court or the tax authorities themselves and provide a clear picture.


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