ITAT Allows Deduction On Residential House Built Up On 3 Adjacent Contiguous Plots

The two-member bench of Astha Chandra (Judicial Member) and Shamim Yahya (Accountant Member) has observed that the assessee sold his house in Delhi, which was falling short of his needs, and constructed a house on three separate plots adjoining each other to enable him to have a house for himself which could accommodate all his family members and the families of his children. The intention of the assessee was to acquire one large piece of land for the construction of a large residential house. Therefore, three similar units were constructed contiguous to each other in a single common compound wall.

The assessee/respondent was an NRI who expired on January 30, 2014 in Kuwait. The return for AY 2013-14 was e-filed on 30.07.2013 by his son, 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 November 2, 2012, resulting in a long-term capital gain, which the assessee claimed as exempt under section 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 houses on them after getting the floor plans approved by the District Town Planner.

During assessment proceedings, the assessee contended before the AO that he purchased three plots of land and constructed a single house on all three plots. The family of the assessee is using the house as a single residential house. The construction of the house on adjacent plots enabled the assessee to build a big house, and the expression "a residential house" in section 54 of the Act is not confined to a single flat or house.

The contentions of the assessee were not acceptable to the AO. The AO was of the view that the assessee constructed three independent residential houses. It cannot, therefore, be said that three houses are "one residential house" as each of them is an independent house consisting of a separate kitchen, bathroom, drawing room, and bedroom.

The AO relied on the amendment to section 54(1) of the Act brought by the Finance Act, 2014. The assessment was framed by the AO under section 147 r.w. 143(3) of the Act. The AO restricted the deduction under section 54 to only one house, which amounted to Rs. 3,14,78,037, resulting in an addition of Rs. 3,55,40,000 to the income of the assessee.

The assessee filed an appeal with the CIT (A). The CIT(A) held the claim of deduction under section 54 is for a residential house built on three adjacent contiguous plots. The principle of multiple residential houses/units holds good till these units are in the same physical location and contiguous to each other.

The court observed that the word "a" in section 54(1) prior to the amendment w.e.f. 01.04.2015 would normally mean one. However, in some cases, it may also include a plural number of items within its ambit and scope. It may be two or three or even more. With effect from April 1, 2015, the reason for amending the latter part of section 54(1) appears to have been to limit such plurality to being included in word 'a' by inserting "one residential house."

Case Title: DCIT Versus Heera Lal Bhasin Legal Heir

Citation: ITA No. 8339/Del/2018

Date: 01.08.2022

Counsel ForAppellant: Advocate S. Deora

Counsel For Respondent: Sr. DR Anupama Singla

Click Here To Read/Download Order