ITAT Mumbai Validates Section 54F Exemption for Two Flats on Different Floors Treated as a Single Residence
The interpretation of the phrase "a residential house" under Section 54F of the Income Tax Act 1961 has long been a subject of litigation between assessees and the Revenue. The core dispute often revolves around whether multiple adjacent or vertically stacked residential units can be clubbed together to claim a single exemption. In a highly significant ruling, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) in the case of Sunil Indravadan Shah Vs ITO (ITA No. 7276/MUM/2025) has provided critical clarity on this issue.
The Tribunal held that two distinct flats located on different floors of the same building wing can indeed constitute "one residential house" for the purpose of claiming deductions under Section 54F, provided the functional character and the intent of the assessee demonstrate that they are meant to be used as a single unified family dwelling.
Factual Matrix of the Dispute
The controversy originated from the assessee's financial transactions during the assessment year 2021-22. The assessee had filed a return of income on 22.03.2021, declaring a total income of Rs. 22,92,050/-. This computation was arrived at after claiming a substantial deduction of Rs.4,97,90,808/- under Section 54F of the Income Tax Act 1961.
During the scrutiny assessment, the Assessing Officer (AO) examined the underlying transactions that led to this claim. It was observed that between 13.06.2019 and 05.07.2019, the assessee had liquidated six commercial units situated at Solitaire Chambers on Kalbadevi Road, Mumbai. These sales yielded a net consideration of Rs.5.32 crore and resulted in a Long-Term Capital Gain (LTCG) amounting to Rs.4,97,90,808/-.
To shelter this capital gain from taxation under Section 45, the assessee reinvested the proceeds into residential real estate. Specifically, the assessee purchased two flats—Flat Nos. A-601 and A-1801—located in Wing-A of a building named "22 Dholera" in Parel, Mumbai. Both properties were acquired from the developer, M/s Safal Realtors & Developers Pvt. Ltd., with the respective purchase agreements being executed and formally registered on the exact same date, 29.09.2020.
The physical and financial parameters of both units were identical. Each flat measured exactly 1,334.19 sq. ft. in area, and the purchase consideration for each was Rs.2.65 crore, bringing the total investment to Rs.5,67,93,320/-.