S. 54 : Capital gains-Profit on sale of property used for residence-Development agreement-Indexed cost of acquisition-Assessee entitled to indexation on entire property and not restricted to 22.5% land share – Multiple floors in same redeveloped building constitute one residential house – Deduction u/s 54 allowable. [S. 2(47), 45, 48]
The assessee, a resident individual, entered into a redevelopment agreement along with her husband in respect of a residential property admeasuring 500 sq. yds. Under the agreement, the old structure was demolished and the developer constructed a new building (ground plus three floors) at its own cost. In lieu of construction cost, the developer received one floor along with 22.5% undivided share in land, while the assessee and her husband retained the remaining floors with 77.5% undivided land share and also received monetary consideration. The AO held that since only 22.5% of land was transferred, indexed cost of acquisition was allowable only to that extent and further denied deduction u/s 54 on the ground that the assessee received more than one residential unit. The Tribunal held that there was a transfer of the entire capital asset in terms of section 2(47), being the existing immovable property handed over for redevelopment, and in lieu thereof the assessee received constructed area with proportionate undivided land share. Therefore, indexed cost of acquisition u/s 48 was allowable on the entire property and could not be restricted to 22.5% corresponding to the developer’s share. On the issue of deduction u/s 54, the Tribunal held that the redeveloped property constituted one residential building and the floors retained by the assessee formed part of a single residential house; merely because one floor was given to the developer in lieu of construction cost, it could not be said that the assessee owned more than one residential house. Accordingly, the assessee was held eligible for deduction u/s 54, subject to factual verification of computation by the AO. Appeal allowed. (ITA No. 6714/Mum/2025 dt. 20-2-2026) (AY. 2015 -16)
Seeta Nayyar v. ACIT (Mum.)(Trib.) www.itatonline.org.
[Coram : Honb’ble Shri Saktijit Dey, VP and Hon’ble Shri Arun Khodpia, AM]