In a major relief for Lata Goel, wife of FIITJEE promoter D.K. Goel, the Delhi High Court has reaffirmed the findings of the Income Tax Appellate Tribunal (ITAT), stating that a taxpayer can avail the benefit under Section 54F of the Income Tax Act by claiming capital gains exemption on the sale of securities that are reinvested in a residential property.
The Delhi High Court interpreted that ‘one residential house’ if divided into floors, will not be considered different properties but should be treated as a single residential house for the purpose of Section 54F.
The Delhi High Court allowed Lata Goel’s claim for deduction under Section 54F for Assessment Year 2011–12 on gains from the sale of shares of FIITJEE Ltd., on the grounds that the gains were invested in acquiring a new residential house property (new asset).
Section 54F of the Income Tax Act offers tax exemption on profits earned from selling any asset other than a residential property, provided certain conditions are met, such as the requirement that the seller reinvest the total sale proceeds into a new residential house.
In the present case, during the first round of litigation, a search under Section 132 was conducted on the FIITJEE Group, including the assessee, Lata Goel. The Assessing Officer passed an assessment order under Section 153A read with Section 143(3), restricting the deduction under Section 54F to ₹30 crore against the claimed amount of ₹90 crore.
Lata Goel challenged the Assessing Officer’s order before the Commissioner of Appeals and the ITAT, both of which ruled in her favour.
Subsequently, the Assessing Officer initiated reassessment based on records from the South Delhi Municipal Corporation, which indicated that Lata Goel owned more than one residential property on the date of the transfer of FIITJEE Ltd. shares, and therefore disallowed the entire deduction claimed under Section 54F.
The ITAT allowed the appeal in favour of Goel, and the Delhi High Court noted that ownership or partial ownership of different floors would not negate the fact that the portions should be considered as ‘one residential house’.
Referring to a series of judgments, the Delhi High Court stated, “.. We find it difficult to accept that, in the given facts, different floors of a house are required to be considered as multiple residential houses.”
Concurring with the ITAT’s decision, the Delhi High Court observed that the assessee, in this case—Lata Goel—could not be denied the deduction under Section 54F on the ground that she held more than one residential unit.
The court further observed that the assessee had fairly disclosed the sale of the original asset, in respect of which capital gains had arisen, as well as the purchase of the new house property from the said sale proceeds.
The court also held that the configuration of ownership of the property, as recorded in the SDMC records, does not lead to the conclusion that there was any failure on the part of the assessee to disclose material facts.
Tax experts welcomed the ruling, stating that the judgment could offer relief in many similar litigations currently underway or likely to arise.
An tax expert stated, “The Delhi High Court’s ruling will provide much-needed clarity to the interpretation of ‘one residential house’ under Section 54F of the Income-tax Act 1961. By holding that ownership of multiple floors within the same building does not constitute ownership of multiple residential properties, the Court has correctly emphasized the need to look at the actual use of the property rather than just municipal records. This is clear example of appreciating substance over form in income tax law. This judgement is likely to have a significant reference value for other taxpayers as well as the issue of section 54F deduction in case of apartments and builder floors is frequently raised by the tax department.”
