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.
Manish Garg, Lead – Transfer Pricing and Litigation at AKM Global, a tax and consulting firm, 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.”
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