S. 54/54F deduction allowable for purchase of multiple independent house units

The assessee offered long term capital gains on sale of property and claimed s. 54 deduction on the ground that he had purchase two adjacent residential flats. The AO held that the deduction could not be given for both flats on the ground that they were independent units, separated by a strong wall. The CIT(A) and Tribunal allowed the claim on the basis that s. 54 deduction was available for purchase of multiple flats, even if the flats were on different floors. On appeal by the department to the High Court, HELD dismissing the appeal:

The expression “a residential house” in s. 54 (1) has to be understood in the sense that the building should be of residential nature and “a” should not be understood to indicate a singular number. Where an assessee had purchased two residential flats, he is entitled to exemption u/s 54 in respect of capital gains on sale of its property on purchase of both the flats, despite the fact that the flats were purchased by separate sale deeds. Deduction is allowable even if the flats are on different floors. On facts, as the two flats purchased by the assessee are adjacent to one another and have a common meeting point, the deduction cannot be denied (D. Ananda Basappa 309 ITR 329 (Kar), K. G. Rukminiamma 331 ITR 211 (Kar) followed; Susheela M. Jhaveri 107 ITD 327 (Mum) (SB) held not good law)