Sec. 54F of Income Tax Act, 1961— Exemption —A residential house which consists of several independent residential units would be entitled to exemption under Section 54F(1).

Facts: The appeal was filed by assessee on the substantial questions of law that (i) Whether the tribunal is justified in law in confirming the denial of exemption claimed by the appellant under Section 54F and (ii) Whether the tribunal erred in law in interpreting the meaning of the word residential house used in Section 54F(1) proviso (a) (i) and (iii) Whether the authorities below are justified in law in holding that a property used for the commercial purpose, falls within the meaning of residential house as per the proviso (a) (i) to Section 54F(1)?

Held, that out of nine apartments, seven flats have been sanctioned for commercial purposes, therefore, the dispute only survives in respect of two apartments, which have been sanctioned for residential purposes and are being used for commercial purposes as serviced apartments. The usage of the property has to be considered for determining whether the property in question is a residential property or a commercial property. It is not in dispute that two apartments are being put to commercial use and therefore, the apartments cannot be treated as residential apartments. While interpreting Section 54F, it was held that provisions of Section 54F is a beneficial provision for promoting construction of residential houses and has to be construed liberally. Kerala, Delhi, Allahabad, Calcutta and Hyderabad High Courts have taken a view that usage of the property has to be considered in determining whether it is a residential property or a commercial property and Madras High Court in C.H.KESVA RAO supra has held that expression 'residence' implies some sought of permanency and cannot be equated to the expression 'temporary stay' as a lodger.The contention of the revenue that the apartments cannot be taxed on the basis of the usage does not deserve acceptance in view of decisions of Kerala, Delhi, Allahabad, Calcutta and Hyderabad High Courts with which we respectfully concur. Alternatively, it was held that assessee even otherwise is entitled to the benefit of exemption under Section 54F(1) as the assessee owns two apartments of 500 square feet in same building and therefore, it has to be treated as one residential unit and this fact cannot be permitted to act as impediment to allowance of exemption under Section 54F(1). Similar view was taken by Delhi High Court in case of Geeta Duggal wherein the issue whether a residential house which consists of several independent residential units would be entitled to exemption under Section 54F(1) was dealt with and the same was answered in the affirmative. - NAVIN JOLLY V/s ITO - [2020] 26 ITCD Online 076 (KARN)