A Delhi resident from Vasant Vihar received ₹75 lakh from Uppal Builders after redeveloping his inherited property, but faced a tax notice for claiming long-term capital gains exemption under Section 54. According to reports from The Times of India, Mr. Jain inherited 400 square yards of leasehold land from his late mother in 1997 and converted it to freehold by 1999. The property was originally built as a single-storey house by his mother in 1978, but Jain had bigger plans for it. On December 22, 1999, he signed a deal with Aditya Developers to tear down the old house and rebuild it, retaining the basement, ground floor, second floor, and open terrace above the second floor while Aditya Builders received the entire first floor.
The Income Tax Appellate Tribunal (ITAT) Delhi delivered a favorable ruling on July 13, 2026, allowing the taxpayer to claim Section 54 exemption for the entire redeveloped property. As reported by The Times of India, the tribunal held that multiple floors within the same residential building do not automatically constitute multiple residential houses for tax purposes. The court relied on the Delhi High Court's Pr. CIT v. Lata Goel ruling, which established that acquiring more than one floor within the same property does not mean acquiring multiple residential houses by itself. The tribunal emphasized that the existence of different floors or independently usable portions within the same building does not, by itself, result in the taxpayer acquiring more than one residential house, as the manner in which a residential building is vertically or functionally divided is merely a method of structuring the property according to present or future requirements.
The case centered on valuation disputes and construction cost calculations. According to The Times of India, the Assessing Officer rejected the taxpayer's fair market value determination using registered valuers' reports and replaced it with a lower government-derived figure. However, the tribunal ruled that the Assessing Officer could not discard valuation reports prepared by registered valuers and replace them with arbitrary figures without pointing out specific deficiencies or referring the matter to the Departmental Valuation Officer. Additionally, a builder's certificate dated February 7, 2023 recorded a construction cost of ₹2.54 crore for the portions handed over to the taxpayer, which was crucial for capital gains computation. The CIT(A) also failed to consider the evidence of this builder's certificate showing the actual construction cost.
The tribunal's decision established important precedent for property redevelopment cases. As reported by The Times of India, Chartered Accountant Suresh Surana explained that the restriction in the 2025 amendment to Section 54, which refers to investment in 'one residential house', applies to the acquisition of multiple separate houses rather than requiring the eligible property to consist of only one floor or single self-contained unit. The tribunal directed the Assessing Officer to recalculate capital gains in accordance with the taxpayer's computations, resulting in no taxable long-term capital gain for the redeveloped property. The ITAT Delhi further ruled that what is material is whether Jain acquired the different portions as part of one residential property and under a single redevelopment arrangement, effectively distinguishing between several units situated within one residential property and several independent residential properties.
