Mumbai ITAT has ruled that six flats spread across three floors can be treated as one residential house for tax exemption under Section 54F, if they are structurally combined and used as a single unit.
Sold shares, bought 6 flats: ITAT grants tax relief on ₹40 crore gains (AI-generated image)
In a significant ruling that could benefit taxpayers, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that multiple flats can be treated as a single residential house for claiming tax exemption under Section 54F of the Income Tax Act, provided they function as one unit.
The ruling came in the case of Siddharth Bhaskar Shah vs PCIT-27, Mumbai (ITA No. 3327/Mum/2025) for the assessment year 2022–23, with the order pronounced on February 16, 2026.
What was the case about?
The taxpayer, Siddharth Bhaskar Shah, had earned long-term capital gains from the sale of unquoted shares. To claim exemption under Section 54F, he invested around Rs 39.96 crore in purchasing residential property.
However, instead of buying a single flat, the taxpayer purchased six flats in a building named ‘Sampanna’ in Bandra, Mumbai.
These flats were spread across 14th, 15th and 16th floors – 2 flats each floor (total 6 units). Together, the total area exceeded 20,000 sq ft.
The taxpayer’s claim was simple: All six flats together formed one residential unit—a triplex house.
What did the tax department say?
The Assessing Officer (AO), during scrutiny, examined the documents, agreements, and property details. After detailed verification, the AO accepted the claim and allowed the Section 54F exemption.
However, the Principal Commissioner of Income Tax (PCIT) later invoked Section 263, arguing that the taxpayer had purchased multiple flats, not one house and Section 54F allows exemption only if the taxpayer invests in one residential house. Therefore, the AO’s order was erroneous and prejudicial to revenue, the PCIT observed.
Key facts that changed the case
During proceedings, several important facts emerged from the property documents and agreements, like the property was described as a ‘triplex unit’ in the agreement and the six flats were structurally combined. Also, there were internal staircases connecting all three floors and the entire property was intended for single residential use.
These facts became crucial in determining whether the property qualified as one house or multiple houses.
What did the ITAT examine?
The ITAT focused on a key legal question:
Can multiple flats, even across different floors, be treated as one residential house under Section 54F?
The tribunal carefully reviewed property agreements, structural layout, usage of the property and judicial precedents from High Courts.
What laws and precedents were considered?
The ITAT relied on several landmark rulings, including:
Delhi High Court in Gita Duggal case – Multiple floors can still be one residential house
Karnataka High Court in Ananda Basappa case – Adjacent flats can be treated as one unit
Madras High Court in Gumanmal Jain case – Functional use matters more than structure
The consistent principle from these rulings: The law focuses on ‘one residential house’ in substance, not in number of units.
ITAT’s key observations
The tribunal made some important clarifications – there is no restriction in law that a house must be a single flat and a residential house may consist of multiple units combined for convenience. Even if flats are on different floors, they can still form one house, the ITAT said. What matters is functional unity and residential use, not physical layout, the tribunal observed.
On Section 263 (revision power)
The ITAT also addressed whether the PCIT was justified in revising the assessment:
The AO had already conducted detailed inquiries and verification and the decision to allow exemption was a plausible legal view. Section 263 cannot be used merely because the PCIT has a different opinion, according to the ITAT.
For revision to apply, the order must be both erroneous, and prejudicial to the interests of revenue.
In this case, ITAT found neither condition satisfied.
Final verdict from ITAT
The ITAT ruled in favour of the taxpayer. Section 263 order was quashed and Section 54F exemption allowed, resulting in investment in six flats treated as one residential house.
Why this ruling matters
This judgment is particularly relevant for high-value property buyers, taxpayers purchasing multiple flats for combined use and cases involving duplex, triplex, or villa-style conversions. The ruling reinforces that tax benefits depend on actual usage, not just the number of units purchased.
Disclaimer:
This article is based on the ITAT order in the case of Siddharth Bhaskar Shah vs PCIT-27, Mumbai (ITA No. 3327/Mum/2025) and is intended for informational purposes only. The ruling is specific to the facts of the case, including the structural integration and usage of multiple flats as a single residential unit. Tax outcomes may vary depending on individual circumstances, documentation, and interpretation of law. Readers are advised to consult a qualified tax professional or legal expert before taking any decision based on this information.
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