Redeveloped inherited property? ITAT Delhi says multiple floors can qualify for capital gains tax exemption
A taxpayer who inherited a residential property from his mother and received ₹75 lakh from a builder under a redevelopment agreement has won relief in a capital gains tax dispute before the Income Tax Appellate Tribunal (ITAT), Delhi. The tribunal ruled that the tax authorities could not deny an exemption under Section 54 of the Income-tax Act, 1961, merely because the redeveloped property comprised multiple floors.
In Ranjan Sen Jain v. Income-tax Officer, ITA No. 8561/Del/2025, for assessment year 2020-21, the tribunal also directed the tax officer to reconsider the computation of long-term capital gains using the taxpayer’s registered valuation report. The order was pronounced on 13 July 2026.
Jain inherited a 400-square-yard leasehold plot in Vasant Vihar, New Delhi, from his mother, Kamla Devi Jain, who died on 25 December 1997. The Delhi Development Authority transferred the property into his name in September 1998, and he converted it into freehold property in August 1999. His mother had constructed a single-storey house on the plot in 1978.
In December 1999, Jain entered into a collaboration agreement with Aditya Developers to demolish and reconstruct the house. Under the arrangement, the first floor went to the developer, while Jain retained rights to the basement, ground floor, second floor and terrace. The first floor was subsequently sold in three portions to separate owners.
In September 2018, Jain and the three first-floor owners entered into another collaboration agreement with Uppal Housing Pvt. Ltd. for redevelopment. Under the agreement, Jain was to receive the basement, ground floor, third floor and terrace of the reconstructed building. The builder received the second floor, while the three existing first-floor owners retained the first floor. Jain also received ₹75 lakh from the builder, paid over two years.
The builder handed over the redeveloped portions to Jain in February 2020. He claimed an exemption under Section 54 for the residential property received in the redevelopment arrangement.
The assessing officer questioned two aspects of Jain’s capital gains calculation: the fair market value of the inherited property as of 1 April 2001 and the exemption claimed for multiple residential floors.
On the exemption, the tax officer argued that the basement, ground floor and third floor were separate residential units, with independent access and facilities. The officer therefore restricted the Section 54 deduction to the construction cost of the ground floor, valued at around ₹6.26 crore.
The tax officer also rejected the taxpayer’s valuation of the inherited land, arguing that the estimate relied on calculations working backwards from later property values. The officer instead used a lower value based on government rates. The first appellate authority upheld the assessment, prompting Jain to approach the tribunal.
The tribunal held that the exemption could not be denied simply because the residential property consisted of multiple floors. It noted that the law does not prescribe a particular layout or construction pattern for a residential house. Multiple floors or units within the same property can qualify as one residential house for the purpose of the exemption.
The tribunal relied on the Delhi High Court’s ruling in Commissioner of Income Tax v. Gita Duggal and its later decision in Pr. CIT v. Lata Goel. These judgments support the interpretation that a residential house does not necessarily cease to be one house merely because it has multiple floors or independently usable units.
Accordingly, the tribunal held that Jain could not be denied the Section 54 exemption for the basement, ground floor and third floor on the ground that they constituted multiple residential units.
The tribunal separately examined how the capital gains should be calculated. Jain had submitted a valuation report dated 6 September 2022 from Paramjeet Associates to support the fair market value of his share of the land as of 1 April 2001. The assessing officer had rejected the valuation without referring the matter to a Departmental Valuation Officer (DVO).
The tribunal held that the assessing officer could not replace the registered valuer’s estimate with an ad hoc calculation without identifying specific defects in the report or obtaining an expert valuation. It accepted the valuation report for determining the cost of acquisition of the land share.
Based on the revised computation, the tribunal directed the assessing officer to recalculate the capital gains and allow the Section 54 exemption. The computation reproduced in the order showed long-term capital gains of ₹40.66 lakh before the exemption and eligible construction costs of ₹2.54 crore for the redeveloped portions, resulting in nil net long-term capital gains under the calculation considered by the tribunal.
The ruling does not establish that every ₹75 lakh redevelopment payment is automatically tax-free. It turns on the facts of the case, the qualifying residential investment and the calculation of capital gains. The tribunal allowed Jain’s appeal and directed the tax officer to recompute the liability accordingly.
Kirti jha
Kirti Jha is a Senior Content Producer at Mint, where she writes on mutual funds, taxation, personal finance and macroeconomic developments. Her reporting focuses on helping readers understand complex financial developments through data-driven, research-backed stories that explain how policy changes, market trends and regulatory decisions affect investors and households. <br><br> Before joining Mint, Kirti worked at ET Money, where she specialised in mutual fund research and investment analysis. She tracked portfolio disclosures, fund manager strategies, sectoral allocation shifts and investment trends, distilling large datasets into investor-focused insights. Her work combined quantitative analysis with consumer-centric storytelling, enabling readers to better understand fund positioning, portfolio changes and long-term investment opportunities.<br><br> Kirti holds a Bachelor's degree in Economics from Indraprastha College for Women, University of Delhi, and a Master's in Finance from the Jindal School of Banking & Finance at O.P. Jindal Global University. Her academic training emphasised analytical thinking, quantitative research and financial decision-making, providing a strong foundation in understanding capital markets, financial systems and economic policy. With a combined experience in investment research and financial journalism, she is committed to producing accurate, accessible and insightful journalism that empowers readers to make well-informed financial decisions.
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