Mr Jain from Vasant Vihar, Delhi, had inherited his late mother’s 400 square yards of leasehold land in 1997. Being her only son made him the legal heir, and he decided to convert the land into freehold, and accordingly took the necessary steps. On September 20, 1998, the Delhi Development Authority (DDA) mutated the property in his name.
On August 12, 1999, the property was successfully converted into a freehold under Jain’s name. His mother had built a single storey house on this land back in 1978, but Jain had bigger plans for it. So, on December 22, 1999, Jain signed a deal with Aditya Developers to tear down the single-storey house and rebuild it. The new construction included rights to the basement, ground, second floor and the open terrace above the second floor, all of which remained with Jain. Later, the entire first floor of the property was sold as three separate units; the front portion of the first floor to Smt. Devi, back portion of the first floor to Smt. Singhal and back portion of the first floor to Smt. Shankar.
According to the agreement, Aditya Builders had the right to the entire first floor of the building.
Fast forward to 2018, Jain and the three owners of the first floor units (Devi, Singhal, and Shanker) decided to redevelop the building again and they signed a new deal with M/s Uppal Builder to demolish the existing structure and put up a new one.
This agreement was signed on September 11, 2018, and after reconstruction, the ownership/ Rights of Basement, the entire ground floor, the entire third floor and the open terrace were given to Jain. The entire second floor was allocated to Uppal Builders, while the entire first floor was with Devi, Singhal, and Shanker.
In the 2018 deal, Jain received Rs 75 lakh from Uppal Builders, and Devi, Singhal, and Shanker got Rs 25 lakh each. However, Jain paid no income tax as he claimed Section 54 long term capital gains tax exemption for the entire portion of his share in the building, ie; ground floor, basement and third floor.
However, the Income Tax Officer (AO) rejected Jain’s contentions and held him responsible for paying tax.
On July 13, 2026, Jain won the case in ITAT Delhi and didn’t have to pay any tax. Senior Advocate Ajay Vohra, and Advocates Saksham Singhal and Ms. Somya Jain represented him before ITAT Delhi.
Anubhav Sharma, judicial member and Amitabh Shukla, accountant member of ITAT Delhi, heard Jain’s case.
Why did Jain win the case and pay no tax?
Chartered Accountant Suresh Surana explained to ET Wealth Online that in this case, the Delhi ITAT examined whether the different floors received by Jain following the redevelopment of a residential property constituted separate residential houses for LTCG tax exemption under Section 54, and whether the Income Tax Assessing Officer was justified in rejecting the fair market value supported by registered valuers’ reports.
Under the 2018 agreement, when Jain received Rs 75 lakh, he offered capital gains arising from the redevelopment transaction and claimed exemption under Sections 54/54F for LTCG tax exemption in respect of the basement, ground floor and third floor received by him.
For computing the capital gains, Jain adopted the fair market value of the inherited land as on April 1, 2001 on the basis of valuation reports obtained from registered valuers.
However, the Income Tax Assessing Officer treated the basement, ground floor and third floor as three separate residential units because they were physically separated and capable of independent use.
Moreover, the Finance Minister in the Budget 2015 had changed the Section 54 tax exemption in respect of one residential house in India. So, relying on this 2015 amendment to the Income Tax law, the Income Tax Assessing Officer allowed the exemption only for the ground floor.
The Assessing Officer also rejected the fair market value adopted by Jain and substituted a lower government-derived value without referring the valuation dispute to the Departmental Valuation Officer (DVO).
The CIT(A) upheld these findings and also failed to consider the evidence of the builder’s certificate showing the actual construction cost.
ITAT Delhi held 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. 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.
Surana says: “What is material is whether Jain acquired the different portions as part of one residential property and under a single redevelopment arrangement.”
ITAT Delhi also relied principally on the Delhi High Court’s decision in Pr. CIT v. Lata Goel, which clarified that acquiring multiple floors within the same residential property does not amount to acquiring multiple residential houses.
Surana says that the fact that the building's floors had separate entrances, kitchens, bathrooms or were capable of independent use could not, by itself, justify denial of income tax exemption under Section 54/54F.
According to Surana, ITAT Delhi effectively distinguished between several units situated within one residential property and several independent residential properties.
The post-2015 rule about investing in “one residential house” limits you from buying multiple separate houses; it doesn’t mean that the qualifying house has to be just one floor or a single self-contained unit.
So, Jain was able to claim the Section 54 LTCG tax exemption for the basement, ground floor and third floor of the same residential building.
Surana mentions that the ITAT Delhi further ruled that the AO could not reject the reports of registered valuers and substitute an ad hoc valuation without identifying specific defects or referring the matter to the Departmental Valuation Officer.
Surana says: “Since Jain’s latest valuation report dated September 6, 2022 remained unrebutted, the fair market value of the land was directed to be adopted on that basis.”
According to Surana, ITAT Delhi also pointed out that the builder’s certificate dated February 7, 2023, showed a construction cost of Rs 2.54 crore for the portions handed over to Jain. This was crucial that directly impacted the calculation of capital gains.
ITAT Delhi observed that the CIT(A) had incorrectly ignored this evidence despite its relevance.
This is the reason Jain won the case in ITAT Delhi as the tax tribunal after considering the construction cost, the valuation reports and the LTCG tax exemption under Section 54. They ordered the Assessing Officer to redo the capital gains calculations according to Jain’s computations outlined in the order, resulting in no taxable long-term capital gain.