Seeta Nayyar v. ACIT

Case snapshot

Sections / provisions: 54

Questions before the Court / Tribunal

• Redevelopment, indexation and multiple floors as one house: The reported case addresses section 54 relief following redevelopment, including full indexation and whether multiple floors/units can amount to one residential house on the facts.

Material facts and background

ORDER Per Saktijit Dey, Vice President: This appeal arises out of order dated 26.08.2025 passed by National Faceless Appeal Centre (NFAC), Delhi for the Assessment Year (A.Y.) 2015-16. 2.

year under dispute, assessee filed her return of income on 27.08.2015, declaring income of Rs.8,03,360/-. The return of income filed by the assessee was selected for scrutiny. While verifying the return of income, Assessing Officer noticed that the assessee had declared ‘Long Term Capital Gain’ of Rs.3,37,93,219/-. Whereas, she claimed deduction u/s. 54 of the Act for an amount of Rs.4,40,49,819/-. In other words, the capital gain computed by the assessee was set off against the deduction claimed u/s. 54 of the Act. While verifying assessee’s claim, the Assessing Officer found that the assessee along with her husband were owner of an immovable property being land infrastructure. On 16.10.2012, assessee and her husband entered into an agreement with a builder/developer, M/s. Chetanya Buildcon for redevelopment. As per the terms of the said agreement, the old structure, being a residential house standing over a land admeasuring 500 sq. yds at Maharanibaug, New Delhi was to be demolished and a new building was to be constructed in its place. As per the terms of the agreement, the builder was required to construct a three storied building consisting of ground floor plus three floors...

and her husband to have right, title and interest in the remaining 77.5% of the plot area. On the analysis of the aforesaid facts, the Assessing Officer found that while the assessee and her husband have transferred only 22.5% of the plot of the land, they have claimed cost of acquisition of entire plot of land while computing capital gain. 4.

observed that deduction u/s. 54 of the Act would be available only in respect of one residential house whereas the assessee and her husband have got three floors, hence, deduction would not be available. Accordingly, the Assessing Officer issued a show cause notice to the assessee to justify her claim. In response to the show cause notice, the assessee furnished a detailed reply reiterating her claim. In support of her claim, she also relied upon certain judicial precedents. However, the Assessing Officer remained unconvinced. Based on the reasoning on which the show cause notice was issued, the Assessing Officer allowed deduction on account of indexed cost of acquisition/construction to the extent of 22.5%. Further, he disallowed assessee’s claim of deduction u/s. 54 of the Act. Resultant Long Term Capital Gain of Rs.3,55,61,609/- was added to the income of the assessee. Though, the assessee contested the aforesaid addition in an appeal preferred before learned First Appellate Authority, however, vide the impugned order, learned First Appellate Authorities upheld the addition.

taken before the Departmental Authorities. He submitted that entire property was given to the builder for redevelopment and in lieu of that, the assessee received three floors and undivided share over the land to the extent of the constructed area falling to their share. Thus, he submitted, the Assessing Officer was unjustified in disallowing assessee’s claim of indexed cost of acquisition and restricting to the extent of 22.5%, being share in land falling to the developer/builder. 6.

Appellant / assessee submissions

purpose, the builder has developed a new building consisting of ground plus three floors. Because the developer invested own fund for the development of new building one floor was given to him in lieu of cost of construction. However, fact remains that except one floor given to the builder, rest of the building remained in the possession of assessee and her husband. It is not a case where the builder was given the authority and freedom to develop the property for sale to outsiders. Therefore, two floors given to the assessee are part of one residential house and cannot be considered as more than one in number. The following decisions relied upon by learned counsel for the assessee support the aforesaid view:1.

assessee submitted that in case of assessee’s husband no such adjustment was made by the Assessing Officer. Though, he fairly submitted that the return was processed u/s. 143(1) of the Act and no scrutiny assessment had taken place. However, he submitted, no remedial measure was taken by the Department to make adjustments similar to the adjustment made at the hands of the present assessee. Thus, in on

Revenue / respondent submissions

Learned Departmental Representative (DR) strongly relied upon the

Court / Tribunal analysis and reasoning

submitted, in place of the existing residential house belonging to the assessee and her husband, the developer/builder constructed a new house having ground plus three floors. In lieu of the cost of construction, the developer received one floor. However, fact remains that it is one building and floors are part of that building. Therefore, it cannot be said that the assessee was owning more than one residential house. 7.

demolished and in its place, a new residential house having ground plus three floors was to be constructed entirely with the investment of the developer. Further, in terms of the agreement, in lieu of the cost of construction, the developer was to receive one floor in the newly constructed building with undivided share in land to the extent of 22.5% commensurate with the constructed area falling into its share. Whereas, assessee and her husband were to receive three floors in the building along with the undivided share over the land to the extent of 77.5%. Thus, terms of the agreement clearly demonstrate that in lieu of the existing immovable property handed over to developer for redevelopment, the assessee and her husband received ground plus two floors and the undivided share in the land to the extent of constructed area falling into their shares. Of course, additionally, the monetary amount. Thus, in our view, there was a transfer of capital asset in terms of Section 2(47) of the Act. The capital asset transferred was the existing immovable property in lieu of which assessee and her husband received the constructed area along with undivided share over the land. Therefore, cost...

purpose, the builder has developed a new building consisting of ground plus three floors. Because the developer invested own fund for the development of new building one floor was given to him in lieu of cost of construction. However, fact remains that except one floor given to the builder, rest of the building remained in the possession of assessee and her husband. It is not a case where the builder was given the authority and freedom to develop the property for sale to outsiders. Therefore, two floors given to the assessee are part of one residential house and cannot be considered as more than one in number. The following decisions relied upon by learned counsel for the assessee support the aforesaid view:1.

overall consideration of facts and materials on record, we hold that the assessee is eligible to claim deduction u/s. 54 of the Act. The Assessing Officer is directed to factually verify the computation of deduction u/s. 54 of the Act and allow. 11.

Operative decision and relief

In the result, appeal is allowed. Order pronounced in the open court on 20 /02/2026. Sd/-

Authorities and precedents appearing in the judgment

• Halesh K.C. vs. ITO
• Shri Ramiah Harish vs. ITO
• Bhaskar Pratapraj Shah vs. DCIT-16(2)
• Late Shri Ram Kishor Seth vs. ITO
• Mrs. Ratan Mahendra Jain vs. ITO
• Saroj Rani vs. The ITO Ward

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Redevelopment, indexation and multiple floors as one house. The operative result is classified as Allowed. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Redevelopment, indexation and multiple floors as one house. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Maintain a date-and-payment matrix for transfer, agreement, possession, investment and construction; capital-gains exemptions commonly turn on this chronology.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the clean local judgment copy

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