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.

How the property redevelopment deal worked

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.