Income Tax Appellate Tribunal - Chandigarh
Jaspat Lal Sehgal vs Income-Tax Officer on 25 July, 1986
Equivalent citations: [1986]19ITD617(CHD)
ORDER
F.C. Rustagi, Judicial Member
1. The main contention raised by the assessee in this appeal pertains to levy of capital gains in respect of sale of a property which was partly occupied by the assessee and partly tenanted.
2. The assessment year involved is 1978-79. The assessee owned a house bearing No. 8/3, East Patel Nagar, New Delhi, which was sold for Rs. 1,60,000 on 16-5-1977. The date 16-5-1977 falls in the accounting year relevant to the assessment year under consideration. Ground floor of this property was rented out whereas first floor and a barsati thereon were in self-occupation of the assessee. The ITO subjected 50 per cent of the capital gains in a sum of Rs. 38,644 in the hands of the assessee.
3. When the matter came before the AAC, he confirmed the action of the ITO. Aggrieved by the said order, the assessee has come in appeal before us pressing its claim for exemption of total capital gains.
4. When this appeal was called out, neither the assessee was present by himself nor was represented by any one. We, however, adjudicate the issue with the able assistance of the learned departmental representative who relied on singular Madras High Court decision in the case of CIT v. C. Jayalakshmi [1981] 132 ITR 82, facts of which are almost identical. Their Lordships in the said case had occasion to deal with the meaning of the word 'mainly' while interpreting Section 54 of the Income-tax Act, 1961 ('the Act'). The learned departmental representative submitted that though the revenue is not in appeal and the assessee cannot be placed in worst position than what he is, but as a matter of fact, in the light of the said decision, exemption to the extent of even 50 per cent of the capital gains was wrongly allowed by the two lower authorities. However, he submitted that the appeal of the assessee deserves to be rejected.
5. After finding no controversy about the fact that ground floor of the building in question was rented out and first floor and barsati were in possession of the assessee, it cannot be said that the house was mainly utilised for residential purposes. In the case of C. Jayalakshmi (supra) ground floor of the house owned by the assessee was used by the assessee's mother for her residence while the first floor was let out. The assessee in that case having sold the said house claimed 50 per cent of capital gains as not taxable under Section 54 since half of the building was used for the residence of the assessee's mother. This claim was rejected by the ITO and the AAC but allowed by the Tribunal and out of the Tribunal's order following two questions were referred to their Lordships under Section 256(1) of the Act :
1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the meaning of the term 'mainly' includes property partly occupied for residence and that it qualifies for exemption under Section 54 of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that 50 per cent of the capital gains should be exempt in terms of Section 54 of the Income-tax Act, 1961 ?
and out of the abovesaid two questions, first one was answered against the assessee and for second it was not considered necessary for their Lordships to answer. Their Lordships in the said case held as under :
...1. That the language of Section 54 contemplates an identity of the capital asset transferred and the property being used mainly for the purpose of residence. The word 'which' occurring in the clause 'which in the two years immediately preceding the date on which the transfer took place' naturally qualifies the capital asset which was the subject-matter of the transfer. As, in this case, the entire house was sold, the word 'which' qualifies the entire house property and not any part thereof.
2. In view of the dictionary meaning of the word 'mainly', it is clear that the property sold should have been put to use principally as residence for two years immediately preceding the date of the transfer. As, in the instant case, the entire first floor had been let out and it was not a small portion of the building, it cannot be held that the building in question was mainly used for the purpose of the residence of the assessee's mother. (p. 82) Looking to the above finding it can be easily said that the assessee's claim for exemption of capital gains was not admissible at all though on 21-9-1977 the assessee had purchased another house No. 334 in Sector-15A at Chandigarh for a sum of Rs. 1,30,000.
6. Ground Nos. 1 and 2 in the assessee's appeal pertain to issue of chargeability of capital gains whereas ground No. 3 is in respect of the assessee's claim of expenses like commission. When we peruse the order of the AAC we find from the last paragraph of his order that no arguments were addressed for the learned counsel for the assessee on this point now was there any mention in the order of the ITO. This issue was, therefore, rightly dismissed by the AAC as not pressed by the assessee.
7. Ground Nos. 4 and 5 are regarding calculation and certain disputes about the addition which were not taken into account by the AAC but we do not find any mention in respect of the same in the orders of the two lower authorities. The same as such are also rejected.
8. In the result, the assessee's appeal is dismissed.