Madhya Pradesh High Court
Commissioner Of Income Tax vs M.K. Pushpraj Singh & Anr. on 14 March, 1996
Equivalent citations: (1998)148CTR(MP)375
ORDER S.K. KULSHRESTHA, J.
The Tribunal, Jabalpur Bench, Jabalpur, has furnished the statement of case and referred the following question of law arising out of the order of the Tribunal dt. 1st Jan., 1988 passed in ITA Nos. 407 and 108/Jab/83 to this Court at the instance of the Revenue :
'Whether, on the facts and in the circumstances of the case and on a true interpretation of the provisions of s. 54 of the IT Act, 1961, the Tribunal was justified in law in holding that the assessee was entitled to exemption under s. 54 in respect of the Bombay property which was not owned by the assessee as an individual during the last two years from the date of sale?"
2. The two assessees namely, M.K. Pushpraj Singh, Rewa and H.H. Maharaja Martand Singh, Jua Deo, Rewa, were assessed as individual assessees within the meaning of s. 2(31)(i) for asst. yr. 1973-74. The assessee had sold their respective shares of the house property known as "Rewa House, Bombay". This property was received by them on the partial partition of the HUF of which they were members by a deed dt. 28th July, 1971. The capital gains arising out of the said property was claimed as exempt under s. 54 of the IT Act. However, the claim of the assessees for exemption under s. 54 was negatived by the ITO on the ground that the property was not owned by the two assessees as individuals for a period of two years, immediately preceding the date of sale which took place on 31st March, 1973. The ITO further held that the assessees did not use the property for their residence in their individual capacity in the two years immediately preceding the date of the sale. The matter was carried in appeal to the CIT(A), who confirmed the order of the ITO. In further appeal to the Tribunal, the matter was restored back to the CIT(A) for determining whether the exemption as claimed by the assessee was in order or not. The CIT(A) again rejected the claim of the assessees on the ground that the income from the property which was disposed of by the assessee at Bombay was not assessed in the hands of the assessees under s. 22 of the IT Act, 1961 and that the assessees were not using the said property in their individual capacity for two years before the date of sale. The assessees preferred appeal before the Tribunal. The Tribunal held that the requirement of two years living in the property could not be treated to demand living personally every moment during this period. Further holding that it was not open to the CIT(A) to go into the second question about the property having not been taxed in the hands of the assessees under s. 22, the Tribunal allowed the appeals with direction to the ITO to grant relief under s. 54 after calculating the amount. The Revenue then approached the Tribunal under s. 256 for reference of the question of law arising out of the said order of the Tribunal and hence, this reference.
3. We have heard the learned counsel for the parties and perused the record.
4. Provisions of s. 64(1) as stood at the relevant time, read as under :
"Where the capital gain arises from a transfer of capital asset to which the provisions of s. 53 are not applicable being buildings or lands appurtenant thereto, the income of which is chargeable under the head 'income from house property' which in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent mainly for the purposes of his own or the parent's own residence.... and the assessee has within a period of one year before or after that date purchased, or has within a period of two years after that date, constructed a house property for the purposes of his own residence then ........
5. The requirement as apparent from the above provision, is clearly that capital gain should relate to building or land appurtenant thereto of which income is chargeable under the head 'income from house property' and that in the two years immediately preceding the date of transfer, it should have been used by the assessee or a parent mainly for the purposes of his or parent's own residence. With reference to the finding of requirement of residence, we find that the Tribunal was right in holding that the requirement of residence of the assessee himself or his parent cannot be construed to mean that the assessee or parent should have physically occupied the house in question continuously during the two years preceding. Even if such a building is used for the purposes of residence or kept available for such residence as and when required, the requirement stands fulfilled. In this view of the matter, the decision cited by the parties in S. Radhakilshna vs. CIT (1980) 17 CTR (Mad) 349 : (1984) 145 ITR 170 (Mad) with regard to sale of land appurtenant, the decision in CIT vs. C. Jayalakshmi (1980) 17 CTR (Mad) 37: (1981) 132 ITR 82 (Mad) holding exemption would not be available where a large portion of the building had been let out, the decision in CIT vs. Mrs. P. Rajasulochana (1994) 210 ITR 423 (Mad) ' - relating to entitlement to exemption if only a small portion of a building has been let out and the decision in CIT vs. Kodandas Chanchlomal (1985) 48 CTR (Gul) 346 : (1985) 155 ITR 273 (Guj) , pro rata exemption in such cases are not relevant for our purpose.
6. The key question that arises for consideration is now with regard to the nature and character in which the property sold was held by the assessee. As pointed out above, it is not disputed that the property fell to the shares of the individual assessees by a partition deed dt. 28th July, 1971 and was sold by the assessee on 31st March, 1971. It cannot, therefore, be disputed that prior to the partition of the property on 28th July, 1971, the same was held by the HUF of which the assessees were the members. The assessees did not, therefore, possess or own the said property or any portion thereof in their capacity as assessees as individuals. In Shiigopal Rameshwardas vs. Add]. CIT 1978 CTR (MP) 293 : (1979) 119 ITR 980 (MP) , this Court has held that the word "assessee" used in s. 54 construed in its context refers only to living persons and not to fictional or artificial juridical persons. Again in Kanhaiyalal Ramswaroop vs. CIT (1984) 149 ITR 157 (MP) , this Court has expressed that exemption cannot be claimed under the said provisions by HUF. Sec. 54 extends exemption only if the capital gains arise from a transfer of the asset of which the income is chargeable under the head 'income from house property' and which in the two years immediately preceding the date of transfer was being used by the assessee or a parent. The property must, therefore, during this period of 2 years, belong to assessee. The assessee being an individual and having acquired the said asset as assessee only on 28th July, 1971, it cannot be said that the assessees in their status as individuals owned the said property liable to tax under s. 22 of the Act on income from the said property as assessee and, therefore, any occupation by such assessee as a member of HUF prior to the date of partition deed, would not count for the period of 2 years as required.
7. We are, therefore, of the view that since each of the two assessees did not occupy the said property in their capacity as assessees (individual) prior to 28th July, 1971, they were not entitled to exemption under s. 54 in respect of this property which was not owned by the assessee as an individual in the two years preceding the date of the transfer.
8. Accordingly, we answer the reference in favour of the Revenue and against the assessees.
OPEN