Bombay High Court
Mrs. Olga T. Desouza vs Commissioner Of Income-Tax on 28 February, 1997
Equivalent citations: [1997]228ITR409(BOM)
Author: Pratibha Upasani
Bench: Pratibha Upasani
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the assessee, the Income-tax Appellate Tribunal has referred the following question of law arising out of its order to this court for opinion :
"Whether, on the facts and in the circumstances of the case, the assessee was entitled to the relief under section 54 of the Income-tax Act, 1961 ?"
2. This reference pertains to the assessment year 1976-77. During the previous year relevant to the said assessment year, the assessee sold a house property situated at 10, Pali Road, Bandra, in which the assessee had 3/7ths share. The assessee claimed exemption in respect of her share of capital gains arising from the sale of the said property under section 54 of the Income-tax Act, 1961 ("the Act"), on the ground that she had purchased a new residential accommodation within the period specified therein. The Income-tax Officer did not accept this claim of the assessee as according to him the assessee could not fulfil the condition precedent for applicability of section 54 of the Act in regard to the user of the same by her for her own residence in the two years immediately preceding the date of the transfer. The admitted position was that the transfer of the property in question had taken place in May, 1975. The assessee was residing therein from January, 1974. Obviously, the period for which it was used by the assessee for her own residence was less than two years. The Income-tax Officer, therefore, rejected the claim of the assessee.
3. The assessee appealed to the Commissioner of Income-tax (Appeals) against the above order. Before the Commissioner of Income-tax (Appeals), it was contended by the assessee that though the premises were used by the assessee for her own residence only for about 16 months, even earlier she had kept her furniture there and used to occupy the same occasionally. The case of the assessee before the Commissioner (Appeals) was that the use of the premises by her for her residence for any period within two years preceding the date of the transfer was sufficient to satisfy the requirement of section 54 of the Act. So far as the factual part in regard to the period of user of the premises by the assessee for her own residence is concerned, the Commissioner (Appeals) observed as follows :
"Admittedly, the appellant was not occupying the premises for her own residence for a period of two years."
4. However, despite the above factual finding, the Commissioner (Appeals) held that the assessee was entitled to the benefit of exemption under section 54 of the Act as in his opinion the period of two years was the outer limit and the assessee was entitled to relief under section 54 of the Act if "she was occupying it at any time during that period for the purposes of residence". He, therefore, allowed the appeal of the assessee and reversed the order of the Income-tax Officer.
5. Aggrieved by the above order of the Commissioner (Appeals), the Revenue appealed to the Income-tax Appellate Tribunal ("Tribunal"). The Tribunal did not accept the interpretation put by the Commissioner (Appeals) on section 54 of the Act and following the decision of the Madras High Court in M. Viswanathan v. CIT [1979] 117 ITR 244, held that section 54 was not applicable unless the property was continuously used by the assessee for his own residence during the whole of the period of two years prior to the date of the transfer. The Tribunal accordingly reversed the order of the Commissioner (Appeals) and restored that of the Income-tax Officer. Hence, this reference at the instance of the assessee.
6. We have heard learned counsel for the assessee who submits that the Tribunal was not correct in its conclusion that to get the benefit of section 54 of the Act, the property in question must be used by the assessee for his residence for a continuous period of two years immediately preceding the date of the transfer. According to learned counsel, the user of the property by the assessee for his or her residence at any time during the period of two years is sufficient compliance with section 54. Learned counsel further submits that in the instant case even prior to January, 1974, when the assessee started to reside there, the premises in question were used by the assessee for keeping her furniture and occupied by her. Learned counsel for the Revenue, on the other hand, submits that so far as the factual part is concerned, in view of the clear finding of the Commissioner (Appeals), which has not been reversed by the Tribunal, to the effect that the appellant was not occupying the premises for her own residence for a period of two years it was not open to the assessee at this stage to claim that she should be deemed to have been in occupation of the same for the period of two years by virtue of the alleged user of the same for keeping furniture, etc., therein. According to learned counsel, the uncontroverted factual position in this case is that the transfer took place in May, 1975, and the assessee was using the same for her residence only from January, 1974. That being so, admittedly, the house property in question was not used by her for her own residence for a period of two years. So far as the legal contention of the assessee that the user of the premises at any time within two years is sufficient compliance with the requirement of section 54 is concerned, learned counsel submits that this part of the controversy now stands concluded by the decision of this court in CIT v. Sudhir Jayantilal Mulji [1995] 214 ITR 154, wherein this court has held that for obtaining the benefit of section 54, the assessee must have been in occupation of the premises for a continuous period of two years before the transfer. We have carefully considered the rival submissions. Section 54 of the Act, as it stood at the material time, reads as follows :
"54. Profit on sale of property and used for residence. - Where a capital gain arises from the transfer of a capital asset to which the provisions of section 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 of his 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, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, -
(i) if the amount of the capital gain is greater than the cost of the new asset, the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may, the cost shall be reduced by the amount of the capital gain."
7.It is clear from the above section that the use of the house by the assessee or by his or her parents mainly for the purposes of own or the parent's own residence is a condition precedent for the applicability of this section. The true meaning of the expression "in the two years immediately preceding the date of transfer" came up for consideration before this court in CIT v. Sudhir Jayantilal Mulji [1995] 214 ITR 154, wherein it was held by this court that the user of the property by the assessee for own residence must be for a continuous period of two years immediately preceding the date of the transfer. This court did not accept the construction put by some of the High Courts on the above expression to mean "at any time during the period of two years". While arriving at the above conclusion, this court referred with approval the decision of the Madras High Court in M. Viswanathan v. CIT [1979] 117 ITR 244 which was relied upon by the Tribunal and the other decisions of the Madras High Court where it has been held that for obtaining the benefit of section 54 of the Act, the assessee must have been in occupation for a continuous period of two years before the transfer. This court did not agree with the contrary decision of the Delhi High Court in S. Harnam Singh Suri v. CBDT [1984] 145 ITR 159 and the decision of the Karnataka High Court in M. Abdul Sattar v. CIT [1987] 163 ITR 642, where it was held that the expression "in the two years immediately preceding the date of the transfer" would mean "at any time within two years". The controversy in this case thus stands concluded by the decision of this court in CIT v. Sudhir Jayantilal Mulji [1995] 214 ITR 154 and following the same, we are of the clear opinion that the Tribunal was right in this case in holding that the assessee was not entitled to relief under section 54 of the Act as the house property in question was not used by her for her own residence for a continuous period of two years preceding the date of the transfer. The question referred to us is, therefore, answered in the negative and in favour of the Revenue.
8. This reference is disposed of accordingly. No order as to costs.