N. V. BALASUBRAMANIAN, J. :
The question of law that arises in this tax case reference is whether the sole surviving coparcener is entitled to claim the exemption under s. 54(1) of the IT Act, 1961 (hereinafter to be referred to as the Act) on the capital gains arising on the sale of a residential property.
2. The facts are not in dispute which are as under : For the asst. yr. 1982-83, the assessee was assessed in the status of an HUF (non specified) and derived income from trade in auto spare parts, dealership in petroleum and running of tourist taxis. The assessee was assessed as an HUF, and the family consisted of the sole surviving coparcener and his wife and during the previous year ended on 31st March, 1982 relevant for the asst. yr. 1982-83 the assessee sold the residential property at Door No. 110, West Sandaipettai Street, Madurai, and it was a long-term capital gains. The assessee claimed exemption under s. 54(1) of the Act. The ITO disallowed the claim on the ground that the assessee was not entitled to the relief as the assessee was assessed in the status of HUF. The CIT(A), however, disagreed with the view taken by the ITO and held that the relief would be applicable even in the case of HUF. The Revenue preferred an appeal before the Tribunal and the Tribunal held that the assessee-family consisted of only a sole surviving coparcener and the assessee could have sold his property only as an individual, even though he was assessed in the status of an HUF. The Tribunal, therefore, held that the decisions relied upon on behalf of the Department to the effect that the relief under s. 54 of the Act would not be available to HUF are not applicable to the facts of the case, but the decision of this Court in the case of M. S. P. Rajah vs. CGT : [1982]134ITR1(Mad) and the decision of the Bombay High Court in the case of CIT vs. Anil J. Chinai : [1984]148ITR3(Bom) would apply and when the sole surviving coparcener sold the property, he acted in his individual capacity and, therefore, there is nothing which prevented the assessee from claiming exemption under s. 54 of the Act. It is the order of the Tribunal which is the subject-matter of the tax case reference, and the Tribunal has stated a case and referred the following question of law for our consideration :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee as HUF consisting of Shri N. Kannaiyiram as Karta and his wife, was entitled to exemption under s. 54(1) of the IT Act in respect of the capital gains arising on the sale of its residential property ?'
3. Mr. C. V. Rajan, learned counsel for the Revenue, submitted that the status adopted in the order of assessment is the HUF and, therefore, the exemption under s. 54 of the Act is not available to the assessee. According to the learned counsel, exemption under s. 54 of the Act would apply only in the case of individual and the character of the property is the coparcenery property and when the exemption under s. 54 of the Act is not available to the HUF it is unnecessary to go into the question whether the conditions prescribed in s. 54 of the Act are complied with or not. He relied upon the decision of this Court in CIT vs. G. K. Devarajulu : [1991]191ITR211(Mad) and a decision of Rajasthan High Court in the case of Pravin Chand Mohin Kumar vs. CIT (1994) 208 ITR 11 wherein it is held that the expression, assessee occurring in sub-s. (1) of s. 54 of the Act refers to only a living person and not an HUF and consequently, the benefits contemplated under s. 54 of the Act are not available to HUF. He further submitted that the decision of this Court in M. S. P. Rajah vs. CGT (supra) and the decision of the Bombay High Court in CIT vs. Anil J. Chinai (supra) have no relevance to the facts of the case.
4. Mr. P. P. S. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the character of the property transferred is not relevant and since the property was sold by a sole surviving coparcener with all the powers available to him as an individual, the sole surviving coparcener sold the property only in his individual capacity. Therefore, he submitted that the decision of this Court in the case of CIT vs. G. K. Devarajulu (supra) is distinguishable as in the instant case, the assessee sold the property only in his individual capacity and the conditions prescribed under s. 54 of the Act are fulfilled and therefore, the benefit of s. 54 of the Act is available to the sale of a house property by a sole surviving coparcener.
5. We have carefully considered the rival submissions of the counsel for the respective parties. The question deals with the interpretation of s. 54 of the Act, and the provisions of s. 54 of the Act, in so far as it is material for the purpose of this case, reads as under :
'Where a capital gain arises from the transfer of a 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 of his mainly for the purposes of his own or the parents 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 ...'
There is no dispute that the assessee was assessed in the status of HUF (non specified). But, the family consists of only a sole surviving coparcener with his wife. It is also not in dispute that the assessee has complied with all conditions prescribed in s. 54 of the Act and is eligible for exemption under the section otherwise and the only question that remains to be seen is whether the benefit under s. 54 of the Act can be extended to a Hindu joint family consisting of a sole surviving coparcener with his wife.
6. The decision of this Court in the case of CIT vs. G. K. Devarajulu (supra) and the decision of Rajasthan High Court in the case of Pravin Chand Mohin Kumar vs. CIT (supra), which considered earlier case-law on this subject, held that the benefits of exemption under s. 54(1) of the Act cannot be claimed by an HUF.
7. Mr. C. V. Rajan, learned counsel for the Revenue is also right in his submission that where a sole surviving coparcener with his wife and a minor daughter received certain joint family properties on a partition in the family, such properties would be treated as belonging to the HUF of himself, his wife and his daughter and cannot be assessed as his individual properties. This proposition is well-established by a decision of the Supreme Court in the case of N. V. Narendranath vs. CWT : [1969]74ITR190(SC) wherein the Supreme Court, after noticing the decision in Attorney-General of Ceylon vs. A. R. Arunachalam Chettiar (1958) 34 ITR 42, held that the property continued to be an ancestral property in his hand, as regards his male issues and his right already attached upon it, the partition only cuts of the claim of the other coparcener. The nature of the right of the sole surviving coparcener was the subject-matter of consideration by this Court in the case of M. S. P. Rajah vs. CGT (supra) and this Court held that a joint family may consist of a single member with his wife and where the joint Hindu family consisted of only one male member and other members were females, the said male member is entitled to dispose of the property in the joint family properties as if they are his separate properties, and he may sell, mortgage or make a gift of the properties. This Court also held that when such member transfers the property, then the transfer by him is by virtue of all powers vested with him for the disposal of the property as an individual. The Bombay High Court in CIT vs. Anil J. Chinai (supra) also held that a sole surviving coparcener is entitled to dispose of a coparcenary property as if it is his separate property and the subsequently born son also cannot question or object to the alienation made by the father before he was born. This Court in V. V. S. Natarajan vs. CIT : [1978]111ITR539(Mad) has taken a view that there is no possibility of a partition of the joint family properties where the family consisted of a single coparcener with female members having right to maintenance. All the above decisions make clear the nature of the rights of a sole surviving coparcener and he can be properly described as an owner of the property till a son is born to him or adoption of a son is made and till that point of time, he has all powers of alienation like sale, mortgage or gift as that of an individual and even the subsequently born son cannot question the alienation made by the sole surviving coparcener. Though for the purposes of assessment, the sole surviving coparcener is assessed in the status of an HUF, his powers are wide and unrestricted and akin to that of an individual. He is free like an individual to alienate the property in whatever manner he likes.
He can equally be careless with the property with none to question this solitary man with his wife possessing enormous powers of an individual to deal with the properties in any way he likes. It is only in outward thin shell it is called HUF, but in essence his powers over the properties are as that of an individual. Therefore, when he alienated the property, he has disposed of the same with the powers vested in him as that of an individual. In such a situation, it is relevant to consider why the benefit of deduction under s. 54 of the Act should not be extended to the sale of the house property used by him for his residence.
8. The prerequisite condition for getting the statutory benefit under s. 54 of the Act is that the house property was being used by the assessee or a parent of his mainly for the purpose of his own or the parents own residence. The contention of Mr. C. V. Rajan, learned counsel for the Revenue is that the assessee in the context of s. 54 of the Act can only refer to an individual and the said expression cannot take in the HUF. The object of s. 54 of the Act is to grant relief in respect of capital gains arising from the transfer of a capital asset, where the amount of capital is invested in another residential house. The expression, assessee in s. 54 of the Act, coupled with the use of the words, residential house and the user for the purpose of his own residence and the investment for the purpose of his own residence within the period of 2 years all clearly contemplate that the assessee must enjoy the property as his own and he has the right of ownership in the property that was sold. When the sole surviving coparcener has all the rights of an individual owner in the matter of enjoyment and in the matter of user of the same property, we are of the opinion that the expression, assessee in s. 54 of the Act should also be interpreted to include an HUF with a sole surviving coparcener with female members having right of maintenance. We are of the view that when all conditions of s. 54 of the Act are satisfied by a sole surviving coparcener to claim the deduction, it is neither desirable nor justifiable to deny the deduction to such a member. The comparison of the rights of an individual and that of a sole surviving coparcener would go to show that there is no difference at all between them in the matter of either ownership over the property or user of the property or in the matter of enjoyment of the property and when the rights are same, in our view, the expression, assessee in s. 54 of the Act should, if necessary, be interpreted to include a sole surviving coparcener also. By so interpreting, the object behind the s. 54 of the Act is not defeated, but, on the other hand, the object is achieved by granting benefits under s. 54 of the Act to a sole surviving coparcener. The decisions where the Courts have held that the benefits of s. 54 of the Act are not applicable to an HUF are all cases where there are more than two male members and the instant case is a distinct case of a joint family consisting of a sole surviving coparcener.
9. This Court in M. S. P. Rajah vs. CGT (supra) has held that the fact that the return was made by an HUF and the assessment was made in the status of HUF would not be relevant and it is the nature of the powers that would be relevant and not the status in which the return was filed by the assessee. Applying the principle laid down by this Court in M. S. P. Rajahs case, cited supra, when the assessment was made on the sole surviving coparcener in the status of HUF, it was rightly made on the basis of the decision in N. V. Narendranaths case cited supra. But, the sole surviving coparcener has full right of enjoyment and power over the income of the property as well as over the corpus of the property. When the assessment is made bringing to tax the said income in his hand, we are of the opinion that with reference to the same income that was taxed, the benefit of exemption under s. 54 of the Act should be extended. Therefore, there is absolutely no anomaly in granting the deduction under s. 54 of the Act to a sale by a sole surviving coparcener as the income which is enjoyed with all the powers of an individual though he was assessed in the status of the HUF.
10. Further, the legislature also amended the provision by the Finance Act, 1987, and by the said amendment, the benefit of exemption is also available to the sale by HUF. In our view, the anomaly created or doubt existed earlier was rectified by the Parliament by the Finance Act, 1987, and if that is the intention of the Parliament, we are of the view, there is no bar in granting the deduction under s. 54 of the Act to an HUF consisting of a single coparcener as he has all powers of an individual owner over the residential house which was used by him prior to the date of sale and he enjoyed the property as an owner for the period specified in s. 54 and he reinvested the capital in a residential house which was also used by him for the purpose mentioned under s. 54 of the Act. In our view, if all the ingredients of s. 54 of the Act are satisfied in the case of a sole surviving coparcener, the benefit under s. 54 of the Act would also be available to him. The Tribunal, in our view, has come to a correct conclusion in holding that the assessee being a single coparcener is entitled to exemption under s. 54 of the Act in respect of capital gains arising on the sale of the property.
11. In fine, we answer the question of law in the affirmative and against the Revenue. However, in the circumstances of the case, there will be no order as to costs.