Commissioner of Income-tax Vs. Gopaldas H. Hansrajani - Court Judgment

Ranjana Desai, J.

1. By this reference under Section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion at the instance of the Revenue :

'Whether, on the facts and in the circumstances of the case, the asses-sees are entitled to exemption under Section 54 of the Income-tax Act for the assessment year 1982-83 ?'

2. The material facts giving rise to this reference are as follows :

The assessees, who are husband and wife, used to reside in flat No. 6, Hanuman Sharan Building, Bomani Petit Road, Bombay, on leave and licence basis as per agreement dated April 27, 1968. On March 16, 1981, both of them purchased the said flat for Rs. 1 lakh and resold it for Rs. 4.5 lakhs by agreement dated March 25, 1982. They thereafter on May 6, 1982, purchased another flat in Vile Parle for Rs. 7.15 lakhs. The controversy arose whether the assessees are entitled to claim exemption in respect of the capital gains under Section 54 of the Income-tax Act, 1961 ('the Act'). The Income-tax Officer rejected the claim of the assessee on the ground that the flat in question was not occupied by the assessees as owners for a period of two years, which according to him, was a condition precedent for exemption under Section 54 of the Act. The assessees appealed to the Commissioner of Income-tax (Appeals). The appeal of the assessees was rejected by the Commissioner (Appeals). However, in further appeal to the Income-tax Appellate Tribunal ('the Tribunal'), the Tribunal accepted the contention of the assessees. Hence, this reference at the instance of the Revenue.

There is no dispute about the fact that the assessees were in occupation of the flat on leave and licence basis. It was only on March 16, 1981, that the flat was purchased by the assessee and it was resold on March 25, 1982. Admittedly, the assessees were in occupation of the said flat as owners for a period less than two years, i.e., March 16, 1981, to March 25, 1982. The question that arises for consideration is whether the assessees in such a situation fulfil the requirement of Section 54 of the Act. This controversy now stands concluded by the decision of this court in Hameed Jaffery v. CIT : [1997]227ITR724(Bom) . The facts of that case are identical to the present case. In that case, the assessee was occupying the flat on leave and licence basis. He purchased the said flat on July 16, 1973, for a sum of Rs. 36,375 and was in occupation of the same as its owner since then. He sold the said flat on August 11, 1974, for Rs. 70,000. The assessee claimed exemption under Section 54 in respect of capital gains arising from the sale of the said flat for Rs. 70,000 on the ground that he had been occupying the same for a period of two years prior to its sale. The Income-tax Officer did not accept the claim of the assessee for exemption. The order of the Income-tax Officer was upheld by the Tribunal. On a reference of the assessee, this court held that it was obvious that the property in question had not been used by the assessee or his parents for own residence in the two years immediately preceding the date of transfer and that being so, the assessee was not entitled to claim exemption under Section 54 in respect of the capital gains arising from the transfer of the said flat. It was held (page 729):

'It is clear from the plain reading of the above section that exemption from tax on profits from the sale of a building under the above section is dependent on fulfilment of the conditions set out therein. One of the conditions precedent is that the property in question should have been used by the assessee mainly for the purposes of his own residence in the two years immediately preceding the date on which the transfer took place. This expression, in the context, in which it appears in Section 54, clearly means that the occupation of the assessee must be occupation in the capacity of the owner. It does not contemplate occupation during the period when the property even did not belong to him.'

3. In view of the above, the question referred to us is answered in the negative, i.e., in favour of the Revenue and against the assessee.

4. The reference stands disposed of accordingly with no order as to costs.