1982 (4) TMI 206 - AT - Income Tax

Summary

Issues:
1. Interpretation of eligibility criteria under section 54 for relief on the profit from the sale of property used for residence.
2. Discrepancy between the interpretations of the Income Tax Officer (ITO) and the Appellate Authority Commissioner (AAC) regarding the period of residence required for the relief under section 54.
3. Whether continuous residence for three years is a legal requirement for eligibility of relief under section 54.

Detailed Analysis:
1. The judgment concerns the interpretation of the eligibility criteria under section 54 of the Income-tax Act, 1961, for relief on the profit from the sale of a property used for residence. The main issue was whether the assessee must reside in the newly constructed house for a minimum period of three years to qualify for the relief. The ITO contended that the property should have been occupied by the assessee after its construction within two years, while the AAC disagreed with this interpretation, allowing the relief to the assessee.

2. The discrepancy between the interpretations of the ITO and the AAC led to the departmental appeal. The ITO, during the appeal, acknowledged that the period of residence should be three years instead of two. However, the Tribunal found no merit in the departmental appeal, stating that the section does not explicitly require the new house property to be used for residence within two years after the sale. The Tribunal agreed with the AAC's reasoning that the ITO's interpretation was incorrect.

3. The Tribunal further examined whether continuous residence for three years is a legal requirement for eligibility of relief under section 54. The Tribunal found no legal basis for this claim, emphasizing that even without three years of continuous residence, an assessee can establish that the newly constructed house is for their own residence. The Tribunal dismissed the departmental appeal, highlighting that the provision in section 54(1)(i) regarding the computation of capital gain within three years of purchase or construction does not mandate a specific period of residence in the newly constructed house.

In conclusion, the Tribunal upheld the AAC's decision, emphasizing that the Income Tax Officer's interpretation of the section was incorrect, and there is no legal requirement for three years of continuous residence to qualify for relief under section 54 of the Income-tax Act, 1961.