TMI Blog1993 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... of the transfer thereof in order to be entitled to claim exemption from levy of capital gains tax under section 54 as it then stood. The Karnataka High Court has taken the view that the user of the residential house by the assessee or his parents at any time within two years prior to the date of the transfer thereof was enough to entitle the assessee to claim such exemption. The Delhi High Court appears to have taken the view that the assessee must have "mainly" used the house as his own residence during the relevant period and if the assessee or his parents had used the residential house "mainly" though not continuously within a period of two years prior to the transfer thereof, the assessee would be entitled to exemption from levy of capital gains tax to the extent provided in the said section. By this reference made under section 256(1) of the Act, at the instance of the Revenue, the Tribunal has referred the following question to this court, for its opinion : " Whether, on the facts and in the circumstances of the case and on a proper interpretation of the words 'in the two years', occurring in section 54, the Tribunal was justified in directing the Income-tax Officer to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of his own or the parent's own residence, the brackets and words '(hereafter in this section referred to as the original asset)' were inserted. (ii) In clause (i), the words and brackets 'is greater than the cost of the house property so purchased or constructed (hereafter in this section referred to as the new asset)', were substituted for the words 'is greater than the cost of the new asset'." By the said Amending Act, sub-section (2) was inserted in the said section. The newly inserted sub-section (2) is of no relevance for our purpose. The abovereferred Amending Act did not make any significant change in section 54 as it stood prior to amendment in so far as the problem under consideration is concerned. Section 54 was amended further by the Finance Act, 1982. The said subsequent Amending Act is also not relevant for our purpose. The assessee purchased an ownership flat in the building known as "Kamal Kunj" situated at Jamshed Road, Matunga, Bombay, for a total consideration of Rs. 38,805. Some time in May, 1974, the assessee took possession of the said flat. The said flat was used by the parents of the assessee for the purpose of their own residence for a period of ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of his own or his parent's own residence. The question before the court concerns the interpretation of the section pertaining to "nature and extent of user of the original asset" prior to transfer thereof which entitled the assessee to avail of the exemption from levy of capital gains tax at the relevant time. It is obvious to us from a plain reading of the section that the original asset must have been "mainly" used for personal residence of the assessee or of his parents "in two years" immediately prior to the date of transfer and such user must not be occasional, casual or for a short while. It is also obvious to us from a plain reading of the section that the requisite user of the original asset need not be continuous or unbroken for the entire period of two years. The section does not prescribe any such requirement expressly or by necessary implication. After hearing learned counsel on either side and going through the relevant case law as discussed in the later part of the judgment, we have reached the conclusion that the view taken by the High Courts of Madras and Gujarat, on the one hand, and the view taken by the Karnataka High Court, on the other hand, are somewha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... einafter. Learned counsel for the assessee has supported the Karnataka High Court view as discussed below. In CIT v. R. Mala [1982] 135 ITR 302, the Madras High Court held that for obtaining the benefit of section 54, the assessee must have been in occupation of the building for a continuous period of two years before the sale. In this judgment, the Madras High Court followed the view taken by the said High Court in the earlier case of M. Viswanathan v. CIT [1979] 117 ITR 244. At page 306, Sethuraman J., speaking for the Bench, observed that if the words "in the two years immediately preceding" had stood by themselves some ambiguity would have arisen, because it is possible to say that when we speak of "in the two years", it can be any time during the period of two years. At the same page, the learned judge made observations to the effect that the abovereferred expression was liable to be construed in conjunction with the expression "was being used" which expression in the English language indicated "past continuous user" immediately prior to the date of transfer. Thus, in the abovereferred decisions, the Madras High Court took the view that the assessee must have continuously us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned judge emphasised the expression "mainly" while interpreting the said section and gave a few illustrations having same bearing on the problem under consideration. There may be a case where the assessee may go out for some time. There may be a case where some of the relatives and friends of the assessee may have used the residential house for a few months with the permission of the assessee. At page 166, it was observed by the court that the assessee was not expected to use the building throughout the year or without any interruption whatsoever in order to be entitled to exemption from levy of capital gains tax. Thus, after taking a practical and pragmatic view of the said section and after attaching due weightage to the use of the word "mainly", the Delhi High Court reached the conclusion that the assessee need not have continuously used the flat or the building for an unbroken period of two years as observed by the Madras High Court. Thereafter the learned judge referred to a letter issued by the Central Board of Direct Taxes bearing No. 207(24)/76-UU(A-II), dated March 25, 1971, dealing with the situation where the assessee owned two residential houses both meant to be used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel on either side. Having regard to the legislative intent and the language used in the section, we have no doubt in our mind that the benefit of section 54 cannot be availed of by the assessee merely because the assessee has used the building or the flat at any time (i.e., however occasional and even for a short while) within a period of two years immediately preceding the transfer of the asset. If such an interpretation is upheld, the very purpose of using the expression in the two years immediately preceding the date of transfer and the object of the section would be defeated. Merely because the expression used is "in the two years" and not "for the two years", the court cannot interpret the provision so as to nullify the effect of the key words used in the section". In our opinion, the Legislature never intended to confer exemption from levy of capital gains tax on an assessee who used the residential house by himself or his parents casually--say for a day or for an extremely short period prior to the date of transfer thereof. It is well-settled that the section must be read as a whole and none of the words used in the section can be ignored or omitted from consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee or his parents during the said period. In our opinion, the assessee is entitled to avail of the exemption from the levy of capital gains tax subject to all other conditions prescribed by the section being satisfied provided the house (i.e., the original asset) was meant to be used and was actually used by the assessee or his parents "mainly" during the period of two years immediately prior to the date of transfer. We find that our view concerning the interpretation of section. 54 gets support from the view taken by the Delhi High Court in the case of S. Harnam Singh Suri [1984] 145 ITR 159 and the abovereferred letter issued by the Board reproduced at pages 2216 and 2217 of Sampath Iyengar's commentary referred to hereinabove. In view of the above analysis, we respectfully differ from the view taken by the High Courts of Madras, Gujarat and Karnataka in the above referred cases. It shall have to be decided in each case as to whether the assessee fulfilled the conditions of eligibility for exemption as discussed above. Having regard to the admitted and proved facts of this case, it is obvious that the assessee did not use the original house "mainly" as a residential house f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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