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1. Computation of capital gains on the sale of a house property under sections 45 and 54 of the Income-tax Act, 1961. Analysis: The judgment of the High Court of Madras involved a dispute regarding the computation of capital gains arising from the sale of a house property by an individual engaged in a jewellery business. The assessee initially claimed the benefit of section 54 of the Income-tax Act, 1961, for the capital gains derived from the sale. However, the Commissioner of Income-tax later directed the Income-tax Officer to assess the gross capital gains without granting the benefit under section 54. The Appellate Tribunal, after considering the facts, concluded that the assessee was indeed entitled to the benefit of section 54, as the property sold was mainly used for residential purposes and the property purchased was also intended for the assessee's residence. The Tribunal set aside the Commissioner's order, leading to the Revenue appealing the decision. The High Court analyzed the provisions of section 54(1) of the Act, which allows an assessee to claim benefits if a residential property is purchased within a specified period before or after the sale of the property and if the property sold was mainly used for the assessee's or parent's residence. The Court noted that the assessee had purchased a new residential property within the required timeframe and had occupied a significant portion of the property sold for residential purposes. The Court emphasized that the assessee's claim was not an afterthought, as it was accepted by the Income-tax Officer initially without any objections. The Court also referred to previous decisions, including CIT v. Kamala Ranganathan and CIT v. Mrs. P. Rajasulochana, which supported the assessee's entitlement to exemption under section 54 even if a part of the property was let out, as long as the major portion was used for the assessee's residence. The Court distinguished these cases from CIT v. C. Jayalakshmi, where the property was not primarily used for residential purposes. Additionally, the Court addressed the Revenue's argument regarding the omission of the word "mainly" in the Act, stating that the entire area of the residential building need not be solely occupied by the assessee for claiming the benefit under section 54. Ultimately, the High Court ruled in favor of the assessee, affirming the decision of the Appellate Tribunal and holding that the house in question was purchased for the residential purpose of the assessee. The Court rejected the Revenue's contentions, concluding that the assessee met the requirements for exemption under section 54 of the Act. The question of law was answered in the affirmative against the Revenue, and no costs were awarded in the case.
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