1994 (10) TMI 17 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 54 of the Income-tax Act, 1961.
2. Interpretation of "use" of property for residence in the context of Section 54.
3. Continuous user requirement for claiming exemption u/s 54.

Summary:

1. Applicability of Section 54 of the Income-tax Act, 1961:
The primary issue was whether the conditions of section 54 of the Income-tax Act, 1961, were fulfilled when the assessee used the flat for only 62 days in the two years immediately preceding the transfer. The assessee claimed exemption on the grounds that the flat was used as a residential unit for two years preceding the transfer and that he had purchased another flat within one year for his own residence. The Income-tax Officer and the Appellate Assistant Commissioner rejected this claim, stating that the flat was not used mainly for the assessee's residence as it was let out for a significant period and remained vacant for ten months.

2. Interpretation of "use" of property for residence in the context of Section 54:
The Tribunal initially held that the use of the property for residence even for 62 days fulfilled the requirement of section 54. However, the High Court disagreed, emphasizing that the expression "in the two years immediately preceding the date of transfer" implies continuous use for residence. The court clarified that temporary non-use due to extraordinary circumstances does not disqualify the benefit, but the property must be used mainly for the assessee's residence throughout the two-year period.

3. Continuous user requirement for claiming exemption u/s 54:
The court referred to previous judgments, including CIT v. Indulal C. Kamdar and decisions from the Madras High Court, which supported the interpretation that continuous use for residence is required. The court rejected the assessee's argument that intermittent use within the two years suffices, stating that such an interpretation would defeat the purpose of the section. The court also disagreed with the Delhi High Court's view in S. Harnam Singh Suri v. CBDT, which allowed for non-continuous use.

Conclusion:
The High Court concluded that the Tribunal was incorrect in holding that the conditions of section 54 were fulfilled with only 62 days of use. The requirement is for continuous use for residence in the two years immediately preceding the transfer. The question was answered in the negative, in favor of the Revenue, with no order as to costs.