1993 (2) TMI 29 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of Section 54 of the Income-tax Act, 1961.
2. Whether the assessee was entitled to exemption under Section 54 despite using the building for residence for less than two years immediately preceding the sale.

Detailed Analysis:

1. Interpretation of Section 54 of the Income-tax Act, 1961:
The primary issue revolves around the interpretation of the phrase "in the two years immediately preceding the date of sale" in Section 54 of the Income-tax Act, 1961. The assessee argued that the term "in" should be interpreted as "at any time within," suggesting that even a shorter duration of residence within the specified two years should qualify for the exemption. The Revenue, on the other hand, maintained that the term "in" implies continuous use for the entire two-year period.

The court examined various precedents to interpret the provision. The assessee relied on the Delhi High Court's decision in S. Harnam Singh Suri v. CBDT [1984] 145 ITR 159 and the Karnataka High Court's decision in M. Abdul Sattar v. CIT [1987] 163 ITR 642, which supported a more liberal interpretation of the term "in." These judgments suggested that the term "in" could mean "at any time within" the two-year period, without necessitating continuous use.

However, the court also considered the Madras High Court's decisions in M. Viswanathan v. CIT [1979] 117 ITR 244 and CIT v. R. Mala [1982] 135 ITR 302. These decisions emphasized that the phrase "in the two years immediately preceding" coupled with "was being used" denotes continuous use up to the date of transfer. The Madras High Court held that the Legislature intended for the property to be used continuously for the entire two-year period to qualify for the exemption.

2. Whether the assessee was entitled to exemption under Section 54 despite using the building for residence for less than two years immediately preceding the sale:
The court concluded that the interpretation of Section 54 should be strict and in line with the intention of the Legislature. The court observed that the use of the words "was being used" denotes continuity of use, and the phrase "in the two years immediately preceding" specifies a clear period. The court held that the Legislature intended to grant the exemption only to those assessees who used the property continuously for their residence for the entire two-year period immediately preceding the sale.

The court further noted that the exemption provision should be construed strictly, and any ambiguity should be resolved in favor of the Revenue. The court cited the Supreme Court's observations in Union of India v. Wood Papers Ltd., [1991] 83 STC 251; AIR 1991 SC 2049, which emphasized that exemption provisions should be interpreted strictly at the stage of determining eligibility.

Based on these considerations, the court held that the assessee was not entitled to the exemption under Section 54 as the property was not used for the required continuous period of two years immediately preceding the sale.

Conclusion:
The court answered the question in the negative, ruling against the assessee and in favor of the Revenue. The Tribunal's decision to deny the exemption was upheld, and the reference was disposed of with no order as to costs.