1990 (4) TMI 38 - HC - Income Tax

Summary

Issues Involved:
1. Choice of property for capital gains adjustment.
2. Requirement of actual residence for three years u/s 54(1) of the Income-tax Act, 1961.
3. Jurisdiction of the court under Article 226 of the Constitution.

Summary:

Issue 1: Choice of Property for Capital Gains Adjustment

The petitioner, an employee of Bank of Baroda, sold a flat in Suvarnadeep Co-operative Housing Society on October 24, 1979, and purchased another flat in Priyadarshini Co-operative Housing Society on the same date. He later sold the Priyadarshini flat and bought a flat in Kalpana Co-operative Housing Society on July 26, 1980. For the assessment year 1980-81, the petitioner claimed that the surplus from the sale of the Suvarnadeep flat was not taxable as he had invested in the Kalpana flat. The Income-tax Officer partly accepted this claim but held that the surplus was invested in the Priyadarshini flat. The Commissioner of Income-tax, in a revision petition u/s 264, accepted that the petitioner had a choice to claim relief u/s 54 against the purchase of the Kalpana flat, even though he had purchased the Priyadarshini flat in the meantime.

Issue 2: Requirement of Actual Residence for Three Years u/s 54(1)

The Commissioner held that the petitioner was not entitled to relief u/s 54 for the Kalpana flat as it was not occupied for residence for three years. For the assessment year 1981-82, the Income-tax Officer treated the surplus from the sale of the Priyadarshini flat as short-term capital gains since it was sold within a year. The Commissioner of Income-tax (Appeals) held that relief u/s 54 was available only against the first property purchased for residence after the sale of the residential house. The court, however, held that the petitioner is entitled to claim relief against the purchase of any one of the flats, provided other conditions in section 54 are satisfied. The court noted that the flat in Kalpana was purchased within one year of the sale of the Suvarnadeep flat and for the purpose of residence. The petitioner's transfer to Baroda was considered an unforeseen event, and thus, the flat was deemed to have been purchased for the purpose of residence.

Issue 3: Jurisdiction of the Court under Article 226

The Revenue contended that the Income-tax Act provides a complete machinery for assessment and relief, and the petitioner had adequate remedies available by way of appeal. The court, however, decided to dispose of the petition on merits, noting that the jurisdiction under Article 226 is discretionary and the petition had already been entertained.

Conclusion:

The court concluded that the petitioner is entitled to seek adjustment of capital gains against the purchase of the Kalpana flat. The petition succeeds, and the rule is made absolute in terms of prayer clauses (b) and (d), with no order as to costs.