1981 (5) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Income-tax Officer (ITO) had the power to invoke the provisions of section 155(8) to amend the assessment order.
2. Whether the Tribunal was justified in invoking the provisions of section 154 in their totality when section 155(8) itself restricted the operation of section 154.
3. Whether the appellant was entitled to the deduction under section 54 of the Income-tax Act, 1961, for both the cost incurred for the purchase and the cost of further construction of the house property.

Summary:

Issue 1: Power of ITO to Invoke Section 155(8)
The Tribunal held that the ITO did not have the power to invoke the provisions of section 155(8) to amend the assessment order. The court clarified that section 155(8) mandates the ITO to amend the order of assessment to exclude the amount of capital gain not chargeable to tax if the assessee purchases or constructs a house property within the stipulated time. The Tribunal's interpretation that section 154 applies in its full force was incorrect. The court emphasized that the moment the conditions of section 54 are fulfilled, a mistake apparent from the record is deemed by the fiction created by section 155(8).

Issue 2: Applicability of Section 154
The Tribunal was not justified in invoking the provisions of section 154 in their totality. The court explained that section 154 deals with the rectification of a mistake apparent from the record, and it is well settled that a debatable question cannot be considered a mistake apparent from the record. The Tribunal's mistake was in construing that section 154 would be applicable in its full force to attract section 155(8). The court clarified that the power of rectification under section 154 would apply if the conditions stipulated in section 155(8) are fulfilled.

Issue 3: Entitlement to Deduction under Section 54
The Tribunal did not adjudicate whether the appellant was entitled to the deduction under section 54 for both the cost incurred for the purchase and the cost of further construction. The court held that section 54 provides relief if the assessee purchases a house within one year or constructs a house within two years of the transfer of the original residential house. The court emphasized that the purpose of section 54 is to give relief for the acquisition of a new residential house, and it does not matter whether the new house is partly constructed or partly purchased. The court concluded that the assessee is entitled to the relief if either of the conditions is fulfilled, and fulfilling both conditions does not disentitle the assessee to the relief.

Conclusion:
The court answered all three questions in the negative and in favor of the assessee, stating that the Tribunal and the ITO were not justified in their interpretations and actions. The parties were ordered to pay and bear their own costs.