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Whether the assessee was entitled to exemption under section 54 of the Income-tax Act on the long-term capital gains arising from the sale of her house property in Bombay. Analysis: The case involved a question of law referred by the Income-tax Appellate Tribunal to the High Court regarding the assessee's eligibility for exemption under section 54 of the Income-tax Act. The relevant facts revealed that the assessee had sold a flat in Bombay and purchased another flat around the same time. The Income-tax Officer determined the long-term capital gain from the sale and brought it to tax after deductions. The assessee claimed exemption under section 54, which allows exemption if the property sold was used mainly for the assessee's own residence in the two years preceding the sale, and a new property was purchased within a specified period. The Appellate Assistant Commissioner initially held in favor of the assessee, but the Tribunal disagreed, stating that the flat was not mainly used for the assessee's residence as it was leased to her husband. The High Court analyzed the conditions for exemption under section 54, emphasizing that the property must be used mainly for the assessee's own residence. The Court noted that although the assessee resided in the flat, the main purpose was letting it out for rent, as she had leased it to her husband. Additionally, since the husband had legal possession rights, the flat was primarily used for his residence, and the assessee's right to reside was only as a family member. Therefore, the Court agreed with the Tribunal's view that the assessee did not meet the condition for exemption under section 54. In conclusion, the High Court ruled in favor of the department, stating that the assessee was not entitled to exemption under section 54 of the Income-tax Act for the long-term capital gains from the sale of her house property in Bombay. The parties were directed to bear their own costs in the reference.
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