1983 (7) TMI 99 - AT - Income Tax

Summary

Issues:
- Interpretation of section 54(1) of the Income-tax Act, 1961 regarding exemption on capital gains arising from the transfer of a house property.
- Whether the assessee is entitled to the benefit of section 54(1) despite not being the legal owner of the plot of land where the new house was constructed.

Analysis:
The case involved the interpretation of section 54(1) of the Income-tax Act, 1961, regarding the exemption on capital gains arising from the transfer of a house property. The assessee sold a house property and constructed a new house on a plot of land received as a gift. The Income Tax Officer (ITO) denied the exemption, arguing that the assessee was not the legal owner of the plot and the fixed deposit was encashed before the required period. However, the Appellate Authority Commissioner (AAC) granted the exemption, stating that the assessee had constructed the property for her own residence within the specified time frame.

The main contention raised by the revenue was that the assessee, not being the legal owner of the plot, should not be entitled to the exemption of tax on capital gains. The departmental representative argued that the requirements of section 54(1) were not satisfied by the assessee. On the other hand, the assessee asserted that all legal formalities had been completed, and the property was now registered in her name with approval from the Delhi Development Authority (DDA).

The tribunal analyzed the provisions of section 54(1) before the amendment made by the Finance Act, 1983. It concluded that the assessee met all the requirements of the section. The property transferred was used for residential purposes, and the new property was also intended for the assessee's residence. The tribunal emphasized that the section did not mandate strict legal ownership of the new property, only that the money from the sale be reinvested in a new property for residential purposes, which the assessee had done.

Furthermore, the tribunal addressed the issue of legal ownership of the plot versus ownership of the constructed building. It clarified that while the plot may belong to one person until legally transferred, the building constructed on it belonged to the assessee who invested her own funds. The tribunal upheld the AAC's decision, stating that the assessee had complied with the requirements of section 54(1) and dismissed the revenue's appeal.