1989 (1) TMI 175 - AT - Income Tax

Summary

Issues Involved:
1. Admissibility of exemption under section 54(1) of the Income-tax Act, 1961.
2. Continuous occupation of the disposed property.
3. Acquisition of the new property within the stipulated period.

Issue-Wise Detailed Analysis:

1. Admissibility of exemption under section 54(1) of the Income-tax Act, 1961:
The primary issue is whether the assessee is eligible for exemption under section 54(1) of the Income-tax Act, 1961, given that the residential flat sold was in Bombay while the assessee resided and conducted business in Hyderabad. The Department disallowed the exemption, arguing that the flat was not used by the assessee continuously for the required period. The Tribunal considered various precedents and concluded that the continuous use of the property was not a precondition for exemption under section 54(1). The Tribunal relied on the decisions in Smt. D. Rani v. ITO, S. Harnam Singh Suri v. CBDT, and M. Abdul Sattar v. CIT, which interpreted the phrase "in the two years immediately preceding the date of transfer" to mean any time within those two years, not necessarily a continuous period.

2. Continuous occupation of the disposed property:
The Tribunal examined whether continuous occupation of the disposed property for the specified period is a condition precedent for eligibility under section 54(1). The Tribunal noted that the assessee's flat in Bombay was not rented out and was used by him whenever he visited Bombay. The Tribunal distinguished the present case from the cases cited by the Department (M. Viswanathan v. CIT, Smt. Vijayalakshmi v. CIT, and CIT v. K.N. Srinivasan), which required continuous use of the property. The Tribunal followed the interpretation that the term "in the two years" does not necessitate continuous use, thus allowing the assessee to claim the benefit under section 54.

3. Acquisition of the new property within the stipulated period:
The Tribunal then addressed whether the new flat in Hyderabad was acquired within one year of the sale of the Bombay flat. The assessee had entered into an agreement to purchase the Hyderabad flat before selling the Bombay flat and had paid a substantial portion of the consideration within the stipulated period. The Tribunal referred to the decision in Rajaram v. ITO, which held that the date of the agreement of purchase could be taken as the date of purchase for section 54 purposes, even if the conveyance deed was executed later. The Tribunal also considered the decision in Mrs. Shahzada Begum v. ITO, affirmed by the Andhra Pradesh High Court, which supported the view that substantial payment and possession of the property, even without a registered sale deed, sufficed for exemption under section 54. The Tribunal distinguished the present case from the Department's reliance on Nawab Sir Mir Osman Ali Khan v. CWT and Chander Mohan's case, noting that these cases dealt with different legal contexts.

Conclusion:
The Tribunal concluded that the assessee was entitled to exemption under section 54(1) of the Income-tax Act, 1961, as the continuous use of the property was not a precondition, and the substantial payment and possession of the new property within the stipulated period met the requirements for exemption. The appeal was allowed.