1986 (9) TMI 130 - AT - Income Tax

Summary

Issues:
Interpretation of section 54 of the Income-tax Act, 1961 regarding eligibility for exemption on capital gains from property transfer based on the period of residence in the property.

Detailed Analysis:

Issue 1: Interpretation of Section 54
The appeal concerned the interpretation of section 54 of the Income-tax Act, 1961, regarding the eligibility for exemption on capital gains from property transfer based on the period of residence in the property. The Commissioner under section 263 held that the assessee was not eligible for the benefit under section 54 as the residence was used for only seven months, not meeting the requirement of two years. The assessee contended that the term "in the two years" in section 54 does not necessitate continuous residence for two years but rather any period within the two-year timeframe. The departmental representative argued that full two years of residence is a prerequisite for the exemption. The tribunal analyzed the language of section 54, emphasizing that the term "in the two years" does not mandate continuous residence for two years. Citing precedents from Karnataka and Delhi High Courts, the tribunal ruled that the assessee, despite using the property for less than two years, was entitled to the exemption under section 54. The tribunal rejected the Commissioner's decision under section 263, holding that the interpretation favoring the assessee should be adopted in ambiguous taxing provisions.

Conclusion:
The tribunal allowed the appeal, canceling the Commissioner's order under section 263 and upholding the assessee's entitlement to the exemption under section 54 of the Income-tax Act, 1961.