1988 (12) TMI 161 - AT - Income Tax

Summary

Issues Involved: Applicability of Section 54 of the IT Act, 1961 to the sale and subsequent purchase of residential property by the assessee.

Issue-wise Detailed Analysis:

1. Facts and Statutory Provisions:
The assessee sold a property in Madurai for Rs. 2,16,000 and purchased another property in Coimbatore for Rs. 2,15,460. The initial assessment by the ITO exempted the capital gains under Section 54 of the IT Act, 1961, as the sale proceeds were reinvested in a new residential property.

2. CIT's Revision under Section 263:
The CIT issued a notice under Section 263, questioning the exemption on the grounds that:
(a) Only one of the properties sold in Madurai was used as a residence.
(b) The newly purchased property in Coimbatore was let out.

The CIT set aside the assessment for further inquiry by the ITO to ascertain the correct factual position.

3. Assessee's Objections and Evidence:
The assessee contended that the Coimbatore property was purchased for personal residence and provided evidence of occupation from the date of purchase. Despite renting a portion of the house to his son, the assessee maintained that the primary use was for personal residence.

4. ITO's Draft Assessment and Final Order:
The ITO, after detailed inquiries, computed the capital gains and assessed the property as partly self-occupied and partly let out. The ITO acknowledged that the assessee shifted residence to the Coimbatore property immediately after purchase but emphasized the rent receipt issued to the son as evidence of letting out.

5. CIT(A)'s Decision:
The CIT(A) deleted the inclusion of capital gains, emphasizing that the major portion of the Coimbatore house was occupied by the assessee. The CIT(A) relied on factual evidence and various judicial pronouncements to support the exemption under Section 54.

6. Department's Appeal:
The department argued that the rent receipt indicated the property was let out, thereby disqualifying it from exemption under Section 54. The department cited judicial precedents to support their contention.

7. Assessee's Defense:
The assessee's counsel argued that the requirements of Section 54 were met, as the property was purchased and used for personal residence. The counsel also cited judicial precedents supporting the exemption.

8. Tribunal's Analysis:
The Tribunal analyzed the facts and statutory provisions of Section 54(1), which requires the property to be used for personal residence within a specified period. The Tribunal found that the assessee purchased the Coimbatore property for personal residence and occupied it immediately. The subsequent letting of a portion to the son did not negate the initial compliance with Section 54.

9. Conclusion:
The Tribunal upheld the CIT(A)'s decision, stating that the strict requirements of Section 54 were satisfied. The Tribunal emphasized that the section does not preclude letting out the property after meeting the initial conditions and noted the absence of any tax avoidance scheme. The appeal by the department was dismissed.

10. Judicial Precedents:
The Tribunal did not find it necessary to discuss the judicial precedents cited by both parties, as the facts of the present case were distinct and the pro rata exemption method was not relevant.

Result:
The appeal was dismissed, and the exemption under Section 54 was upheld.