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TMI Blog1980 (3) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... partly occupied for residence and that it qualifies for exemption under section 54 of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that 50% of the capital gains should be exempt in terms of section 54 of the Income-tax Act, 1961 ? " The facts are not in controversy. The house property, door No. 3F, Gandhi Nagar, Adyar, Madras, comprises of the ground floor and the first floor. The ground floor was used for the purpose of the residence of the assessee's mother, and the first floor was let out to the U.S. Embassy. The total capital gains that was earned by the assessee on the sale of the property was Rs. 2,04,813. The assessee claimed that 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, admittedly, the first floor comprising half of the extent of the property had been let out to the American Embassy, the building could not be said to be used by the assessee's mother mainly for purposes of residence and that, therefore, the benefit claimed under s. 54 had been rightly negatived. On these rival contentions put forward before the Tribunal, the Tribunal held: ". ...... Section 54 includes both owner-occupied property as well as property let out on rent.... The use of the word 'mainly' in section 54 is intended to see that the benefit is not lost merely because the owner happened to let out a small portion in the building for rent. The dictionary meaning of the word 'mainly' is, 'generally; principally'. Since, admittedly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer of a capital asset to which the provisions of section 53 are not applicable, being buildings or lands appurtenant thereto the income of which is chargeable under the head 'Income from house property', which in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his mainly for the purposes of his own or the parent's own residence (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or after that date purchased, or has within a period of two years after that date constructed, a house property for the purposes of his own residence, then, instead of the capital gain being charged to income-tax as incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ediately preceding the date on which the transfer took place ", naturally qualifies the capital asset which was the subject-matter of the transfer. In this particular case, there is no controversy that the entire house was transferred and the capital gains arose out of such transfer. If so, naturally the word " which" must qualify the entire house and not any part thereof. The next question to be considered is what exactly is the meaning of the word " mainly " occurring in the clause, viz., " which in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his mainly for the purposes of his own or the parent's own residence ". The word " mainly " is a simple English wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As a general proposition, having regard to the language of s. 54, there can be no quarrel with the above proposition. But that proposition has no application to the facts actually found by the Tribunal, because in this case it was not a small portion of the building that was let out to the U. S. Embassy. Similarly, the view of the Tribunal, that the interpretation that the entire building should be taken as one composite unit for purposes of s. 54 was not warranted by a plain reading of the section, is also not sound, because there is no question of any building being taken as one composite unit, because what should be considered with reference to the user as residence is the property which was sold and which has given rise to the capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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