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TMI Blog1976 (1) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... In the course of proceedings for assessment to income-tax for the assessment year 1968-69, the assessee claimed before the Income-tax Officer that the profit arising to him on the sale of the old property was not chargeable to tax under the head "capital gains" under section 45 of the Income-tax Act, 1961 (hereinafter called "the Act"), since it was within the exempting provisions contained in section 54. The Income-tax Officer computed the cost of the old property (including the cost of improvement) in the hands of the assessee at Rs. 6,430 and on that basis held that the capital gain arising on sale of the said property was Rs. 20,581 (Rs. 27,011 minus Rs. 6,430 = Rs. 20,581). He negatived the claim for exemption primarily on the ground that the transaction was an adventure in the nature of trade and that profit arising therefrom was liable to be taxed as business profit. Accordingly, a sum of Rs. 20,581 was brought to tax in the hands of the assessee. On appeal, the Appellate Assistant Commissioner recomputed the cost of the old property in the hands of the assessee at Rs. 13,850 (Rs. 5,850, being the cost of acquisition plus Rs. 8,000, being the cost of improvement made ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pinion is in the following terms: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the capital gain earned by the assessee was exempt from tax under section 54 of the Income-tax Act, 1961 ?" Under section 45, as it stood at the material time, any profits or gains arising from the transfer of a capital asset effected in the previous year were, save as otherwise provided in sections 53 and 54, chargeable to income-tax under the head "capital gains" and were deemed to be the income of the previous year in which the transfer took place. Section 48 lays down the mode of computation of capital gains and provides for certain deductions. Section 53 is not relevant for the purposes of this case and no reference needs to be made to its contents. Section 54 enacts an exemption provision and it reads as under: "54. Profit on sale of properly used for residences.--Where a capital gain arises from the transfer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found it, as a matter of fact, that the old property sold by the assessee was used mainly for the purpose of his own residence during the period of two years immediately preceding the date on which it was sold and, therefore, the first condition above-mentioned is satisfied. The third condition is also manifestly satisfied because the capital gain arising on the sale of the old property (Rs. 13,161) is less than the cost of the new property (Rs. 46,000). The only controversy between the parties is as to whether the second limb of the second condition, namely, whether the new property was purchased by the assessee for the purposes of his own residence, is satisfied in the present case. In other words, the question in the context of the circumstances prevalent in the present case is whether, having regard to the fact that the assessee actually occupied only seventy-five per cent. of the total area of the new property for the purposes of his own residence and not the whole of it, can he be said to have purchased such property for the purposes of his own residence within the meaning of section 54 ? The answer to the question depends upon the true construction of the relevant part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t necessarily warrant the construction suggested by the revenue. In any case, according to the assessee, the construction for which the revenue contends cannot be placed upon the latter expression unless the word "exclusively" or "wholly" or "entirely" is added and it is not permissible to do so unless the provision as it stands is meaningless which it is not in the present case. The question then is as to which out of the two rival constructions is preferable and how to resolve that conflict. It is well settled that words of a statute, when there is doubt about their meaning, are to be understood in the sense in which they best harmonise with the subject of the enactment and the object which the legislature has in view. Their meaning is found not so much in a strictly grammatical or etymological propriety of language, nor even in its popular use, as in the subject or in the occasion on which they are used, and the object to be attained. (See Workmen of Dimakuchi Tea Estate v. Management of Dimakuchi Tea Estate). The expressions used in a statute should ordinarily be understood in a sense in which they best harmonise with the object of the statute and which effectuate the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption, the legislature has not provided that the house property sold should have been exclusively or wholly used by the assessee or his parent for his own residence. It is sufficient if it was mainly used for such purpose by either of them. Since this is the requirement of the first condition, it is difficult to ascribe to the legislature, while laying down the second condition of exemption, the intention to provide that the new property must be purchased or constructed by the assessee entirely or solely for the purposes of his own residence. In the next place, as earlier stated, in order to effectuate its object, all that the legislature could have intended to provide is that the new property should have been really and substantially purchased or constructed by the assessee for the immediate purposes of his own residence. This question turns primarily upon the ascertainment of the assessee's state of mind at or about the time of purchase or construction, as the case may be, in the light of the attendant circumstances and his immediate or proximate conduct, for "it is the immediate purpose of construction (or purchase) which is relevant and not the remote, future or ultimate pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the legislature has omitted the word "mainly" and it has not used it in conjunction with the expression "for the purposes of his own residence" in that part of section 54 which prescribes the second condition of exemption. Any other construction would not only warrant the addition of words such as "exclusively" or "wholly" or "entirely" but would also militate against the legislative object and tend to over-emphasise the importance of what is but one of the relevant factors. There is no direct authority on the point under consideration, none at least has been cited before us. However, in Commissioner of Income-tax v. Tikyomal Jasanmal the provisions of section 54 came up for construction before this court in the context of the following facts. The assessee in that case purchased a house property at an auction and used the same mainly for the purpose of his own residence up to 1962. He then sold it and the sale resulted in a capital gain. The assessee immediately thereafter purchased a piece of land and started constructing a building on it. As soon as the construction of the ground floor was completed, the assessee occupied the whole of it. However, some time later, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tructed the ground floor of the new building for the purpose of his own residence. He constructed a part of it for the purpose of his own residence and the other part for the purpose of letting it out in order to earn rent. That is not sufficient compliance with the requirements of the section." Though the point which arises for our determination in the present case was not directly touched in that case, the reasoning underlying the decision supports the view which we are taking inasmuch as the court did not throw out the claim for exemption on the ground that the ground floor was not exclusively used by the assessee for his own residence but negatived it on account of the fact that since more than fifty per cent. of the area was let out, there was no sufficient compliance with the condition for exemption. The test whether by reason of some subsequent events or supervening circumstances it became impossible for the assessee to immediately occupy a major portion of the property was also applied and that too is in consonance with our view. Turning now to the facts of the present case it has been found as a matter of fact that the old building on the sale of which the capital ga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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