HARSUTRAI J RAVAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following question of law has been referred for the opinion of this Court under S. 256(1) of the IT Act, 1961 (for short "the Act").

(2.) ON 23rd March, 1979, the assessee had purchased a new house for Rs. 45,000 on which he spent Rs. 9,650 and sold it on 14th May, 1980 for Rs. 55,000 claiming deduction of Rs. 54,650 and it paid tax on capital gain amount of Rs. 350. The Income tax Officer (ITO) noticed that in the earlier asst. year 1980 81, the assessee was given exemption of Rs. 19,018 under S. 54(1)(ii) of the said Act. The ITO held that since the assessee had sold the building which he had purchased on 23rd March, 1979, within three years of the transfer of the original asset on 16th March, 1979, the exemption of Rs. 19,018 allowed to him for the asst. year 1980 81 would go to reduce the cost of the building sold, and therefore, the amount of Rs. 19,018 was required to be added to the income as short term capital gain. The short term capital gain was, therefore, increased to Rs. 19,368 from Rs. 350 which was declared by the assessee. The ITO in the same assessment noticed that the assessee had occupied a self acquired property constructed by the assessee. The value of the property as per the balance sheet filed by the assessee was Rs. 95,227 inclusive of land cost and accommodation. The annual letting value was shown by the assessee at Rs. 1,200 per annum which was raised by the ITO to Rs. 6,000 per annum.

(3.) THE Revenue preferred an appeal against the order of AAC and the Tribunal, by its order dt. 3rd Feb., 1986, allowed the appeal and restored the order of the ITO. The Tribunal noted the undisputed fact that the original residential house property of the assessee was sold by him on 16th March, 1979, for Rs. 71,000 and that he had earned long term capital gain of Rs. 19,018 thereon. He had then purchased a house on 23rd March, 1979, for Rs. 45,000 and had claimed that the capital gain of Rs. 19,018 was not taxable in asst. year 1980 81. He had filed copy of the sale deed of the original asset as well as purchase deed of the new property. The ITO accepted the claim and the capital gain of Rs. 19,018 was treated as exempt from tax in the asst. year 1980 81. The assessee spent Rs. 9,650 on the house purchased on 23rd March, 1979 and sold it on 14th May, 1980, for Rs. 55,000 showing a short term capital gain of Rs. 350 in his return for asst. yr. 1981 82.