COMMISSIONER OF INCOME TAX Vs. JAYALAKSHMI C

JUDGEMENT

(1.) UNDER S. 256(1) of the IT Act, 1961, the Tribunal, Madras Bench 'A', at the instance of the CIT, Tamil Nadu -III, Madras, has referred to this Court, for its opinion, the following two questions :

(2.) 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 50per cent of the capital gains was not taxable under s. 54 of the IT Act, since half of the building was used as residence by the assessee's mother. The ITO negatived this claim on the ground that a perusal of the wealth -tax and income -tax records for the immediately preceding asst. year 1966 -67 revealed that the property had not been declared as the residence of the assessee in that assessment year. On appeal, the AAC held that, in order to get the benefit under S. 54, the house sold by the assessee should have been used mainly for purposes of residence and that, since, admittedly, the first floor had been let out to the U. S. Embassy, the assessee was not entitled to get the benefit under S. 54 of the IT Act, 1961. Against the order of the AAC, the assessee filed an appeal before the Tribunal. It was contended, before the Tribunal for the assessee that S. 54 was a beneficial provision covering owner -occupied property as well as property let out for rent, that the use of the word "mainly" in that section was intended to see that the benefit was not lost merely because a small portion of the building had been let out by the assessee and that the attempt of the Revenue to put an unduly narrow interpretation of that section so as to deprive the assessee of the benefit under S. 54 was totally unwarranted. Before the Tribunal, the contention of the Revenue was that the entire house property, No. 3F, Gandhi Nagar, Adyar, should be taken as one composite unit, that since, 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 :

(3.) THUS , it will be clear that the language of the section contemplates an identity of the capital asset transferred and the property being used mainly for the purpose of residence. Consequently, the view of the Tribunal that the entire house should not be taken as a whole for considering the question under S. 54 is erroneous. The word "which" occurring in the clause, "which in the two years immediately 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.