C V RAMANATHAN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this reference under section 256(1) of the INcome-tax Act, 1961, the following question has been referred at the instance of the assessee :"Whether it has been rightly held by the Tribunal that the provisions of section 54 of the INcome-tax Act, 1961, are not applicable to the assessment made on the applicant herein as a legal heir of his father for the assessment year 1970-71 ?" *One C. V. Venkateswaran was employed as an engineer in Cochin. He owned a house situated at Mahatma Gandhi Road, Ernakulam and resided there. On 4-7-1966, he executed a will under which he appointed his only son as the executor. He made certain bequests to his wife and married daughters and the remainder was given to his son absolutely. On 9-9-1969, he sold the residential house in Ernakulam to Sri Isac for a sum of Rs. 1, 89, 000/- and he moved down to Madras. He purchased in Madras a vacant site for which he paid an advance of Rs. 3, 000/- on 10-11-10-969. A draft sale deed was also got prepared, but before the sale could be executed, he died on 22-12-1969. The sale deed was executed in favour of his son Ramanathan on 8-6-1970. The sale was for a sum of Rs. 30, 938/- A building was put up on the plot. The cost of the building came to Rs. 1, 20, 000/- inclusive of the price of the site. The construction was completed on 2-9-1971 and Ramanathan and his family resided therein. The very purpose of the purchase of the vacant site, it is not in dispute, was only to provide themselves with residential accommodation in Madras after the property in Ernakulam was sold.

(2.) ASSESSMENT proceedings for 1970-71, which were started after the death of Venkateswaran, were commenced on C. V. Ramanathan, the legal heir of Sri. Venkateswaran. In the course of the said assessment, there was a claim that since Venkateswaran was residing in the Ernakulam property and that since there was a purchase of a plot and construction of a residential house thereon within two years from the date of the sale of the Ernakulam property, the entire gains arising from the said sale having been utilised in the construction of the residential house at Madras, there was no liability to capital gains tax under section 45 of the Income-tax Act, 1961. The claim for exemption was based on section 54 of the Act. The Income-tax Officer rejected this contention on the ground that the assessee had not purchased the property within two years from the date of the sale of the Ernakulam property and that section 54 of the Act was not applicable. On appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. The assessee appealed to the Tribunal. The Tribunal held that the capital gains arising to an assessee by the sale of capital asset belonging to him could alone be brought to tax under section 45 of the Act and that the gains arising out of the sale which were brought to tax should have belonged to the assessee. After referring to a decision of the Madhya Pradesh High Court in CIT, Madhya Pradesh v. Hukumchand Mohanlal which was affirmed on appeal by the Supreme Court in CIT, Madhya Pradesh v. Hukumchand Mohanlal, the Tribunal considered that Ramanathan had not sold the capital asset in question and that he could not, therefore, be given the benefit of s. 54 of the Act. It is this order of the Tribunal that it is now challenged by the assessee in this reference.

(3.) THE learned counsel for the Revenue put his contention in the form of dilemma. He said that if the assessee was the deceased Venkateswaran, then though he had sold the property, he had not purchased and built another in its place. If the assessee was the legal representative, i.e. Ramanathan, than, according to the ld. counsel, he had not sold the property, though he may have acquired a new one. We do not find that there is any scope for this kind of dilemma in section 54. As indicated earlier, section 54 is the only provision to which attention was to be paid. Venkateswaran is the vendor. THE capital gains are to be taxed in his hands. THE assessment on Ramanathan is only as his legal representative. As the section contemplates the later events, i.e., the purchase within two years, to be taken into account, we have only to see if this condition is satisfied. THE legal representative cannot be differentiated from the assessee for this purpose. If he was liable to pay the tax, he cannot be denied the benefit of section 54 which forms part of the scheme of taxation of capital gains. If the counsel for the revenue were right, then we should read into section 54 words to the effect that the vendor and purchaser must be the same.