COMMISSIONER OF INCOME TAX Vs. D RANI

JUDGEMENT

(1.) In this reference, at the instance of the Revenue, under section 256(1) of the Income-tax Act, 1961, the following question is referred for the opinion of this court :

(2.) In the accounting period relating to the assessment year 1982-83, the assessee occupied a house constructed for the purposes of her residence in April, 1981, but she sold the same on 3/11/1981. The cost of construction was Rs. 2,01,300 and the consideration for which the house was sold was Rs. 2,50,000. Thus, there was a net capital gain of Rs. 48,700. In her return, the assessee claimed exemption under section 54 of the Income-tax Act, 1961 (for short, "the Act"). The Income-tax Officer upheld the claim but the Commissioner of Income-tax, in exercise of the power under section 263, opined that the order of assessment was erroneous and prejudicial to the interests of the Revenue as exemption under section 54 of the Act was wrongly allowed and after giving an opportunity of being heard to the assessee, set aside the order of the assessment with a direction to the Income-tax Officer to redo the assessment of 15/01/1985. The said amount of capital gains was assessed to tax holding that section 54 of the Act had no application. The assessee carried the matter in appeal before the Appellate Assistant Commissioner. By his order dated 17/09/1985, the Appellate Assistant Commissioner dismissed the appeal confirming the order of assessment. Aggrieved by that order, the assessee went in second appeal before the Income-tax Appellate Tribunal. The Tribunal allowed the appeal on 26/09/1986. It is from that order the aforesaid question of law arises.

(3.) Learned standing counsel for income-tax contends that for application of section 54 of the Act use of the house by the assessee for a period of two years before the date of transfer is a must and as this requirement is absent, the assessee cannot get the benefit of section 54 of the Act. He submits that the Income-tax Officer and the Appellate Assistant Commissioner had rightly interpreted the section and held that the assessee was not entitled to exemption under section 54 and that the view taken by the Tribunal is not sustainable in view of the judgment of the Madras High Court in M. Viswanathan v. CIT [1979] 117 ITR 244 which is being consistently followed by that court.