B B SARKAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The assessee in this case is an individual and the reference relates to the assessment year 1975-76. The assessee sold his dwelling house at No. 1, Park Lane, Calcutta, on 26th July, 1974, for a consideration of Rs. 3,15,000. He also purchased one house property at No. 91, Shyambazar Street, Calcutta, on 13th June, 1975, for a consideration of Rs. 1,23,001 and; invested a further sum of Rs. 1,08,300 before March 27, 1976, for the construction of an additional floor thereon. The latter house was being used for the purpose of the assessee's residence. Since the purchase price together with the cost of development of the house property at No. 1, Park Lane, Calcutta, was Rs. 83,801, the ITO determined the capital gains at Rs. 2,31,199 by deducting the sum of Rs. 83,801 from Rs. 3,15.000. In the subsequent assessment year, the ITO determined that amount as the capital gain and rejected the assessee's claim for deduction of Rs. 1,23,000 under Section 54(1) being the cost of the newly purchased house on the ground that the latter house was purchased in the subsequent assessment year. The assessment order was passed on the 30th August, 1975. On appeal, the AAC concurred with the view taken by the ITO. The assessee went up in further appeal before the Appellate Tribunal and the Tribunal directed the ITO to deduct the sum of Rs. 1,23,001 from the capital gains so determined.

(2.) Thereafter, the assessee preferred a petition under Section 155(8) to the ITO on 26th February, 1977, to amend the order of assessment for exclusion of the capital gains since, according to the assessee, the cost of construction of Rs. 1,08,300 was also eligible for deduction oinder Section 54(1) of the I.T. Act, 1961. It may, however, be mentioned that the further construction of the additional floor of the house property was made before 27th March, 1976. The ITO rejected the claim of the assessee as he was of the opinion that under the law the assessee could get a deduction for the cost of the purchase of one house or the cost of construction of one house only. There was an appeal before the Commissioner of Appeals who affirmed the action of the ITO. He in his order stated, inter alia, as follows :

(3.) The assessee thereafter went up in further appeal before the Tribunal and contended that he was entitled to a deduction for the cost of construction of the additional floor on one dwelling house which was constructed within two years of the sale of one house. It was urged that in order to be entitled to a deduction under Section 54 the only condition to be fulfilled was that the assessee must construct the dwelling house within two years of the sale of the house which was being used as the residential house of the assessee or by his parents. It was pointed out that the new house, though partly purchased and partly constructed later on, was one house, the construction of which took place within two years from the date of the sale of the old house. Therefore, the Tribunal proceeded on the basis that the new house which the assessee purchased originally was partly constructed and the further construction of the new house of the dwelling house was completed within a period of two years. It was claimed by the assessee that one house partly purchased and partly constructed was to be regarded as a house constructed for the purpose of deduction under Section 54 of the Act. The Tribunal observed that Section 54 provided the concession in the matter of exclusion of capital gains arising from the transfer of a residential house if the assessee purchased one residential house within a period of one year before or after the said transfer or constructed the residential house within two years of the aforesaid transfer. The Tribunal was of the opinion that it was not at all clear from the language of Section 54 whether the assessee was entitled to both the benefits under Section 54, that is, the purchase of a house within one year or making a further construction in the same house, within a period of two years from the date of sale of the old house. The Tribunal, therefore, came to a finding regarding the allowability of the assessee's claim that for the exclusion of Rs. 1,08,300, being the cost of the additional floor of the newly purchased house, was a debatable question of law and, therefore, the ITO was not within his power to invoke the provisions of Section 155(8) in which Section 154 has also been made applicable. The Tribunal was of the opinion that under Section 154, an order cannot be rectified unless there was a mistake which was free from doubt. Accordingly, the Tribunal held that the I.T. authorities were justified in refusing to allow -the assessee's claim for the exclusion of Rs. 1,08,300 from the capital gains so determined, though on a different ground. Upon these, the following three questions have been referred to this court under Section 256(1) of the I.T. Act, 1961 :