Per Shri V. Balasubramanian, Vice President - The assessee was occupying Flat No. 9-G, Malabar Apartment at Napean Sea Road, Bombay-6, since May 1968 on a leave and licence basis. He was paying a compensation of Rs. 525 per month. On 16-7-1973 he purchased this property for Rs. 36,375. The property was sold for Rs. 70,000 on 11-8-1974. On 1-8-1974 the assessee purchased Flat No. 203 in Casablanca for Rs. 1,10,000. Since he was occupying the flat which is sold on 11-8-1974 for more than two years before its sale, the assessee claimed exemption from capital gains under section 54 of the Income-tax Act, 1961 (the Act). The ITO did not grant relief on the ground that the assessee was not the owner of the flat for more than two years. On appeal, the AAC allowed the assessees claim. Hence, the departmental appeal.
2. The learned counsel for the department has pointed out that the assessee was not occupying the flat as owner but was in a relationship to the flat as not even a tenant but something less, viz., leave and licence. In order to obtain relief under section 54, the assessee should be the owner of the property. The learned counsel has also stressed the expression 'the income of which is chargeable under the head Income from house property'. It is absolutely necessary that these should be an assessment or chargeability of the income as income from house property for two years. If this be not there, the section and the relief thereunder do not obtain.
3. For the assessee it is pointed out that the provisions of section 54 are very clear. The essential ingredients are the transfer of capital assets, the income chargeable under the head Income from house property, no exemption under section 53 of the Act and the assessee to be the owner of the property. According to the learned counsel, all these conditions are satisfied in the present case. The reference to occupation indicated in section 54 by the expression being used by the assessee, etc., does not require any ownership of the property. In whatever be the capacity if the assessee were to use the property, this condition would be satisfied. At the time of the sale assessee was the owner of the property. Otherwise the question of liability itself would not have arisen. Self-occupied property income is in fact assessed in the assessees case for two years - 1974-75 and 1975-76. The assessee has referred also to the two decisions of the Appellate Tribunal in IT Appeal Nos. 337 (Bom.) of 1974-75 and 1723 (Bom.) of 1974-75. Stress is also laid on the decisions of the Madras High Court in the cases of M. V. Viswanathan v. CIT  ITR 244 and CIT v. R. Mala : 135ITR302(Mad) . In these case the question of ownership, which could have been rightly stressed if that necessary, was not highlighted at all.
4. The operative portion of section 54 is as under :
'Where a capital gain arises from the transfer of a capital asset to which then provision of section 53 are not applicable, being building or lands appurtenant thereto the income of which is chargeable under the head Income from house property, which in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his mainly for the purposes of his own or the parents own residence (hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or after that date purchased, or has within a period of two years after that date constructed, a house property for the purposes of his own residence, then instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place,...'
Inter alia, the section emphasises chargeability under the head Income from house property and the use by the assessee in the two years immediately preceding the date transfer for residence. It is true that the section as such does not refer to ownership of the property. Liability to capital gains even a tax on property income would arise only in the case of the ownership of the house property. The non-mention of the word ownership explicitly in the section, therefore, cannot give the benefit of the exemption to a person who is not the owner of the property. In fact the liability to capital gains also arises only in the case of the owner. Even though ownership of the property thus, is relevant, the question involved in the present case is whether such ownership should extend to the two years of residence prescribed in the section at last or could be confined to a lesser period or even only the date of the sale. There are no clear decisions on this point. The section also does not clarify the position.
5. The decision in IT Appeal No. (Bom.) of 1974-75 dated 20-10-1975 involved actually the question whether the assessee should be a resident for two years in the same capacity in the property. The order en passant observes :
'In this connection we would like to make it clear that ownership does not appear to be a necessary ingredient of the condition of user laid down in section 54.'
Apart from that these observation were not necessary to decide the appeal before the Tribunal, the point does not seen to have been discussed or reasoned out either. More than that the Tribunal has not concentrated on the length of the ownership of the property either. If the assessee is not the owner of the property on the date of the sale, certainly no capital gains can arise. This would go against the statement quoted above. Much support, therefore, from this decision cannot be obtained. The decision in IT Appeal No 1723 (Bom.) of 1974-75 dated 8-7-1975 also refers to the period of residence, the question of ownership not being relevant.
6. In M. Viswanathans case (supra), the Madras High Court held that :
'. . . when the words in the two years immediately preceding are coupled with the words was being used, it clearly connotes the user by the assessee which extends to the date of transfer and as the house was not used for a continuous period of two years for residential purposes by the assessee, the benefit 54 was not available to the assessee.' (p. 244)
In the case of R. Mala (supra), the assessee purchased a plot of land in September 1969, constructed a building thereon and resided in the building till 13-7-1970, on which date the building was sold. On the same date she purchased another plot of land and put up a construction thereon. She stayed in that house till 5-7-1971 when the house was sold. The question of relief under section 54 coming up, the Madras High Court held that to obtain the assessee must have been in occupation of the building for a continuous period of two years before the sale. This being not satisfied in that case, the benefit was denied. Their lordships followed them decision in the case of M. Viswanathan (supra). These two latter cases also refer to the period of residence.
7. No decisions impinging directly on the question of ownership has been cited before us. The issue is, therefore, to decided for the first time. In our view, for the following reasons, the benefit has to be denied in the present case.
In R. Malas case (supra) a building was constructed on a land and the assessee stayed in the building for a period shorter than two years. Even though as a matter of fact in that case the ownership of the land and a building did not vest in the assessee for a period of two years, their Lordships did not suggest that if that be so, the benefit could have been granted. What is, therefore, clear analogically from this decision would appear to be the assessees residence in the same building, viz., the asset which is the subject matter of capital gain. If the assessee owned a plot of land for more than to years and stayed in a building constructed on it less than two years, she would not have got the benefit.
8. In the present case, on the same analogy the assessee was a tenant in a property, subsequently he purchased the property; he stayed in the property for more than two years. Actually the property in which he stayed after the date of his purchasing cannot be said to be the same property in which he had a leave and licence right. The property referred to in section 54 is the property the income from which is chargeable under the head Income from house property. Chargeability in this as in other section of the Act would have relevance only to the assessee and not anyone else. If some person has received income, certainly the assessee who has not received the same would not be chargeable on it. As a matter of principle, therefore, liability to tax as well as exemption from the same should have relevance to the property the income from which is taxable in the hands of the assessee and not anyone else. Since we are concerned with property income and since such income is taxable only in the hands of the owner, ownership is a sine qua non for availing of the exemption as well. In fact the nature of the property in a case like this could be regarded as the same prior to and subsequent to the purchase by the assessee. Even though, therefore, the section does not mention that the property should be owned by the assessee for two years of his residence, this condition would seem to be implied even as nothing is mentioned explicitly about the requirement of ownership of the property at all. This latter, however, is implied in the reference to the income from house property. The advantage is to be given to a person who has used the property as the residential property and after selling it acquires another residential property. The period of residence as specified. If the ownership does not run concurrently with the residence there would appear to be no particular reason why a specific period of residence is referred to in the section. It would be improper to presume that the Legislature incorporated a condition such as period of residence of two years without any purpose. If the assessee were not the owner of the property for the two years, this purpose would be defeated. In the extreme case, a person who has stayed as a tenant in a property can purchase it one day and set it the next day to another and continue to reside in the same property for the specific period of time. To grant the benefit of the exemption to such a person on the ground that residence prior to and after the date does not require ownership would appear to be preposterous and serving no purpose. We have, therefore, no hesitation in holding that the assessee is not entitled to the exemption.
9. The appeal is allowed.