1. The following question has been referred for the opinion of this court under s. 256(1) of the I.T. Act, 1961 ('the Act' called shortly).
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the exemption of capital gain contemplated by section 54(1) of the Income-tax Act, 1961, is available to an HUF also ?'
2. The facts behind the legal formulation are as follows :
3. The assesses-HUF had an old house. That house was sold and a new house was constructed within two years thereof. The assesses claimed exemption of capital gains amounting to Rs. 11,250 under s. 54(1) of the Act. The ITO found that the house which was sold was not used by the assesses or his parents for residence, but it was let out. He accordingly did not allow exemption under s. 54(1) of the Act. The assesses appealed to the AAC. It was urged in that appeal that the house which was sold was under the self-occupation of the assesses and not let out to any third person. The appellate authority accepted that contention and directed the ITO to grant exemption under s. 54(1) of the Act. The revenue appealed to the Tribunal challenging the order of the AAC. The Tribunal dismissed the appeal. It has, however, referred the aforesaid question for the opinion of this court.
4. We do not think that the question debated before us needs any elaborate consideration. The scope of s. 54(1) has been considered by this court in South Kanara Central Co-operative Wholesale Stores v. CIT : 114ITR298(KAR) . The question which arose in that case was as to whether the exemption provided under s. 54 is available to an assesses which was a co-operative society. In dealing with that question, this court observed at page 301 :
'Section 54, by its very terms, speaks of a residence of an individual or his parent. The expression 'parent' can only be understood in relation to a human being and not in the case of an artificial person or society. Section 45 is the main section under which a person is made liable for capital gains, save as otherwise provided in section 54 and certain other sections. Therefore, a person claiming benefit under section 54 must first establish that he comes under the category of person entitled to that benefit and further that he satisfies the other conditions specified therein. The object of section 54 also appears to be only to relieve the rigour of taxation in respect of residential houses occupied by individuals. The assesses which is a co-operative society cannot claim the status of an individual so as to claim the benefit under section 54.'
5. It is seem from the above observations that the words used in s. 54 'being used by the assesses or a parent of his mainly for the purpose of his own or the parent's own residence' must relate to the residence of an individual or his parents. The reference to the word 'parent' must necessarily relate to the assesses who is an individual and not a statutory person or a juridical person.
6. Mr. Sarangan for the assesses does not, and indeed could not, dispute the above proposition. He, however, submitted that the HUF, which is an assesses in the instant case, was the owner of the house in question and the HUF was in occupation of that house like any other individual. The concept of an HUF under the I.T. Act is not quite different from the concept of an HUF under the Hindu law and, indeed, both carry the same meaning. Under the Hindu law, it is not the HUF, which is the owner of the joint family property, but the members thereof. That even if we construe the assesses as an individual, then the group of individuals like the HUF, can take the benefit of s. 54(1). So ran the contentions of Mr. Sarangan.
7. The above analysis of the learned counsel appears to be attractive at the first sight, but difficult to sustain upon close scrutiny. Under the Act, for the purpose of assessment, an HUF, is a taxable entity distinct from its individual members. In Kapurchand Shrimal v. TRO : 72ITR623(SC) , the Supreme Court observed (p. 627) :
'Under the Income-tax Act, 1961, a Hindu undivided family is a distinct taxable entity, apart from the individual members who constitute that family.'
8. Therefore, it is not proper to equate the HUF with an individual under the Act.
9. There is one other reason why we cannot accept the contention urged by Mr. Sarangan. Section 54(1) contains these words :
'by the assesses or a parent of his mainly for the purpose of his own or the parent's own residence.'
10. The 'residence' contemplated in the above provision is the 'residence' of the assesses or of his own parent. The word 'parent' followed by the word 'assesses' ('his') must, in the context, should be the parent of the assesses. In other words, the assesses, therefore, must necessarily be an individual and cannot be any other taxable entity. The assesses, when though of in connection with the parent, can only be an individual. We cannot think of an HUF with a parent. The word 'parent' is totally inappropriate in the case of an HUF.
11. In CIT v. Sodra Devi : 32ITR615(SC) , the Supreme Court had an occasion to consider the scope of s. 16(3)(a) of the 1922 Act, which is in the following terms :
'16. (3) In computing the total income of any individual for the purpose of assessment, there shall be included - (a) so much of the income of a wife or minor child of such individual as arises directly or indirectly - ........'
12. The crux of the question debated before the Supreme Court in that case was whether the words 'such individual' used in the opening part of s. 16(3)(a) are used to mean male of the species when they are read in juxtaposition with a words 'a wife' or are used to mean both a male as well as a female of the species. as the case may be, when used in juxtaposition with the words 'minor child'. The Supreme Court did not accept the latter contention that the words 'such individual' should be understood, in the context, also as a female. It was held that when 'such individual' is thought of in connection with a wife, it can only be a male of the species.
13. The view that we have taken receives full support from the decision of the Madhya Pradesh High Court in Shrigopal Rameshwards v. Addl. CIT : 119ITR980(MP) . It was observed therein at page 982 :
'Section 54 provides for exemption from tax where the property 'was being used by the assesses or a parent of his mainly for the purpose of his own or the parent's own residence'. It is in this context that the real meaning of the word 'assesses' is to be found out. The use of the words 'parent of his' and 'his own or the parent's own residence' are significant. The meaning of the word 'residence', as it is understood in ordinary parlance, has also to be borne in mind. 'Residence', ordinarily, means the place where one resides or the dwelling place, i.e., where he ordinarily lives, eats and sleeps, etc. Ordinarily, 'residence' is, therefore, associated with a living person. Similarly, it is only a living person or an individual who can have a parent and not a fictional person, e.g., a HUF or a firm.'
14. After the decision of the Madhya Pradesh High Court, s. 54 has been amended by the Finance Act, 1982, with effect from April 1, 1983, and the section now begins as :
'Where, in the case of an assesses being an individual, the capital gain arises from the transfer of a 'long-term capital asset' to which the provisions of section 53 are not applicable, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head 'income from house-property' (hereafter in this section referred to as the original assets).........'
15. The intention of Parliament has thus been made clear by limiting the benefit of s. 54(1) only to individuals who are assessess. This amendment appears to be a clarification of the idea which was already underlying s. 54 of the Act.
16. In the result, we answer the question in the negative and against the assesses.
17. The parties will pay and bear their own costs.