1. This is an assessee's appeal preferred against the order of the AAC and two grounds are raised: (7) that the AAC erred in rejecting the claim of the assessee under Section 54(1) of the Income-tax Act, 1961 ('the Act'), and that the benefits of Section 54(1) are available to a HUF also, and (2) that the AAC erred in holding that the capital gain arising on transfer of bungalow is a short-term capital gain.
2. The facts of the case lie in a narrow compass but raise interesting issues. The facts are as under. The assessee is a HUF. It purchased land in 1966 for Rs. 36,620 (cost of land at Rs. 35,000 and stamp duty, etc., at Rs. 1,620). The land is situated at survey No. 121/3, Prabhat Road, Pune. The assessee started construction on it and the same was completed some time in February, 1973. The assessee disclosed the cost of construction at Rs. 1,61,409. The assessee HUF occupied the bungalow for residence up to 16-10-1975 on which date it was sold by the assessee to Shri S.P. Mantri through minor guardian father Shri Pandurang Jivraj Mantri and the consideration was Rs. 2,91,000. As per-the sale deed, the assessee HUF earned a surplus profit of Rs. 93,371. The assessee also incurred expenditure of Rs. 3,260 as commission and pleader's fees, etc., and the net gain was Rs. 90,111.
The assessee later on purchased a flat in a co-operative society on 1-4-1976 for Rs. 77,782 for residence within one year from the date of sale of the property. The assessee claimed that the surplus obtained is a long-term capital gain since the asset was sold in 1975 was purchased or acquired in 1966 and the asset was held by the assessee for a period exceeding 60 months. Hence., the assessee is entitled to claim deduction under Section 80T of the Act, from the total income in respect of long-term capital gain. The assessee also claimed deduction under Section 54(1) of Rs. 77,782 representing investment in the new flat and deduction under Section 80T of Rs. 6,832 was claimed and on long-term capital gain was computed at Rs. 12,329.
3. The ITO considered the assessee's claim and went through the material on record and according to him there were two issues involved for consideration, namely, whether the surplus obtained by the assessee should be taxed as long-term capital gain or short-term capital gain and whether the provisions of Section 54(1) are applicable to the facts of the case. It may be mentioned that the assessee had by its letter requested the ITO that capital gain should be taxed for the assessment year 1977-78.
4. The ITO in para 10 of his order held that the assessee's contention that the gains represented long-term capital gains was not acceptable as according to the ITO the asset which was transferred in 1975 was not acquired in 1966. He was of the opinion that the asset which was transferred in 1975 was an asset which was not at all in existence in that form, namely, the bungalow, in 1966 and that the bungalow only took its shape in 1973. He was further of the opinion that the asset was a composite one and the assessee also sold it as a composite one and, therefore, it was the case of short-term capital gain arising out of sale. Thus according to the ITO the transfer having taken place within 36 months, the surplus of Rs. 90,111 was liable to be taxed as short-term capital gain.
5. The assessee claimed that the assessee was entitled to relief under Section 54. The ITO observed that the word 'assessee' in Section 54 refers to individual and not HUF. He placed reliance on the decision of the Madhya Pradesh High Court in the case of Shrigopal Rameshwardas v.Addl. CIT  119 ITR 980. Thus he turned down both the contentions of the assessee and completed the assessment.
6. Against the order of the ITO, the assessee went in appeal before the A AC before whom reliance was placed on the decision of the Jaipur Bench in IT Appeal No. 703 (Jp.) of 1978-79. It was argued that it is necessary to separately ascertain the capital gain arising from the transfer of land and building. Reliance was also placed on the order of the Tribunal Delhi Bench 'A' reported in  Tax 36(6) 194 wherein it is held that there is nothing in the context of Section 2(14) of the Act, which requires the consideration of a property comprising of land and building as a composite whole. The AAC did not agree with the contention of the assessee's representative.
7. Regarding the benefit under Section 54(1), the assessee's representative contended before the AAC that a HUF cannot be said to be a non-living person since it is a family comprising of living persons.
However, the contention of the assessee's representative that the assessee is entitled to benefit under Section 54(1) was turned down by the AAC. He relied on certain judgments of the High Courts and he observed that the HUF is an artificial or fictional person and would not be able to have a self-occupied property/residence. Accordingly, the AAC upheld the order of the ITO and dismissed the assessee's appeal.
8. Against the order of the AAC the present appeal lies before the Tribunal.
9. Shri Gadgil, the learned representative of the assessee, filed before us compilation of 19 pages and also a copy of the sale deed which took place on 14-10-1975. Shri Gadgil's first argument was regarding the applicability of Section 54(1). The main point that Shri Gadgil made before us is that Section 2(7) includes a HUF and we have to consider whether Section 54(1) is applicable to individual or HUF.According to Shri Gadgil Section 2(31) defines 'person' which includes HUF and, therefore, HUF is entitled to benefit under Section 54(1).
Shri Gadgil made reference to K.I. Viswambharan & Bros. v. CIT 91 ITR 588 (Ker.) (FB) and stated that the High Court was dealing with a question whether a firm is entitled to exemption because according to him the firm is legally competent to hold property and also to deal with the said property. The High Court held in that case that the building was not used by the firm for its residence as required by the section and, therefore, the benefit was denied to the assessee. He also referred to the case of CIT v. R.S. Nikhera Construction Co.  114 ITR 294 (MP), which is a case of co-operative society wherein the High Court dealt with the claim of the company for exemption under Section 54(1). It is held in that case "Section 54 of the Income-tax Act, 1961 deals with the profit on sale of property for residence. By its very term it speaks of the residence of an individual or his parents and the expression 'parents' can only be understood in relation to human being and not in the case of artificial person or society." The High Court further held that the company could not be said to be a resident having regard to definition of term 'residence' in Section 6 of the Act.
10. Shri Gadgil's point was that the house is used by the assessee for residence as a HUF which has been admitted by the ITO in his assessment order. It was argued that under the Wealth-tax Act deduction is allowable under Section 5(1)(iv) to HUF also. Another point was made that even under the Estate Duty Act, if an individual is a member of HUF his interest in the property is considered and relief is granted to him under Section 33(1)(n) of the said Act. It was stated that the BOI is also capable of having residence. Therefore, according to him, the authorities below erred in holding that the exemption is allowable only to an individual.
11. Shri Gadgil then drew our attention to the decision of the Madhya Pradesh High Court in the case of Shrigopal Rameshwardas (supra). It was stated by Shri Gadgil that the judgment of the Madhya Pradesh High Court has not been accepted by the Madras Benches 'C and 'A' in IT Appeal Nos. 1342 (Mad.) of 1978-79 and 1313 (Mad.) of 1978-79 and, therefore, the view which has been taken by the Madras Benches of the Tribunal should be adopted in the case of this assessee also. Reliance was placed on the decision of the Gujarat High Court reported at 28 1TR 12. Then Shri Gadgil argued as to what is the meaning of the term 'residence' for that purpose he referred to Section 6 of the Act. He further stated that if an individual has a house and it is used for purpose of residence then the assessee is entitled to benefit under Section 54 and it is worthy to note, he added, that further concession is granted to parents under Section 54 for that purpose he relied on the order of the Madras Bench 'D' in IT Appeal No. 2516 (Mad.) of 1979 [it dealt with Section 54(6) of the Act]. Reference was made to 28 ITR 322 at 326, para 12.
13. Then Shri Gadgil stated as to what is the HUF and he said that it is a group of individuals and for that purpose he relied on the judgment of the Supreme Court in the case of Banarsi Dass v. WTO  56 ITR 224 (it was a case regarding the taxability of HUF to wealth-tax). According to Shri Gadgil, HUF means individuals who reside and they can have parents and, therefore, the HUF, which is a group of individuals, is capable of having parents is entitled to benefit under Section 54(1). Reference was also made to in the case of WTO v. C.K.Mammed Kayi  129 ITR 307, 313 (SC) [the Supreme Court in that case held that the term 'individual' (under Section 3 of the Wealth-tax Act) should be construed as referable to a single human being cannot be obviously accepted]. It was further held that on construction the term 'individual' under Section 3 of the Wealth-tax Act included a group of individuals like a Mappilla Tarwad.
14. As regards relief under Section 80T, Shri Gadgil attacked the order of the ITO who held that an asset was not in existence prior to 1973 and since it was sold within a period of less than 60 months it is short-term capital gain. According to Shri Gadgil the land was purchased in 1966, and the construction was completed in 1973 and sold in 1975 and a flat was purchased in the year 1976. According to Shri Gadgil the sale price of the asset need not be separately mentioned, i.e., price for land and price for building. He referred to Sakarchand Chhaganlal v. CED  73 ITR 555 (Guj.) which is a case of co-operative society and the High Court dealt with the concept of dual ownership. It was argued that what could be sold is land and building and, therefore, the assessee sold land with the structure and, therefore, the capital gains will be long-term capital gains. He also referred to page 921 of Three New Taxes by Sampat Iyengar. He also referred to the case of Debi Prosad Poddar v. CWT  109 ITR 760 (Cal.) and stated that the AAC says in his order that no separate value is shown for building and land. However, according to Shri Gadgil that cannot be an obstacle in the assessee's way to get benefit under the section. It was stated that the assessee will give valuation of the building as well as land if the matter is sent back to the ITO. Shri Gadgil placed reliance on the orders of the Delhi and Jaipur Benches, wherein the Benches held that as far as the land is concerned, it is a long-term capital gains and the sale of building is a short-term capital gains. Shri Gadgil requested that if this Bench is not inclined to follow the orders of the Madras Benches not following the decision of the Madhya Pradesh High Court (supra), then the matter may be referred to a Special Bench.
15. Shri Sathe, the learned departmental representative, on the other hand, supported the orders of the authorities below. Shri Sathe stressed that the word 'assessee' in Section 54(1) relates to an individual and individual only and, therefore, the term cannot mean HUF and what is not legally granted cannot be extended to an assessee such as the present one, the HUF. Shri Sathe relied on the case of Rowji Sojpal v. CIT  31 ITR 721 (Bom.) and stated that this judgment was considered by the Madhya Pradesh High Court in the case of Shrigopal Rameshwardas (supra). Shri Sathe stressed that the case of Shrigopal Rameshwardas (supra) is relevant for our purpose and there is no contra decision on the point and hence, having regard to the case of CIT v. Smt. Godavaridevi Saraf  113 ITR 589 (Bom.) the said decision of the Madhya Pradesh High Court is binding upon this Bench.
Shri Sathe argued that request made by Shri Gadgil that the matter should be referred to a Special Bench is not acceptable because there is a binding decision of the Bombay High Court in the case of Godavaridevi (supra) and even if a Special Bench is asked to adjudicate upon this issue, it will have to follow the decision of the Madhya Pradesh High Court (supra).
Shri Sathe attacked the argument of Shri Gadgil that a HUF is given exemption under Section 5(1)(iv) of the Wealth-tax Act but it is worth noting that because Section 5(1)(iv) is amended, the exemption is granted to assessee from 1-4-1972 and, therefore, the assessee cannot make much of the exemption granted to the HUF which was given for self-occupied property. Shri Sathe also attacked the argument of Shri Gadgil that the HUF is a group of individuals and they can have residence. It was argued that HUF being creature of law, cannot have residence. Shri Sathe pointed out that the reliance placed on the case of Banarsi Dass (supra) is not relevant for our purpose as the Supreme Court was dealing with the word 'individual' in entry 86 of List I of Schedule VII to the Constitution of India which takes within its sweep groups of individuals like HUFs and Parliament is competent to levy a tax on the capital value of the assets of HUFs. That was the case under the Wealth-tax Act. Shri Sathe pointed out that there is a direct judgment of the Jammu and Kashmir High Court in the case of CIT v.Mohd. Amin Tyamboo  1251TR 375, which has held that benefit of relief in respect of self-occupied property is available only to individuals.
16. Shri Sathe argued that regarding the taxability of a person, Section 6(2) of the Act is relevant because that section has made a distinction between an individual and a HUF. He stated that there is a Board Circular No. 1081 which has clarified that the doubt which has been raised whether a HUF can get the benefit of Section 54 and the Board has held that HUF cannot get benefit under Section 54(1). He stated Board Circular is binding upon the ITO though not on the Tribunal.
17. Regarding the long-term and short-term capital gains, Shri Sathe relied on Instruction No. 1130 of the Central Board of Direct Taxes and stated that the land is integral part of the building. According to Shri Sathe there was only one composite asset that was sold by the assessee and not two, i.e., land and building and for that purpose he relied on the case of Godavaridevi (supra), Shri Sathe stated that we have to see that the asset which was sold and not an asset which came into existence in 1973. Therefore, the entire amount of profit is for the entire asset, i.e., the composite unit. He urged that the orders of the authorities below on this point also should be upheld. Shri Sathe made an alternative submission that the benefit under Section 54(1) cannot be given to the assessee as the assessee had purchased a flat in a co-operative society and the flat is not a house.
18. In reply Shri Gadgil stressed that HUF is a living person and, therefore, it is entitled to benefit under Section 54(1). He made a submission that the claim of Section 80T if not accepted then the matter may be sent to the ITO so that the assessee will be in a position to give value of the land and also of the building separately.
19. We have considered the rival submissions and perused the material before us.
20. Though long and interesting arguments were advanced on behalf of both the sides, indeed, two issues are involved, namely, (7) whether the assessee is entitled to benefit under Section 54(1) ; and (2) whether the assessee is entitled to relief under Section 80T.21. Before we enter into merits of the matter, we shall first refer to the definition of 'assessee' as given in Section 2(7) which defines the 'assessee' as meaning a person by whom any tax or any other sum of money is payable under this Act. At this juncture it is relevant to refer to Section 2(31) where definition of 'person' is given which means: (31) 'person' includes--(i) an individual ; (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not, (vi) a local authority, and (vii) every artificial juridical person, n,ot falling within any of the preceding sub-clauses.
According to Shri Gadgil when definition of 'assessee' itself includes HUF, the assessee which is a HUF is entitled to benefit under Section 54(1). At the first blush this argument appears to be reasonable but on deeper consideration, the fallacy is revealed when we read Section 54(1) which reads as under: Where a capital gain arises from the transfer of a capital asset to which the provisions of Section 53 are not applicable, being buildings 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 parent's 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, it shall be dealt with in accordance with the following provisions of this section, that is to say,-- (i) if the amount of the capital gain is greater than the cost of the house property so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under Section 45 as the income of the previous year ; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under Section 45 j and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be the cost shall be reduced by the amount of the capital gain.
Obviously it is evident that when the word 'assessee' is used and also the word 'parent' of his family, it clearly indicates that the assessee has to be an individual and a human being because only an individual is capable of having a parent. It is obvious that the assessees, like a company, a firm, a legal authority cannot have a parent and they are not capable of using an asset, i.e., building, for its residence.
Therefore, to expand the term individual so as to embrace HUF will be stretching the term too far. This aspect of the matter has been considered by the Madhya Pradesh High Court in the case of Shrigopal Rameshwardas (supra). The High Court held as under: The word 'assessee' as defined by Section 2(7) of the Income-tax Act, 1961, includes every person who is a 'unit of assessment' and the definition of 'person' in Section 2(31) is wide enough to include every artificial juridical person including a HUF, a partnership firm, etc. However, Section 2 which contains these definitions states that the definitions are to apply 'unless the context otherwise requires'. In the context of Section 54 of the Act, which provides for exemption from tax on capital gains, where the property was being used by the assessee or a parent of his mainly for the purpose of his own or the parent's own residence, 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 who can have a parent and not a fictional person, e.g., a HUF or a firm... (p. 980) The High Court has emphasised that the word 'assessee' in Section 54 construed in its context refers only to living persons and not fictional or artificial juridical persons. In that context we refer to the orders of the Madras Benches 'C and 'A' which have not followed the decision of the Madhya Pradesh High Court and they have held that as regards the Madras Bench is concerned the Madhya Pradesh High Court judgment has no binding force it has only persuasive value. The said Bench has referred to the case of R.C. Jain v. CIT  91 ITR 557 (Delhi) and South Kanara Central Co-operative Wholesale Stores v. CIT  114 ITR 298 (Kar.). The order of the 'A' Bench Madras is dated 31-7-1979. It is unfortunate that the decision of the Bombay High Court in the case of Godavaridevi Saraf (supra) was not cited nor considered by the said Bench. The decision of the Bombay High Court is an authority on the point at issue to hold that if there is a judgment of a High Court on a particular point and there is no contra decision, then the Tribunal is bound to follow that judgment. Therefore, we hold that since the Madhya Pradesh High Court is a direct authority on the point at issue, we follow the same with respect.
22. Now coming to the point of residence, it has to be understood in the normal sense that Section 6 has made a distinction between an individual, HUF, firm or AOP and a company and so on. The decision of the Madras Bench 'B' in IT Appeal No. 2516 (Mad.) of 1978-79 is distinguish able on facts as that is an order under Section 54(b) and, hence, not applicable to the facts of the case in hand.
23. On the point of residence, we have got direct authority of the Kerala High Court in the case of Vishwambharan & Bros, (supra) which has held that a firm is legally competent to own or hold property and also to deal with such property but the benefit conferred by Section 54(1) could not be claimed for the purpose of assessment by the firm because it was not possible to envisage the usage of the building by the firm for its residence as required by the section. Similar view has been held in the case of R.S. Nikhere (supra) which is a case of co-operative housing society. In Banarsi Dass' case (supra), the Supreme Court has dealt with the term HUF and the taxability of it to wealth-tax. However, it must be borne in mind that the Supreme Court was dealing with and interpreting the word 'individual' in entry 86 of List I of Schedule VII to the Constitution of India. Therefore for income-tax purposes the term 'individual' cannot be said to embrace HUF having regard to definition given in Section 2(37) which distinguishes between individual, HUF, firm, etc.
24. In the case of Mammed Kayi (supra) (at page 313) the Supreme Court which held that 'individual' includes Mappilla Tarwad. It was a case of the Wealth-tax Act. In the judgment of the Supreme Court in the case of CIT v. Sodra Dew  32 ITR 615, it is held that an individual does not mean only a human being but. it is wide enough to include a group of persons forming (a natural) unit. This was a case under the 1922 Act which dealt with Section 16(3)(a)(ii). This was the judgment by majority. It was the case regarding partnership where a minor was admitted to the benefits of partnership in which his mother was a partner. The issue before the Supreme Court was whether income of the minor should be included in the total income of the mother. The Supreme Court held as under: The only intention of the Legislature in enacting Section 16(3) of the Indian Income-tax Act, 1922, was to include the income derived by the wife or a minor child in the computation of the total income of the husband or the father, as the case may be, for the purpose of assessment. The words 'any individual' and 'such individual' occurring in Section 16(3) of the Act, are restricted in their connotation to mean only the male of the species, and do not include the female of the species. (p. 615) This case, however, does not help the assessee. It was argued by Shri Gadgil that by an amendment brought in 1982 to Section 54 the word used is 'individual' and that the amendment is not clarificatory. What Shri Gadgil stressed is that henceforth, the benefit under Section 54(1) has to be given to individual therefore the benefit can be given under Section 54(1) to HUF up to 1982. We have already mentioned Instruction No. 1081 which clarifies that the expression 'being used by the assessee or parents of his family for the purpose of his or the parents' own residence' cannot be interpreted so as to extend the relief to HUF also. It is to be stated that the instruction is binding upon the ITO and he has to follow the instruction. Therefore we hold that the ITO was justified in not allowing the benefit to the assessee which is a HUF.25. Shri Gadgil referred to an article written by Shri S.P. Subramanya (retired Member of the Tribunal) in 9 Taxman, section IV, page 249, where the learned author has stated that a HUF is entitled to benefit under Section 54(1). He has also not approved of the judgment of the Madhya Pradesh High Court in the case of Shrigopal Rameshwardas (supra). However, with respect, we hold that there is a decision of the High Court directly on the point at issue and there is no contra decision brought to our notice by other side, we are bound to follow that judgment.
26. Shri Gadgil relied on the case of Arvind Boards & Paper Products Ltd. v. CIT  137 ITR 635 (Guj.) and stated that this Bench can follow the order of the Madras Benches. This argument has to be rejected because in Arvind Boards' case (supra) the Gujarat High Court held that the decision of the Madhya Pradesh High Court has persuasive value and that it is not binding. It must be stressed that one High Court can dissent from the view of another High Court. But a Tribunal being a creature of statute cannot sit over the judgment of a High Court.
27. As far as relief under Section 80T is concerned, we are inclined to hold that the assessee has made out a case. As already stated, the undisputed facts are that the assessee purchased land (in 1966 for Rs. 36,000 and odd) on which construction was started in 1970 and it was completed in the year 1973. The property was in use of the assessee up to 10-10-1975 on which date the said property was sold for Rs. 2,91,000 and on 1-4-1976, the assessee purchased a flat in a co-operative society for Rs. 77,782.
We find that the land was already possessed by the assessee as back as in 1966 and the construction of building was started in 1970 and completed in 1973. Therefore, what was sold was land along with the building. Shri Gadgil argued that he will be in a position to give the value of land and building separately if an opportunity is accorded to him. It is no doubt true that since past years there is an appreciation in price of land and, therefore, it is desirable that the correct value of the plot should be determined first and then the cost of construction to be taken into account and then considering these two, the correct profit or capital gains has to be arrived at.
29. We are in agreement with Shri Gadgil. Shri Sathe had argued in the alternative that the assessee did not purchase a house but a flat.
However, this argument of the departmental representative does not convince us. A fiat is nonetheless a house as given in Stroud's Judicial Dictionary of Words and Phrases, Fourth Edition by John S.James, Vol. III which reads as under: A hundred years ago there was not much difficulty in saying what was a 'house', but builders and architects have so altered the construction of houses, and the habits of people have so altered in relation to them, that 'house' has acquired an artificial meaning and the word is no longer the expression of a simple idea. To ascertain its meaning one must understand the subject-matter with respect to which it is used in order to arrive at the sense in which it is employed in a statute (per Halsbury C, Grant v. Langston  AC 390). 'Formerly, houses were built so that each house occupied a separate site, but in modern times a practice has grown up of putting separate houses one above the other. They are built in separate flats or storeys ; but for all legal and ordinary purposes they are separate houses. Each is separately let and separately occupied, and has no connection with those above or below except in so far as it may derive support from those below instead of from the ground, as in the case of ordinary houses' (Per Jessel M.R., Yorkshire Insurance v. Clayton 8 QBD 424, cited with approval by Halsbury C, and Lord Brampton, in Grant v. Langston, supra). (p.
1261) 30. Therefore, on limited point, i.e., ground no. 2, we set aside the orders of the authorities below and restore the matter to the file of the ITO with a direction that he should give a reasonable opportunity of being heard to the assessee and also allow it to produce relevant material to come to a conclusion as to what is the market value of the plot and what is the value of the building and then he may arrive at a correct figure of the capital gain which was earned by the assessee and then deal with the assessee's claim for relief under section SOT.