1. This is an appeal by the revenue and the only ground taken is as follows : The AAC erred on facts and law in holding that the provisions of Section 54(1) were applicable to the transaction relating to the transfer of house property No. 44-BD, Old Geeta Colony, Delhi.
In order to appreciate the above ground, the following facts in brief may be noticed : 2. The assessee was owner of a house No. 44BD, Old Geeta Colony, Delhi in which she was residing. She sold the house for a sum of Rs. 80,000.
Initially she deposited a part of the amount in fixed deposit on 5-10-1978 for 63 months. Later she started construction of her own house at C-1/26, Phase II, Ashok Vihar, New Delhi and spent Rs. 68,000.
It further transpires that she got the property at C-1/26, Phase 11, Ashok Vihar by way of gift from her father, Shri P.V. Saran of Ludhiana, by document dated 8-11-1978. The formal transfer could not be effected in favour of the assessee because of certain formalities to be complied with as per the regulations of the DDA. However, it was the assessee who constructed the property on the plot of land with her own money for residential purposes.
3. On the above facts, the assessee claimed that the capital gains arising on the transfer of the house is not liable to be taxed in view of Section 54(1) of the Income-tax Act, 1961 ('the Act'). The ITO did not grant the exemption on the ground that the plot was not yet transferred in the name of the assessee and, therefore, she could not be treated as the legal owner. The ITO further mentioned that the fixed deposit was encashed before the expiry of three years.
The AAC in appeal held that the exemption is available in the case of the assessee since she constructed the property for her own residence within two years of the date of transfer, that is, the sale of the house at 44-BD, Old Geeta Colony, Delhi.
4. In support of the appeal Mr. S.K. Bansal for the revenue contended that since the assessee has not become the owner of the plot of land, she would not be entitled to the exemption of tax on capital gains. So far as the encashment of the fixed deposit is concerned, nothing has been argued and perhaps rightly as that has no relevance to the ground of appeal taken. The learned departmental representative pointed out that the requirements of Section 54(1) are not satisfied by the assessee and, therefore, she is liable to tax on capital gains.
On the other hand, the appellant herself appeared before us being assisted by her husband. She strongly relied on the order of the AAC.She further pointed out that in October 1982 all the legal formalities have been completed and the document has been registered in her name.
She has also further brought to our notice on our enquiry that the DDA also approved the transfer recently.
5. In our view, the assessee is clearly entitled to the benefit of Section 54(1). The relevant provisions of Section 54(1) as existed prior to the amendment made by the Finance Act, 1983 read as follows : (1) 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 benil ; 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 ; 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 ; The section requires firstly that the property which is transferred should have been used for the residential purposes of the assessee or his parents. Secondly, the income from the property should have been assessed under the head 'Income from house property'. Thirdly, the assessee should have either purchased a house within a period of one year after the date of transfer or constructed a house for the purpose of the residence within a period of two years after the date of transfer. From the facts brought on record it is clear that the assessee complied with all the requirements of Section 54(1). There was no dispute that the house property at 44-BD, Old Geeta Colony was utilised for the assessee's residential purposes. The income from the said property was chargeable under the head 'Income from house property'. The house constructed by the assessee at C-l/26, Phase II, Ashok Vihar is again for her own residence. The section nowhere mentions about the ownership of the house property that is constructed.
The whole purpose of Section 54(1) is that the money which is obtained by sale of a house property must be again invested in acquiring a house property either by purchase or by construction. That the assessee has done. It is not necessary that the assessee should be the owner of the house property constructed in strict legal sense. The section talks of construction of a house for the purpose of the assessee's residence.
That is all. We need not add anything more to the section.
6. Even otherwise what was gifted was only a plot of land by the assessee's father to the assessee. It may be that the plot of land until it has been legally transferred continues to belong to the assessee's father and in that sense the assessee might not have become the legal owner of the plot in strict sense. Nevertheless the house constructed by her with her own money does belong to her. There is nothing wrong so far as Indian law is concerned that a plot of land may belong to one and the building thereon may belong to another. Obviously the building constructed by the assessee with her own moneys belongs to her and she is the owner for all intents and purposes. Thus, even taking a view canvassed on behalf of the revenue, we find that Section 54(1) has been complied with.
7. In the above view of the matter, the order of the AAC is upheld and the appeal is dismissed.