1. The assessee had purchased a flat in 1971 for Rs. 16,250. He sold the same on 7-8-1980 for a sum of Rs. 49,500, thus realising an excess of Rs. 33,250. The assessee had made arrangements to purchase a flat in a co-operative society. On 5-11-1977 a sum of Rs. 5,251 was paid.
Subsequently, on 27-1-1978 sums of Rs. 5,920 and Rs. 1,500 were given.
Ultimately, the assessee paid an overall amount of Rs. 57,471 including a sum of Rs. 2,871 for charges levied by the co-operative society: The assessee was given a membership and shares of the co-operative society on 25-6-1979. The flat being under construction thereafter possession was given on 1-1-1980. On the basis of the facts the assessee claimed exemption under Section 54 of the Income-tax Act, 1961 ('the Act') in respect of the capital gains made by him. This was rejected by the ITO and also by the AAC. Thus, the matter is in appeal before the Tribunal.
2. Stressing the details as above, the learned Counsel for the assessee has pointed out that his case comes clearly within the exemption provisions of Section 54. From the peculiar nature of the ownership of flats in a co-operative society, the date of allotment and taking of possession (in this case on 1-1-1980) could at best be regarded as the date on which the assessee purchased the flat. According to the learned Counsel, all the payments made earlier or later were not of relevance for the application of Section 54. Stress is laid in this connection on rules 6(iii), I2(h) and 71 of the rules of the co-operative society.
The membership of the cooperative society was only a qualification for getting a flat allotted. Otherwise on the date of allotment of a flat and by taking possession of the same, the member becomes the owner of the property.
3. For the department, it is pointed out that the assessee could not be said to have purchased the flat within the time limit provided by Section 54. He could at best be regarded as having entered into the purchase on 5-11-1977. The subsequent payments were not of relevance.
Drawing support from the decision of the Tribunal in the case of Mrs.
Shahzada Begum v. ITO  5 ITD 292 (Hyd.), the learned Counsel has pointed out that the first date of payment, in this case 5-11-977, should be regarded as the date of the purchase. This date fell outside, the limits of Section 54. The assessee was, therefore, not entitled to the relief.
4. The question before us, though simple, raises problems of importance. Section 54 is a provision granting relief from capital gains in the case of an assessee who sells one property and purchases another for residential purposes. A period of time for the purchase is fixed having in view the necessity to encourage construction. The exemption itself, it would appear, is based on an element of personal equity in the matter of residential accommodation and aimed at encouraging house construction, it is, thus, that the Section provides for relief from capital gains where an assessee who has sold a property, purchases within one year or constructs within two years another property for residence, 5. There is no dispute that the assessee made an excess of Rs. 33,250 in the sale of his old flat. That the assessee has been planning to acquire residential accommodation by joining a co-operative society, making initial payment of Rs. 5,251 on 5-11-1977 is not in dispute He subsequently made payments and finally completed the amounts due to the society. At one time it was claimed that the assessee has taken loan from the Bombay Municipal Corporation and was returning the same through the co-operative society. This claim does not seem to be correct. The co-operative society in fact took the loan from the Bombay Municipal Corporation and it was repaying the amount. Of course', to the extent that the amount was utilised for the flat allotted to the assessee, it was getting reimbursement from the assessee. Though, therefore, a reference was made to the loan from the Bombay Municipal Corporation, that does not affect the position as regards the purchase of the flat, allotment of the flat, etc. With regard to the allotment, we have only to consider the position of the society and the assessee.
The assessee got the flat allotted by the society and was paying money to the society. Apart from the above, under the rules and bye-laws of the society, the assessee does not in fact ever get ownership rights over the flat. The society remains the owner of the flat. The right the assessee has got is a peculiar type of right which certainly cannot be classed as ownership. To say, therefore, that the assessee purchased the property would in law be erroneous. On the contrary, that the assessee has an interest in this flat as much as that of a full owner cannot be denied. The purpose of the assessee joining the society and getting the flat allotted was to have the benefit of a residential accommodation entirely in his control almost as if he was the full owner. Except, therefore, for a few technical requirements relating to and under the bye-laws of the co-operative society, the assessee can be said to be the full owner of the property. As a matter of fact, if not in law, therefore, it would be correct to say that the assessee has purchased a residential property.
6. If the meaning of the word 'purchase' is pushed to its technical limit perhaps the 'owner' of a flat in a co-operative society as above would not get the benefit of Section 54. Even so, it would be against the very object and purpose of Section 54 if such a flat owner is denied the benefit. Practically, in every big town in this country ownership flats are in fashion. This has been taken note of for the purpose of computing the property income by the Act by deeming the property is belonging to the member. In applying the provisions of Section 54 to such a contingency, it would not be, as claimed by the learned departmental counsel, proper to deny the assessee the benefit of Section 54. With the increase in the cost of buildings, if the technical policy of denying the benefits of Section 54 claimed by the learned departmental counsel is accepted, Section 54 would almost be an unused Section. Certainly that cannot be the purpose of the legislation especially when this covers a large number of assessees. A reconciliation, therefore, between the provisions of Section 54 and the peculiar law relating to the ownership flats in big cities where no ordinary person can purchase a house himself has to be made.
7. The only way this can be done is to extend the analogy of Section 27(iii) of the Act to the provisions of capital gains as well and treat the assessee-member as the owner of the flat. The question, therefore, of the time of purchase comes in. The assessee in this case joined the society in 1977. He was allotted the flat on 1-1-1980 which he occupied on the same date. Joining the society and paying the amounts cannot really amount to purchase of a house even under the modified terms as above. On the contrary, allotment of the flat would certainly give the assessee certain specific obligations and rights. The manner in which the amounts are paid and the period over which they are paid may not also be of much relevance. In the peculiar circumstances of the case, therefore, I would hold that the assessee has purchased a house as required under Section 54 and looking at the manner in which the project was started, the house constructed, allotment made and the co-operative society continued, the assessee must be deemed to have satisfied the conditions of Section 54 for exemption. This is so, even though it is not possible to strictly point out any particular day or point of time at which the purchase was made. The assessee is entitled to the relief.