B.K. Mehta, J.
1.The assessee is a HUF. It sold a residential property at Veraval for Rs. 1,02,000 and earned capital gains of Rs. 79,000. Within two years of the sale of the property, the assessee constructed a house for Rs. 96,500. This house consists of a ground floor, a first floor and a second floor. The area of the ground floor is 320 sq. yards, and the combined area of the first and second floors is 380 sq. yards. The assessee leased out the ground floor and used the first and second floors for personal residence. The assessee claimed reduction of Rs. 57,680 under s. 54 of the I.T. Act, 1961, on the plea that part of the capital gains in respect of the sale of Veraval property was used for construction of a new residential property.
2. The ITO rejected the assessee's claim. In appeal, the AAC allowed the claim of the assessee since in his opinions s. 54 not provide that the new house property should be exclusively used for residential purposes of the assessee. In so concluding, the AAC relied on the decision of the court in CIT v. Tikyomal Jasanmal : 82ITR95(Guj) .
3. The Revenue carried the matter in appeal before the Tribunal, which noted that the first and the second floors which were used by the assessee for his residence were completed within the statutory time-limit and since these two units were used by the assessee, he was entitled to the benefit of proportionate exemption from capital gains under s. 54 of the said Act. The Tribunal also relied on the decision of the Gujarat High Court (referred to above).
4. On the above facts, the Revenue prayed for a reference which was granted and the following question is referred to us for our opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to exemption of capital gains of Rs. 57,680 under the provisions of section 54 of the Income-tax Act, 1961 ?'
5. We do not think that any exception can be taken to the view of the Tribunal either on the matter of principle or on the matter of authority. In Tikyomal Jasanmal's case : 82ITR95(Guj) , the Division Bench, speaking through Bhagwati C.J. (as he then was), in the factual context where the construction of the ground floor was completed within the statutory period, and a substantial portion whereof had been let out, ruled that it is permissible for the purposes of determining the applicability of exemption provision to take the ground floor of the new building as a unit of house property, and since that unit was admittedly constructed before the expiration of the statutory period of two years from the date of the sale of the old house property, the first condition prescribed in s. 54 for claiming exemption from the liability to capital gains was satisfied. The Division Bench, however, having regard to the fact that a substantial portion of the ground floor had been let out, held on the facts of the case, that the assessee before the Division Bench had not constructed the house property for the purposes of his own residence.
6. In CIT v. Natu Hansraj : 105ITR43(Guj) , the Division Bench consisting of Divan C.J. and P.D. Desai J. (as they then were) was concerned with the question as to whether the assessee who had occupied about 3/4th portion of a newly purchased house property and let out the remaining portion thereof was entitled to the benefit exemption from the capital gains earned on the sale of the old house property. The contention which was pressed into service on behalf of the Revenue in Natu Hansraj's case, before the Division Bench was as to whether the new property purchased by the assessee was for the purposes of his own residence or not. The Division Bench, on recognised principles of interpretation of statutes, invoked the principle that where the words of the a statute are of doubtful meaning, they are to be understood in the sense in which they could best be harmonised with the subject of enactment and the object which the Legislature has in view. The Division Bench also referred to certain other aspects which have a bearing on the question of the construction of the provision. In that connection, the Division Bench emphasised that the Legislature has advisedly not provided as it has, while prescribing the first condition in respect of the old property, that the new property purchased or construed should be exclusively or wholly used by the assessee. This difference in the criteria qua the old property from which the capital gain is earned, and the new property which is built or constructed, in the opinion of the Division Bench, throws sufficient light on the legislative intent that what is required is, in the ultimate analysis, that what is the immediate purpose of construction, and it if the assessee himself occupies a major portion of the property immediately or within a reasonable time after his purchase or construction, it would ordinarily provide a clue that the acquired new property was really and substantially meant for purposes of the residence of the assessee, and to that extent that circumstances may be relevant and useful as a subsidiary test. The Division Bench also emphasised the third aspect in this behalf that the question has to be decided in each case on an integrated view of all the relevant circumstances, and the predominant intention of the assessee in purchasing the new property which is to be ascertained on an overall consideration of the material facts.
7. In view of the above settled legal position, it would be difficult to assail the view of the Tribunal when it applied the subsidiary test, that a substantial portion of the house property was retained by the assessee for his personal purposes, and since the entire property was completed within the statutory period, both the conditions for grant of exemption having been satisfied, the assessee was entitled to pro rata exemption from the liability to capital gains to the extent of the value of the portion of the property in his occupation. The Delhi High Court in Addl. CIT v. Vidya Prakash Talwar : 132ITR661(Delhi) , also had taken a similar view that the house property for the purposes of s. 54 of the I.T. Act, 1961, has the same meaning as the concept of house property under ss. 22 to 27 which takes into account an independent residential unit and s. 54 does not mean an independent and complete house; it takes into account all residential units, particularly in these days when multistoreyed flats are becoming the order of the day.
8. In that state of settled legal position, so far as this court is concerned, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the Revenue. The Commissioner shall pay costs of this reference to the assessee.