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Commissioner of Income-tax, Tamil Nadu-iii Vs. C. Jayalakshmi - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 281 of 1976 (Reference No. 186 of 1976)
Judge
Reported in(1980)18CTR(Mad)37; [1981]132ITR82(Mad)
ActsIncome Tax Act, 1961 - Sections 2(14), 45, 53, 54 and 54(1)
AppellantCommissioner of Income-tax, Tamil Nadu-iii
RespondentC. Jayalakshmi
Appellant AdvocateNalini Chidambaram, Adv.
Respondent AdvocateN.V. Balasubramaniam, Adv.
Excerpt:
.....and the appellate commissioner negatived the assessee's claim. on appeal before the appellate tribunal, he assessee contended that section 54 was a beneficial provision covering owner-occupied property as well as property let out for rent that the use of the word mainly in that section was intended to see that the benefit was not lost merely because a small portion of the building had been let out by the assessee. the revenue contended that the entire property should be taken as one composite unit that since admittedly the first comprising half the extent of the property had been let out, the building could not be said to be used the assessee's mother mainly for the purpose of residence. the tribunal allowed the appeal upholding the contention of the assessee. the commissioner of..........in terms of section 54 of the income-tax act, 1961 ?"2. the facts are not in controversy. the house property, door no. 3f, gandhi nagar, adyar, madras, comprises of the ground floor and the first floor. the ground floor was used for the purpose of the residence of the assessee's mother, and the first floor was let out to the u. s. embassy. the total capital gains that was earned by the assessee on the sale of the property was rs. 2,04,813. the assessee claimed that 50% of the capital gains was not taxable under s. 54 of the i.t. act, since half of the building was used as residence by the assessee's mother. the ito negatived this claim on the ground that perusal of the wealth-tax and income-tax records for the immediately preceding assessment year 1966-67 revealed that the popery.....
Judgment:
1. Under s. 256(1) of the I.T. Act, 1961, the Income-tax Appellate Tribunal, Madras Bench 'A', at the instance of the commissioner of Income-tax, Tamil Nadu-III, Madras, has referred to this court, for its opinion, the following two questions :

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the meaning of the term 'mainly' includes property partly occupied for residence and that it qualified for exemption under section 54 of the Income-tax Act, 1961 ?

2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that 50% of the capital gains should be exempt in terms of section 54 of the Income-tax Act, 1961 ?"

2. The facts are not in controversy. The house property, door No. 3F, Gandhi Nagar, Adyar, Madras, comprises of the ground floor and the first floor. The ground floor was used for the purpose of the residence of the assessee's mother, and the first floor was let out to the U. S. Embassy. The total capital gains that was earned by the assessee on the sale of the property was Rs. 2,04,813. The assessee claimed that 50% of the capital gains was not taxable under s. 54 of the I.T. Act, since half of the building was used as residence by the assessee's mother. The ITO negatived this claim on the ground that perusal of the wealth-tax and income-tax records for the immediately preceding assessment year 1966-67 revealed that the popery has not been declared as the residence of the assessee in that assessment year. On appeal, the AAC held that, in order to get the benefit under s. 54, the house sold by the assessee should have been used mainly for purposes of residence and that, since, immaterial, the first floor has been let out to the U. S. Embassy, the assessee was not entitled to get the benefit under s. 54 of the I.T. Act, 1961. Against the order of the AAC, the assessee filed an appeal before the Appellate Tribunal. It is contended, before the Tribunal for the assessee that s. 54 was a beneficial procession covering owner-occupied property as well as property let out for rent, that the use of the word "mainly" in that section was intended to see that the benefit was not lost merely because a small portion of the building has been let out by the assessee and that the attempt of the revenue to put an unduly narrow interpretation of that section so as by deprive the assessee of the benefit under s. 54 was totally unwarranted Before the Tribunal, \the competent of the revenue was that the entire house property, NO. 3F, Gandhi Nagar, Adyar, should be taken as one composite unit, that since, admittedly, the first floor comprising half of the extent of the property had been let out to the American Embassy, the building could not be said to be used by the assessee's mother mainly for purposes of residence and that, therefore, the benefit claimed under s. 54 had been rightly negatived. On these rival contentions put forward before the Tribunal the Tribunal held :

"......... Section 54 includes both owner-occupied property as well as property let out on rent..... The use of the word 'mainly' in section is intended to see that the benefit is not lost merely because the owner happened to let out a small portion in the building for rent. The dictionary meaning of the word 'mainly is, 'generally; principally.' Since admittedly, the entire ground floor was used as residence by the assessee mother, the house sold by the assessee can be said to have been used mainly for residence of her mother. The revenues contention can stand only when section 54 contemplated exclusive and whole use of the building for purpose of residence by the assessee's mother. The use of the word 'mainly' in section 54 deprive much of the force in the contention of the revenue. The other contention of the revenue that the entire building at No. 3F, Gandhi Nagar, Adyar, Madras-20, should be taken as one composite unit for purposes of section 54 is bereft of merit, since the definition of 'capital asset' under section 2(14) is so wide in its import that it can taken in its ambit any house property as well as part of the house property. The interpretation that the entire building should be taken as one composite unit for purposes of section 54 is not, therefore, warranted by a plain reading of the section."

3. On the above findings, the Tribunal allowed the appeal of the assessee It was with reference to this order of the Tribunal that the Commission applied for and obtained a reference of the two question enumerated the beginning of this judgment, for the opinion of this court, under s. 256(1) of the I.T. Act. 1961.

4. In our opinion, the matter is very simple and flows directly from the language of the section. section 54(1) of the I.T. Act, 1961, reads as follows :

"54. (i) Where a capital gain arises from the transfer of a capital asset to which type processions 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 won 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 purpose of his won residence, them instead of the capital gain being charged to income-tax as income of the precious year in which the transfer took place, it shall be dealt with in accordance with the following processions 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; 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."

5. Thus, it will be clear that the language of the section contemplates an identity of the capital asset transferred and the property being used mainly for the purpose of residence. Consequently, the view of the Tribunal that the entire house should not be taken as a whole for considering the question under s. 54 is erroneous. The word "which" occurring in the clause, "which in the two years immediately preceding the date on which the transfer took place", naturally qualified the capital asset which was the subject-matter of the transfer. In this particular case, there is no controversy that the entire house was transferred and the capital gains arose out so such transfer. If so, naturally the word "which" must quality the entire house and not any part thereof.

6. The next question to be considered is what exactly is the meaning of the word "mainly" occurring in the clause, viz., "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." The world "mainly" is a simple English word not capable of giving rise to any difficulty in understanding it in the context in which it occurs. According to the Shorter Oxford English Dictionary, the meaning of the word "mainly" is for the most part; chiefly; principally". According to the Chambers Twentieth Century Dictionary, 1972 Edn., the meaning of the word "mainly" is "chiefly; principally". According to the Universal English Dictionary edited by Henry Cecil Wyld, the meaning of the word, "mainly" is "chiefly; to the greatest extent; in the main; for the most part." Consequently, it is clear that the property sold should have been put to use principally as residence for the tow years immediately preceding the date of the transfer. In this case the ground floor was kept by the assessee's mother for her residence and the first floor was kept by the assessee's mother for the residence and the first floor was let out to the U. S. Embassy. In fact, the claim of the assessee itself would show that one-half of the house was kept by the assessee's itself would show that one-half of the house was kept by the assessee's mother and the other half was let out to the U. S. Embassy. If so, it cannot be said that the building in question was mainly used for the purpose of the residence of the assessee's mother. In view of this we have no hesitation whatever in holding that the Tribunal was in error in this behalf, it is not easy to understand the reasoning of the Tribunal that the use of the word "mainly" in s. 54 was intended to see that the benefit was not lost merely because the owner happened to let out a small portion in the building fort rent. As a general proposition having regard to the language of s. 543, there can be no quarrel with the above proposition. But that proposition has no application the fact actually found by the Tribunal because in this case it was not a small portion of the building that was let out to the U. S. Embassy. Similarly the view of the Tribunal, that the interpretation that the entire building should be taken as one composite unit for purposes of s. 54 was not warranted by a plain reading of the section, is also not sound, because there is no question of any building being taken as one composite unit, because what should be considered with reference to the use as residence is the property which was sold and which has given raise to the capital gains. Under these circumstances, we are clearly of the opinion that the Tribunal erred in its application of s. 54 to the facts of this case as found by it and, therefore we answer the first question referred to this court in the negative the assessee.

7. As far as the second question is concerned, nowhere does the order of the Tribunal refer to the assessee herein being entitled to exemption in respect of 50 per cent. of the capital gains, unless it be that that was the claim made by the assessee before the AAC who negatived it and the Tribunal, when it allowed the appeal, must be deemed to have granted that relief. In our opinion, in view of our answer to the first question, it is unnecessary to answer the second question and we hold so.

8. The commissioner is entitled to the costs of this reference. Counsel's fee Rs. 500.


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