Per Shri T. N. C. Rangarajan, Judicial Member - This appeal relates to the claim of the assessee for relief under section 54 of the Income-tax Act, 1961. The assessee is an individual who sold his hose in 1/6, Ramanan Road, Madras-1, on 17-12-1975 for Rs. 1,50,000. He then purchased a flat in No. 401, B Block, Shivalaya, C-In-C Road, Madras-8, on 2-3-1976. Section 54 states that where the assessee sells a residential house being used by his mainly for the purpose of his own residence and purchased within a period of one yea a house property for the purpose of his won residence, then the amount reinvested may be deducted in computing the capital gains. Thus, there are three conditions prescribed in this section, namely (i) the house which is sold should have been used mainly for the purpose of the assessees own residence, (ii) the residential house should be purchased within a period of one year, and (iii) the purchase must be for the purpose of his own residence. The revenue does not dispute that the first two conditions are satisfied in this case. The dispute is confined to the third condition. The flat which has been purchased by the assessee has an area of 2,700 sq. ft. According to the revenue, even though the assessee resides in that flat and purchased that flat only for the purposes of his own residence, the benefit of section 54 should be denied only because the assessee was using one room of 250 sq. ft. as office for the purpose of conducting his own money-lending business. We are unable to comprehend this objection of the revenue because it is totally at variance with the object of section 54 which is to ignore capital gains arising from the sale of residential hoses where the object of the sale is only to substitute one residence by another residence. The fact that the assessee is using one room in the flat which has been purchased for transacting his business does not mean that that room cases to be part of his residence. Even if we should go by the area occupied by the assessee, it is obvious that substantially the flat purchased is only of the purposes of the residence. Moreover, a reading of section 54 indicates that it is the object with which the purchase is made that is relevant and not the actual subsequent user. For instance, if after purchasing the flat for the residence, the assessee should after some time let out that property, it could not mean that the benefit of section 54 could be withdrawn because there is no provision for such an eventuality. that also indicates that the benefit is intended to apply where one residential unit is substituted by another residential unit and whatever capital gains enures from the sale of the residential house is reinvested in the purchase of another residential house. In the circumstances, we accept the claim of the assessee and direct the ITO to grant the relief under section 54 and recompute the capital gain eligible to tax.
The appeal is allowed.