SETHURAMAN J. - The Tribunal has referred the following question under s. 256(1) of the I.T. Act, 1961.
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 10,340 was not assessable under section 45 read with section 54 in the hands of the assessee ?'
The assessee is the proprietrix of the business called Raju Real Estate. On September 3, 1969, she purchased a plot of land at 31, Bhagirathi Ammal Street, Madras-17, and constructed a building on the same costing Rs. 38,359. This building was used as a dwelling house till July 13, 1970, on which date it was sold for Rs. 49,000. She purchased on the same day another plot of land for a sum of Rs. 20,000 and put up a construction costing Rs. 63,000. She stayed in the said house till July 5, 1971, when she sold it for a sum of Rs. 1,00,000. In making the assessment for the year 1971-72, the ITO brought to tax as short-term capital gains a sum of Rs. 10,641, being the excess realised on the sale of the house at 31, Bhagirathi Ammal Street, sold in July, 1970. The assessee claimed that the capital gains should be computed in accordance with the provisions of s. 54 of the Act. This claim was rejected by the ITO and the AAC. The assessee thereafter appealed to the Tribunal which held that the sum of Rs. 10,340 was not assessable to tax as capital gains. In the view of the Tribunal, the conditions of s. 54 would be satisfied if the assessee or her parents were to utilise the house for the purpose of their residence even for a day and also if the construction or purchase of the house was intended for his or her residence. As in the present case the above conditions were said to have been satisfied the Tribunal deleted the entire sum of Rs. 10,340. In coming to its conclusion, the Tribunal compared also the cost of the new building which came to Rs. 83,000, consisting of Rs. 20,000, being the cost of the plot, and Rs. 63,000, being the cost of the construction. It is this order of the Tribunal that is now challenged under the present reference.
The learned counsel for the Commissioner contended that a proper construction of s. 64 would be to require the assessee to reside in the particular building as a residence for a period of two years and not at any time during the period of two years. The learned counsel for the assessee drew our attention to the other provisions of the I.T. Act, in which Parliament used the appropriate expression to indicate the requirement of continuous period. In the absence of any such expression in the present case the contention was that the Tribunals conclusion that it was enough if the assessee had used the building as a residence at any time during the period of two years was correct. Section 54 of the I.T. Act, 1961, runs, to the extent relevant, as follows :
'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 year 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 parents own residence, 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 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 year of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.'
The opening words of the section show that there must be some capital gain arising from the transfer of a capital asset to which s. 53 is not applicable. Section 53 deals with exemption from capital gains tax. The present case does not fall within s. 53. The nature of the property dealt with in s. 54 is buildings or lands appurtenant thereto the income of which is chargeable under the head 'Income from house property'. It is not in dispute that in the present case the income from the property is liable to be taxed under the said head. The further requirement is that for two years immediately preceding the date on which the transfer took place, it must have been used by the assessee or a parent of his mainly for the purpose of his own or the parents own residence. The assessee has to show that the house was being used by her for the purpose of her own residence two years immediately preceding the date on which the transfer took place. The transfer in the present case took place on July 13, 1970. The plot itself was purchased on September 3, 1969. The property was in the hands of the assessee only for period of approximately ten months. It is thus clear that the property could not have been used as a residence for 'two years immediately preceding' the date of transfer. The word 'in', in 'in the two years', occurring in the section appears to be siginificant. While the assessee contended that the word 'in' would have to be understood as 'at any time during', the learned counsel for the Commissioner contended that the said word would require the user as a residence for continuous period of two years. He emphasised particularly the words 'in the two years immediately preceding the date on which the transfer took place, was being used by the assessee'. The word 'being' connotes a continuous user. If the plea of the assessee were to be accepted then the provision should have been drafted in the following terms : 'Which at any time during the two years immediately preceding the year in which the transfer took place was used by the assessee.' When the Legislature had advisedly used the particular words in s. 54, it would not be proper for us to import other words into it. There is no ambiguity in the provision so that in order to make sense we have to read some words into it.
This court had occasion to consider the very question in M. Viswanathan v. CIT : 117ITR244(Mad) . In that case, the assessee purchased a residential building and resided there from January 16, 1964, to June 16, 1965, for a year and five months. The question was whether this stay satisfied the requirement of s. 54. The learned judges observed at p. 245 :
'The words in the section which are important are two years immediately preceding the date of sale and was being used. If the words in the two years immediately preceding would have stood by themselves some ambiguity would have arisen, because it is possible to say that when we speak of in the two year, it can be any time during the period of two years. But when the words in the two years immediately preceding are coupled with the words was being used, it connotes in the English language the user which extends to the date of transfer and the expression in the English language is described as past continuous, a continuity which extends up to the termination date which is clearly stated as the date of transfer. The wording of the section appears to us to be clear and it is also clear that the wording is not capable of any meaning other than what we have indicated above.'
Thus, if the section is properly construed then the stay of the assessee being for a period of less than two years, the conditions of s. 54 would not stand satisfied. The learned counsel for the assessee submitted that other expressions have been used in other provisions. We are concerned with s. 54 and when the language is so clear, we do not see any need to look into any other provision as an aid for construction. The learned counsel for the assessee went to the extent of asking for reconsideration of the earlier decision referred to above. As rightly pointed out by the learned judges, if we may say so with respect, the construction of the provision is clear and, therefore, we do not consider that there is any scope or need for a reconsideration of the construction placed on the provision in the said decision.
In the result, we answer the question referred to us as follows :
The sum of Rs. 10,340 was assessable under s. 45 and s. 54 does not apply. There will be no order as to costs.