Law: Income Tax Act, 1961

Section: 256,54,53

Section 54 of the Income-tax Act, 1961 - Capital gains - Profit on sale of property used for residential house - Assessment year 1970-71 - Whether where assessee let out her house to her husband and she also residing in house along with her husband it could be said that house was being used for her own residence so as to be entitled to benefit of section 54 - Held, no FACTS The assessee had purchased a flat in the year 1962. She had leased it to her husband on a monthly rent of rupees seven hundred and was also living with him therein. In the year 1-4-1969 to 31-3-1970, she sold that flat for Rs. 80,000. About the same time, she purchased another flat in Bombay for Rs. 63,000. The ITO determined the long-term capital gain arising out of the sale of the first flat as amounting to Rs. 49,000 and he brought that amount to tax after giving the basic exemption and 45 per cent deduction. The assessee's claim for exemption under section 54 was rejected by the ITO and Tribunal on the ground that since she had let out the flat to her husband, it could not be said that it was used by her mainly for the purpose of her own residence, even though she was incidentally residing therein. On reference : HELD As she had leased that flat, though to her own husband, the main purpose for which it was used was for letting out to earn rent and not for her own residence, though she happened to reside therein as a member of the tenant's family. Secondly, that flat was being used mainly for the purpose of her husband's own residence because it was he who was legally entitled to actual possession thereof, being the tenant thereof. The assessee had no legal right to possession of that flat and she could only reside there as a member of the family of the tenant, namely, her husband. When her husband had the legal right to be in possession and to the use of that flat, and her right to reside therein was only as a member of his family, it could not be said that the flat was being used mainly for the purpose of her own residence. Therefore, the assessee was not entitled to exemption under section 54, on the long-term capital gains arising on the sale of her house property. Note : The case was…

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