Law: Income Tax Act, 1961

Section: 54

Income-tax----Capital gains---Exemption---Transfer of property used for residence of assessee or his parent for two years preceding date of transfer and purchase or construction of another such property within specified period---Scope of S.54---Occupation of property must have been as owner---Property occupied for part of two years period on a leave and licence basis and for other part as owner ---Assessee not entitled to exemption under S.54---Indian Income Tax Act, 1961, S.54. Section 54 of the Income Tax Act, 1961, which grants exemption in respect of capital gains on sale of property used for residence, requires that the property in question must have been used by the assessee himself or by his parents mainly for the purpose of his own or the parents own residence for a period of two years preceding the date of transfer. It is one of the conditions precedent for applicability of section 54. The expression "was being used by the assessee or a parent of his mainly for the purposes of his own or the parents own residence" in the context in which it appears in section 54, clearly means that the occupation of the assessee must be occupation in the capacity of "owner". If does not contemplate occupation during the period when the property did not belong to him. The assessee was occupying a flat in Bombay from May, 1968, on leave and licence basis. He was paying compensation for that at the rate of Rs.525 per month. He purchased the said flat on July 16, 1973, for a sum of Rs.36,375 and was in occupation of the same as its owner since then. He sold the above flat on August 11, 1974, for a sum of Rs.70,000. The assessee had purchased a flat for his residence on August 1, 1974. The assessee claimed exemption under section 54 in respect of capital gains arising from the sale of the flat for Rs.70,000 on the ground that he had been occupying the same for a period of two years prior to its sale. The Income¬ tax Officer did not accept the claim of the assessee for exemption and this was upheld by the Tribunal. On a reference: Held, that admittedly the assessee was in occupation of the property in question up to July 15, 1973, on leave and licence basis. He purchased the…

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