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Section 54 of the Income-tax Act, 1961 - Capital gains - Profit on sale of property used for residence - Assessment year 1975-76 - Assessee owned two residential houses - He sold one and utilised its sate proceeds to construct first floor on his second house after demolishing old structure - Whether assessee was entitled to exemption under section 54 - Held, yes, FACTS The assessee owned two residential houses. He sold one house and with the sale proceeds, he put up the first floor of the second house after demolishing the old structure of the first floor. Admittedly, he earned capital gains. The ITO disallowed the assessee's claim for exemption under section 54 on the ground that the assessee had made only some alterations by adding additional rooms to the existing house, and charged tax under 'capital gains'. On appeal, the AAC accepted the assessee's claim holding the construction of the first floor as construction of a unit of house property for the purpose of section 54. The Tribunal concurred with the view of the AAC. On reference: HELD The view taken by the Tribunal was unexceptionable having regard to the admitted position that the assessee after demolishing completely the first floor had put up a new construction within the period allowed by the statute, viz., section 54. It is also common ground that the assessee was in enjoyment of the entire property. Once the principle laid down in the s of the Delhi and Gujarat High Courts in Addl. CIT v. Vidya Prakash Talwar [1981] 132 ITR 661 , and CIT v. Kodandas Chanchlomal [1985] 155 ITR 273, respectively, that 'house property takes into account an independent residential unit' there was no force in the contention that since the independent residential unit (first floor in the present case) was put up on an existing old house, exemption under section 54 was not available. Once it was concluded that the assessee was entitled to the exemption under section 54, the question whether section 48 read with section 55(b) was applicable or not, would not arise. In the circumstances, the assessee was entitled to exemption under section 54. CASE REVIEW CIT v. Tikyomal Jasanmal[1971] 82 ITR 95 (Guj), CIT v. Natu…

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