1990-VIL-525-BOM-DT

Equivalent Citation: [1990] 185 ITR 499, 84 CTR 62, 51 TAXMANN 51

BOMBAY HIGH COURT

Date: 02.04.1990

KC. KAUSHIK

Vs

PB. RANE, FIFTH INCOME-TAX OFFICER, AND OTHERS

BENCH

Judge(s)  : T. D. SUGLA 

JUDGMENT

T. D. SUGLA J.-The petitioner is in the service of the Bank of Baroda. He purchased a flat at in Suvarnadeep Co-operative Housing Society Limited(for short "Suvarnadeep"), Santacruz, Bombay, on March 21, 1973, for a sum of Rs. 49,140 for the purpose of his residence. He was residing in that flat. On October 24, 1979, he sold the said flat for Rs. 1,25,000 and on the same date purchased another flat in Jai Priyadarshini Co-operative Housing Society Limited at Khar, Bombay (for short "Priyadarshini"), for a sum of Rs. 1,11,000. He resided in the Khar flat from October 24, 1979, to July 25, 1980. On July 26, 1980, he sold the Khar flat also for a sum of Rs. 1,20,000 and purchased another flat on the same date in Kalpana Co-operative Housing Society Limited (for short "Kalpana"), Santacruz, Bombay, for Rs. 1,20,000. Thereafter, he started residing in this flat. However, he vacated the flat on May 16, 1981, on being transferred to Baroda. From May 27, 1981, to July 1, 1983, the flat in Kalpana was let out to the Bank of Baroda, his employers.

For the assessment year 1980-81, the petitioner claimed that the surplus of Rs. 75,860 arising on the sale of his flat in Suvarnadeep on October 24, 1979, was not taxable as he had invested more than the said amount in the purchase of a flat in Kalpana on July 26, 1980, for residence. The Income-tax Officer partly accepted the claim and held that the surplus was invested in the purchase of a flat in Priyadarshini, Khar on October 24, 1979, and not in the purchase of a flat in Kalpana, Santacruz, on July 26, 1980, as claimed. The petitioner filed a revision petition under section 264 of the Income-tax Act, 1961, which was rejected by the Commissioner of Income-tax, vide order dated February 5, 1985. It is pertinent to mention that two issues, viz., (i) whether the petitioner had a choice to choose the property against which the capital gains which had arisen on the transfer of a capital asset are to be adjusted ; and (ii) whether the property purchased but not actually used for residence for three years fulfils the requirement of section 54(1) of the Income-tax Act, 1961, were raised before the Commissioner. While accepting the contention that the petitioner had a choice and could claim relief under section 54 against the purchase of the flat on July 26, 1980, even though he had purchased a flat on October 24, 1979, in the meantime, the Commissioner held that that flat having not been occupied by the petitioner for his residence for three years, he was not entitled to relief under section 54 against the purchase of that flat,

For the assessment year 1981-82, following his order for earlier assessment year, the Income-tax Officer held that the Khar flat purchased by the petitioner on October 24, 1979, was sold on July 26, 1980, i.e., within a year. Therefore, the surplus was chargeable as short-term capital gains. For this very reason, he also held that to the extent the petitioner had availed of relief under section 54 against the purchase of this flat on October 24, 1979, the cost of the flat was required to be reduced. Accordingly, he computed the short-term capital gains for the year at Rs. 82,860. The petitioner's appeal there against failed. According to the Commissioner of Income-tax (Appeals), the petitioner had no option or choice. Relief under section 54 was or could be available only against the purchase of the first property for residence after the sale of the residential house capital gains arising on the transfer of which were sought to be adjusted.

The petition was admitted on August 30, 1985, when interim relief in terms of prayer (g) was also granted. It is proposed to dispose of the preliminary objection first. It was contended by Dr. Balasubramanian, for the Revenue, that the Income-tax Act provides a complete machinery for assessment of tax, imposition of penalty and for granting relief in respect of any improper order passed by the income-tax authorities. A person aggrieved by an order of the Income-tax Officer had thus adequate remedies available to him by way of appeal to the Commissioner (Appeals) and the Tribunal. Jurisdiction of this court under article 226 of the Constitution is an extraordinary jurisdiction. The petitioner can invoke this jurisdiction only when there is no alternative and effective remedy. It is not established that the petitioner had in this case no alternative and/or effective remedy., Fairly admitting that the order passed by the Commissioner under section 264 of the Income-tax Act in revision was not appealable, Dr. Balasubramanian stated that it was due to a conscious provision made by the Legislature in this behalf. The petitioner had chosen not to go in appeal and to avail of a remedy which was available. In any event, that fact by itself would not entitle the petitioner to invoke the writ jurisdiction of this court as a matter of course. The contentions were repelled by Shri Sonde, learned counsel for the petitioner. It was pointed out that though extraordinary, the jurisdiction under article 226 was discretionary. When the petition has already been entertained, it may not be proper, or legal for the same court to consider the question of entertaining it once again at the time of final hearing.

In my judgment, the petition having already been entertained and the jurisdiction being, though extraordinary, discretionary, I will prefer to dispose of the petition on merits. This was also the view taken by this court (Goa Bench) in Writ Petition No. 174/B/ 1981 decided on August 2, 1984.

In order to appreciate the rival contentions on merits of the petition, it is desirable to refer to the provisions of section 54 of the Income-tax Act as they were in force during the relevant period. Section, 54 is reproduced hereunder:

"54. Profit on sale Of property used for residence. -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 years 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 parent's 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 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 years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain."

Evidently, relief is not available under the section in respect of capital gains arising on the transfer of any and every capital asset. Relief is available only if the capital asset is such that its income is chargeable under the head "income from house property" and which in the two years immediately preceding the transfer was being used by the assessee or a parent of his for the purpose of his own or the parent's own residence. There is no dispute that this condition is satisfied in the present case as the flat in Suvarnadeep was used by the petitioner from 1973 to 1979 for his own residence and income from it, if any, would have been chargeable under the head "income from house property". The second condition for availing of the relief is that the assessee must within a period of one year before or after the date of transfer of such a capital asset, purchase or within period of two years after that date, construct a house property for his own residence. In this case, both the house properties, i.e., the flat in Priyadarshini and the flat in Kalpana, were purchased by the petitioner within one year of the date of the sale of the flat in Suvarnadeep and both the flats were purchased for the purpose of residence. In the absence of any provision to the contrary, in my judgment, the petitioner is entitled to avail of the relief in respect of the capital gain arising on the sale of his flat in 1979 against the flat purchased in that year as also against the flat purchased on July 26, 1980. It has, of course, to be adjusted against one of the flats only. The petitioner has chosen to seek that relief against the purchase of the flat on July 26, 1980, and, as held by the Commissioner in his order under section 264 of the Income-tax Act for the assessment year 1980-81, 1 am inclined to hold that it is for the petitioner to claim relief under this section against the purchase of any one of the flats provided that the other conditions mentioned in the section are satisfied. There being no dispute that the flat purchased by the petitioner in Kalpana on July 26, 1980, satisfies the conditions laid down in section 54, i.e., it was purchased within one year of the sale of the Suvarnadeep flat and for the purpose of his own residence, the petitioner is entitled to seek adjustment of capital gains against it the purchase of this flat.

However, clause (i) provides that if the new asset for the purchase of which the assessee sought relief of capital gains under section 54 is sold within a period of three years of its purchase or construction, the cost of the new asset will be required to be reduced to the extent of relief availed of on account of capital gains earned but adjusted. It is for this reason that it has become important to consider whether the new asset, i.e., the flat in Kalpana purchased by the petitioner on July 26, 1980, which was admittedly let out by the petitioner to his employer, Bank of Baroda, on and from May 27, 1982, on his transfer to Baroda can be said to be a factor that would bring the petitioner within the mischief of clause (i). In this context, it is desirable to refer to the Gujarat High Court decision in the case, CIT v. Tikyomal Jasanmal [1971] 82 ITR 95. The facts in that case were that out of the total constructed portion of the house admeasuring 1,389 sq. ft., the assessee had let out an area of 734 sq. ft., i.e., more than half, immediately on completion of the construction. It was held that the new house was not constructed by the assessee for the purpose of his own residence. The court, however, observed that it was not the case of the assessee that the house was originally constricted by him for the purpose of his own residence but by reason of subsequent events or supervening circumstances, it became impossible or impracticable for him to occupy a part of the house for the purpose of his own residence and was let out to tenants for that reason. Such indeed could not be the case of the assessee since no period of time elapsed between the completion of construction of the ground floor and the letting out of a major portion of it to tenants. In the second decision in the case of CIT v. Natu Hansraj [1976] 105 ITR 43, the Gujarat High Court held that no single factor including whether or not the property newly acquired by the assessee was wholly or substantially acquired by him for the purpose of his own residence after purchase or construction, as the case may be, would be determinative of the matter. Even if the new property was not substantially put to use for his own residential purposes by the assessee within a reasonable time and if the failure to do so was without any fault on his part, that is, by reason of some unforeseen subsequent events or supervening circumstances, it might still be possible to hold in a given case, provided other circumstances point in that direction, that the real relief, intention or motive entertained by the assessee at or about the time of purchase or construction as regards the use of the newly acquired house property was to occupy it himself.

From the above two decisions of the Gujarat High Court, it can fairly be inferred that the petitioner in the present case had purchased the new flat in Kalpana on July 26, 1990, for his own residence. He resided in that flat until his transfer to Baroda. His transfer to Baroda is an unforeseen and subsequent event and, therefore, there is no warrant for construing the relevant expression in the manner suggested by the Revenue to hold that the flat was not purchased by the petitioner for the purpose of his residence just because it had to be let out to the Bank of Baroda in the circumstances mentioned above.

Dr. Balasubramanian had stated that the scheme of section 54 was that the relief in respect of capital gains arising on the transfer of a capital asset was available against the purchase of the first house property for the assessee's residence following sale. The assessee had no choice in this regard as held by the Commissioner of Income-tax (Appeals). He also argued that the fact that the petitioner had to vacate and let out the flat on his transfer to Baroda was not germane to the issue. The fact is that the flat was not occupied by the petitioner for a period of three years.

In my view, the manner in which the provision in this regard has been construed by the Gujarat High Court in its aforesaid two decisions is reasonable and requires to be accepted. The expression "for the purpose of his own residence", in my judgment, means and refers to a situation where a new capital asset, i.e., the house property, is purchased by the assessee with the intention to use the same as his own residence. If, for some reason over which he has no control or something unforeseen happens as result of which he has to reside at a place other than the place where such a new capital asset is situate, it could not be held that the new capital asset was not purchased for the purposes of his own residence. In the above view of the matter, both the conditions are satisfied in this case. Accordingly, the petition succeeds. Rule is made absolute in terms on prayer clauses (b) and (d). No order as to costs.

 

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