Holding of legal title of new house within a period of one year is not a condition for capital gain exemption u/s 54

 

This was the judgement rendered in the case of CIT Vs. Laxmichand Narpal Nagda. The court has observed as under:

1. Taking into consideration the letter as well as the spirit of s. 54 and the word “towards” used before the word “purchase” in sub-s. (2) of s. 54, it seems that the said word is not used in the sense of legal transfer and, therefore, the holding of a legal title within a period of one year is not a condition precedent for attracting s. 54.
2. In the instant case, the whole consideration was paid, possession of the flat was obtained and it was actually put to use for dwelling within four months, as a result exemption contemplated under s. 54 was clearly attracted.—CIT vs. Mrs. Shahzada Begum (1988) 73 CTR (AP) 229 : (1988) 173 ITR 397 (AP) : TC22R.250 relied on; Alapati Venkataramiah vs. CIT (1965) 57 ITR 185 (SC) : TC20R.154 distinguished.
3. Holding of legal title of new house within a period of one year in not a condition precedent for applicability of s. 54 and if consideration for the new house is paid, possession taken and house is put to use for dwelling purposes with that period, exemption under s. 54 is available notwithstanding registration of sale deed beyond the period of one year.
4. Words & phrases—”Purchase”—In s. 54—Is not used in the sense of legal transfer
5. The word “purchase” is not defined under the IT Act and, therefore, resort to its ordinary meaning, as understood by a lay man, will have to be made. In many dictionaries, the word “purchase” means the acquisition of property by a party’s own act, as distinguished from acquisition by act of law. The context demands not a literal interpretation but a liberal and wider interpretation. Taking into consideration the letter as well as the spirit of s. 54 and the word “towards” used before the word “purchase” in sub-s. (2) of s. 54, it seems that the said word is not used in the sense of legal transfer.
6. Word “purchase” in s. 54 is not used in the sense of legal transfer.

 

The copy of the order is as under:

COMMISSIONER OF INCOME TAX vs. DR. LAXMICHAND NARPAL NAGDA

HIGH COURT OF BOMBAY : NAGPUR BENCH

V.A. Mohta & G.D. Patil, JJ.

IT Appln. No. 81 of 1985

17th December, 1991

(1991) 59 CCH 1114 MumHC

(1995) 211 ITR 0804 : (1995) 78 TAXMAN 0219

Legislation Referred to

Sections 54, 256

Case pertains to

Asst. Year 1978-79

Decision in favour of:

Assessee

Counsel appeared:

P.N. Chandurkar & Smt. S.S. Wandile, for the Applicant

V.A. MOHTA, J.

This is an application under s. 256(2) of the IT Act, 1961, by the CIT, Vidarbha Region, Nagpur, for a direction to the Tribunal to state the case and to refer the following questions of law for the opinion of this Court :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee is entitled for exemption under s. 54(1) of the IT Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in giving a liberal construction to the meaning of the word ‘purchase’ in violation of the provisions of the Transfer of Property Act ?”

2. Late Dr. Laxmichand Nagda had sold his self-occupied dwelling house at Khamgaon, on 5th April, 1977, for a sum of Rs. 3 lakhs. On this sale transaction, a capital gain of Rs. 2 lakhs had accrued. He entered into an agreement for purchase of a flat in Bombay for self-occupation on 19th Feb., 1977, paid the full price of Rs. 2,23,735 in instalments before 18th June, 1977, when he took possession of the flat where he lived till his death. His legal representatives claimed in the asst. yr. 1978-79 exemption under s. 54 of the IT Act, but the ITO declined to grant exemption on the ground that the registered sale deed for the said flat was not executed within a period of one year of the sale of Khamgaon house. The assessee’s appeal was allowed by the CIT(A). Exemption as claimed was granted and the Tribunal upheld the order of the CIT(A).
3. Shri P.N. Chandurkar, learned standing counsel for the Revenue, submitted that unless a regular registered sale deed was executed and title passed to the purchaser, it could not be said that there was “purchase” within the meaning of the said word occurring in s. 54 of the IT Act. It is not possible to accept this submission. The word “purchase” is not defined under the IT Act and, therefore, resort to its ordinary meaning, as understood by a lay man, will have to be made. In many dictionaries, the word “purchase” means the acquisition of property by a party’s own act, as distinguished from acquisition by act of law. The context demands not a literal interpretation but a liberal and wider interpretation. Giving the contextual meaning to the word “purchase” in an insurance policy, the Madras High Court in the case of C. Duraiswami Iyangar vs. United India Life Assurance Co. Ltd. (1956) 26 Comp Cases (Ins) 12 : AIR 1956 Mad 316 has observed :

“We consider that the word ‘purchase’ in Art. 116 must be given a wider meaning so as to include the construction of a new building; that is to say, the word ‘purchase’ has got the same connotation as ‘acquisition’.”

The Supreme Court in the case of CIT vs. T.N. Aravinda Reddy (1979) 12 CTR (SC) 423 : (1979) 120 ITR 46 (SC) : TC22R.251 though in the context of a different factual background observed that the word “purchase” in s. 54 has to be construed in a wider sense.

In the case of CIT vs. Mrs. Shahzada Begum (1988) 73 CTR (AP) 229 : (1988) 173 ITR 397 (AP) : TC22R.250, the A.P. High Court, rejecting the submission that the crucial date for the purpose of determining when the property is purchased within the meaning of s. 54 is the date of registration of the sale deed in favour of the assessee when the title passes, came to the conclusion that the expression “purchase” would connote the domain and control of the property given into the assessee’s hands.

4. Taking into consideration the letter as well as the spirit of s. 54 and the word “towards” used before the word “purchase” in sub-s. (2) of s. 54, it seems that the said word is not used in the sense of legal transfer and, therefore, the holding of a legal title within a period of one year is not a condition precedent for attracting s. 54. In the instant case, the whole consideration was paid, possession of the flat was obtained and it was actually put to use for dwelling within four months, as a result exemption contemplated under s. 54 was clearly attracted.
5. Our pointed attention was drawn by the Revenue to the decision of the Supreme Court in the case of Alapati Venkataramiah vs. CIT (1965) 57 ITR 185 (SC) : TC20R.154 wherein the word “transfer” as found in s. 12(b) of the Indian IT Act, 1922, is interpreted as meaning “passing of title”. Since the word interpreted as well as its context are different, the ratio of that decision will have no application to the instant case.
6. Under the circumstances, no question of law arises out of the order of the Tribunal and the Tribunal was justified in not making a reference.

This application is dismissed. Rule discharged. No order as to costs.