Income-Tax Officer vs Urmila Mittal.
1990 Latest Caselaw 2 Del

ORDER

Per Kathuria, Accountant Member - This is a Departmental appeal arising out of the order dated 25-3-1985 passed by Commissioner of Income-tax (Appeals), Chandigarh, and relates to assessment year 1981-82.

2. The only issue is with regard to the capital gain. The assessed sold a residential house situated at Muzaffar Nagar, on different dates as under :-

Date

Amount of sale

5-4-1980

Rs. 50,000

28-4-1980

Rs. 34,000

15-7-1980

Rs. 35,000

15-7-1980

Rs. 900

16-10-1980

Rs. 48,000

TOTAL :

Rs. 1,67,900

There were some other charges and the total sale proceeds, therefore, amounted to Rs. 1,80,000. The Income-tax Officer was of the view that the property at Mazaffar Nagar was not self-occupied and had actually been rented out and so the provisions of section 54(1) were not attracted. The ITO also did not accept the plea of the assessed that the sale proceeds were utilised within the specific time and so capital gains was not exigible. The ITO also rejected the contention of the assessed that the newly constructed house was self-occupied. In fact, according to him, the new house acquired by the assessed at Faridabad was also rented out. The ITO, therefore, proceeded to assess capital gains in the hands of the assessed. After deducting the cost of acquisition of the Mazaffar Nagar property at Rs. 6,600 from the sale proceeds of Rs. 1,80,000 and after allowing deduction under section 80T of the Income-tax Act the net capital gains was worked out at Rs. 1,26,300. The income of the assessed was, therefore, assessed at Rs. 1,26,300 as she had no other sources of income.

3. The assessed preferred an appeal before the Commissioner of Income-tax (Appeals) who after considering the evidence and the arguments placed before him held that the house at Muzaffar Nagar had been vacated by the tenants in 1970 and further that the amount of capital gains was utilised within the specified period by constructing a property at Faridabad as per the provisions of section 54 wrongly mentioned as section 54-E by the CIT (Appeals) and that the house at Faridabad was for residential purposes of the assessed. He accordingly deleted the capital gains assessed to tax in the assesseds hands.

4. Shri Subhash Kumar, learned Departmental Representative, submitted that section 54(1) of the Income-tax Act stipulated that the transferred property must have been used by the assessed or a parent of his mainly for the purpose of his own or the parents own residence. In the instant case the property had not been used by the assessed, who was residing with her husband in Delhi, but by her father-in-law, Shri Sewa Ram. According to the learned Departmental Representative the term "parent" could not be extended to mean or include "parent-in-law". On this ground alone, so ran the argument the assesseds claim for exemption of capital gains deserved to be rejected. It was also submitted that as per the certificate issued by the Estate Office, the Faridabad property was completed on 22-6-1983 which was beyond the period envisaged under section 54(1) of the Income-tax Act. The learned Departmental Representative emphasised that construction of the house property within a period of two years after the date of transfer meant completion of construction. According to him, this condition was also not fulfillled by the assessed in the instant case. His next contention was that the property constructed at Faridabad was not for the purpose of the assesseds own residence as the same was given on rent almost immediately after the house was certified as complete. He vehemently argued that the decision of the ITO deserved to be restored.

5. Shri C. S. Aggarwal, the learned counsel for the assessed, on the other hand, submitted that the house at Muzaffar Nagar was not a tenanted property, but was being used by the parents of the assessed. In this regard, he referred to a letter dated 28-8-1980 purported to have been written by Shri Sewa Ram to his son Shri Sheetal Prasad, the husband of the assessed, a copy of which appears at page 72 of the assesseds compilation. It was submitted that though the assessed was residing with her husband in Delhi in the two years immediately preceding the date or dates on which the transfer took place the assesseds father-in-law was staying at the premises. Referring to the provisions of section 54(1) as they then stood, it was submitted that parent would include parent-in-law as well and such provisions which gave benefit to the assessed should be construed liberally. As regards the period in which the property at Faridabad was constructed, it was submitted that the plot at Faridabad (bearing No. 1298 in Sector 15) was purchased for a sum of Rs. 56,000 on 12-7-1980. The plan of the house for construction was submitted on 21-11-1980 which was approved by the Haryana Urban Development Authority on 6-1-1981. The construction was started some time in January 1981 and was completed up to roof level up to 21-11-1981. It was pointed out that the assessed applied for the refund of security of Rs. 3,000 on 24-11-1981. One Shri Naresh Kumar Madan, Inspector, visited the site on 26-11-1981 and the amount of Rs. 3,000 which was deposited as security was refunded by the Estate Officer, Faridabad. A sum of Rs. 88,041 was spent on the construction of the building up to roof level as on 21-11-1981. Thus, the total expenditure made by the assessed including the cost of plot of Rs. 56,000 came to Rs. 1,44,041 as on 21-11-1981. A further amount of Rs. 60,500 was spent in finishing the house up to 15-3-1982 and an amount of Rs. 1,500 on constructing a boundary wall and fixing a gate. Thus, the total cost of construction as on 15-3-1982, according to the learned counsel, came to Rs. 2,06,000. It was submitted that the property in question had been sold in five sale deeds, the first sale deed being of 5-4-1980 and the last of 16-10-1980. Thus, the entire capital gains as computed by the ITO was utilised within two years of the sale on the construction of a new residential property at Faridabad and so the ITO was not correct in saying that the provisions with regard to the utilisation of capital gains were not complied with as envisaged by section 54(1) of the Income-tax Act. It was also pointed out that the new house at Faridabad was constructed for the purposes of the assesseds own residence and only a small portion of about 650 sq. ft. of area was rented out to NTPC in July 1983 and the major portion involving area of 1100 sq. ft. was with the assessed. It was vehemently argued that Mrs. Timmy Gujral, w/o Commander G. S. Gujral, stayed from September 1983 to January 1984 without paying any rent in the other portion of the house as her husband had joined the services of Bhutan Brooks Air Services at Calcutta. In this regard our attention was invited to the affidavit of Mrs. Timmy Gujral, a copy of which forms part of the assesseds compilation at page 73 therof. It was submitted that this portion was in the possession of the assessed, but Mrs. Gujral was allowed to stay for some time not as a tenant, but as a family friend. It was also submitted that the property at Faridabad was constructed with the intention of using it for the assesseds own residence. It was emphasised that the expression "for the purposes of his own residence" did not include the word user and the mere intention to have a house for ones own residence was enough to qualify for the benefit under section 54(1) of the Income-tax Act. Reliance was also placed on the decision of the Tribunal in the case of Damodar Raheja v. Eighth ITO [1984] 10 ITD 75 (Mad.) for the proposition that it is the object with which the purchase or construction is made that is relevant and not the actual subsequent user and even if subsequently the house property was let out the benefit could not be withdrawn.

6. We have carefully considered the rival submissions and perused the material placed before us. The relevant material provisions contained in section 54(1) of the Income-tax Act relevant to assessment year 1981-82 were as under :-

"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 land 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 assessed or a parent of his mainly for the purposes of his own or the parents own residence (hereafter in this section referred to as the original asset), and the assessed 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....."

From the above, it would be seen that for getting exemption under section 54(1) the following three main conditions required to be satisfied :-

(i) The house property which is transferred must have been used by the assessed or a parent of his mainly for the purposes of his own or the parents own residence.

(ii) The assessed must purchase within a period of one year before or after the date of transfer or within a period of two years after the date of transfer construct a house property.

(iii) The new house property purchased or constructed must be for the purposes of the assesseds own residence.

All the above conditions are cumulative and not alternative. Even if one of the conditions is not satisfied the assessed does not get exemption under section 54. As per the facts narrated in the order of the CIT (Appeals) and pointed out by the learned counsel for the assessed we are satisfied that the assessed had spent a sum of Rs. 2,06,000 up to 15-3-1982 which was more than the capital gains earned in this case. We are not impressed by the argument of the learned Departmental Representative that the house property must be completed in the sense that the competent authority must certify that the house in fact had been completed. It is enough if the house is habitable. From the details furnished before us it is clear that construction had been completed up to roof level as early as 21-11-1981 and thereafter finishing touches were also given and the boundary wall had been constructed and the gate fixed. All this was done within period of two years from the date (s) of the transfer of the Muzaffar Nagar property. We, therefore, hold that the assessed fulfillled the condition of having constructed a new house property within a period of two years after the date of transfer of the original property.

7. As regards the first condition, namely, that the house property must have been used for the purposes of assesseds own residence or the residence of assesseds parent, we are not impressed by the arguments of the learned counsel for the assessed, namely, that the word "parent" should include "parent-in-law" and that the provisions contained in section 54 should be constructed liberally. If the words of the statute are clear and admit of no ambiguity or doubt then the intention of the Legislature has to be gathered from the words used in the statute. This is a cardinal principle of interpretation. In this regard reference is made to the observations of the Supreme Court in the case of Smt. Tarulata Shyam v. CIT [1977] 108 ITR 345 at page 357 which are to the following effect :-

"To us, there appears no justification to depart from the normal rule of construction according to which the intention of the Legislature is primarily to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt, J. in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64(KB) at page 71, that :

.... in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.

Once it is shown that the case of the assessed comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be."

It has been held by the Kerala High Court in the case of CGT v. U. S. M. Fernandez [1989] 178 ITR 577 that "it is settled law that a person who claims exemption should establish it. A statutory provision affording exemption should be construed strictly".

Section 54(1) used the word parent and not parent-in-law. According to Websters 3rd New International Dictionary parent means one that begets or brings forth offspring; Father, Mother.

According to this Dictionary parent-in-law, means :

"(i) a lawful parent;

(ii) a person standing in loco parentis although not a natural parent;

(iii) ancestor."

Judicial Dictionary, 8th edition (1980) by K. J. Aiyer defines parent as "a father or mother".

According to the Random House Dictionary of the English language (the unabridged edition), parent means :

"(i) a father or a mother,

(ii) an ancestor, precursor or progenitor,

(iii) a protector or guardian."

This Dictionary defines parent-in-law as "the father or mother of ones wife or husband."

According to Chambers 20th Century Dictionary (new edition) parent means "one who begets or brings forth :

a father or a mother."

According to The Living Webster Encyclopedia Dictionary of the English language, parent is defined as "a father or mother, ancestor".

From the above it is clear that the word parent means "a father or mother", but does not include a father-in-law or mother-in-law.

The assesseds contention in the instant case was that though she was residing in Delhi with her husband, who was working there, the house property at Muzaffar Nagar which was the subject-matter of transfer was being used for the purposes of residence of the parents-in-law. Shri Sewa Ram, the father-in-law of the assessed had testified that he was staying at the Muzaffar Nagar property prior to its transfer. In our considered opinion the expression "parent" used in section 54(1) would not include "parent-in-law" and, therefore, the first requirement of the section has not been fulfillled by the assessed in this case and on this ground alone the assesseds case must be rejected.

8. Shri C. S. Aggarwal had argued at some length that the provisions relating to exemption should be construed liberally. In this regard we have already referred to the decision of the Supreme Court in the case of Smt. Tarulata Shyam (supra) and of Kerala High Court in the case of U. S. M. Fernandez (supra). We wish to refer to three other cases on section 54 itself. The section requires that the property which was the subject matter of transfer should be used by the assessed or his parent. The question for interpretation was whether the section was applicable to a Hindu undivided family, a firm and a cooperative society or not. It has been held that section 54 applies only to Individual natural persons and not to a Hindu undivided family [Shrigopal Rameshwardas v. Addl. CIT [1979] 119 ITR 980 (MP)] or a firm [K. I. Viswambharan & Bros. v. CIT [1973] 91 ITR 588 (Ker.) (FB)] or a co-operative society] South Kanara Central Co-operative Wholesale Stores v. CIT [1978] 114 ITR 298 (Kar.)]. All the three High Courts in the above decision interpreted the section on the basis of the language employed and did not construe liberally as was perhaps intended by the assesseds. In the instant case also the matter can be decided on the construction of the provision itself and there is no ambiguity about the expression parent used by the Legislature in section 54. We, therefore, hold that the assessed has not complied with the first requirement of section 54(1), namely, of user of the transferred house property by the assessed herself or by her parent.

9. The third condition, namely, that the new house property purchased or constructed should be for the purposes of the assesseds own residence has also not been satisfied. As per the certificate of the Estate Officer, the property at Faridabad was completed on 22-6-1983. The assessed at that time was residing with her husband at Delhi where he was working. According to the valuation report of the assesseds valuer, S. Gupta & Associates, dated 9-9-1983, a copy of which is placed a pages 2 to 8 of the assesseds compilation the actual covered areas of the house property at Faridabad was 1,965.47 sq. ft. Half the portion was rented to M/s. N. T. P. C. Ltd. The company was paying rent of Rs. 950 per month. Half portion, therefore, was rented to the aforesaid company in 1983 i.e. immediately after the receipt of the completion certificate. As per the assesseds own admission, Mrs. Timmy Gujral, stayed in a portion of the Faridabad property from September 1983 to January 1984. From this, one can infer that the object of the assessed in constructing a house property at Faridabad was not for the purposes of her own residence. The conduct of the assessed clearly shows that the property at Faridabad was intended for the purpose of letting out. It is also significant to mention that while the first limb of section 54(1) speaks of the transferred property being used by the assessed or a parent of his mainly for the purposes of his own or the parents own residence, no such expression has been used for the newly acquired house property which has to be for the purposes of the assesseds own residence. The intention of the assessed can be gathered from the subsequent conduct which clearly raises the inference that the intention of the assessed was to let out the property at Faridabad and it is with that object that it was constructed. The third condition has also not been satisfied in this case.

10. For the foregoing reasons, we hold that the assessed was not entitled to claim exemption under section 54 of the Income-tax Act and the capital gains as worked out by the Income-tax Officer was exigible in the hands of the assessed. We accordingly cancel the order of the Commissioner of Income-tax (Appeals) and restore that of the Income-tax Officer.

11. In the result, the appeal is allowed.