Ravindra Gunvantlal Shah and Yogesh Gunvantlal Shah vs Commissioner of Income Tax

G.T. Nanavati, J.—In both these references, the Income Tax Appellate Tribunal has referred an identical question to this court u/s 256(1) of the Income Tax Act, 1961. The question is as under :

"Whether, on the facts and in the circumstances of the case, the assessee is entitled to the benefit of section 54 of the Income Tax Act, 1961, in respect of investment made by it in the purchase of residential property out of the proceeds of the residential property belonging to it ?"

On a partial partition effected in 1974, of certain properties belonging to the bigger Hindu undivided family of Gunvantlal Jivanlal Shah, the assessees which are small Hindu undivided families and Jasudben got a house property. They sold away the said property for Rs. 13,50,000 by a sale deed registered on December 4, 1980. Out of the sale proceeds, the two assessees and also Jasudben invested Rs. 3 lakhs each by purchasing house properties for residence. Before the Income Tax Officer, both the assessees claimed that capital gains which arose out of sale of the self-occupied property was exempt u/s 54 of the Act. The Income Tax Officer negatived their claim on the ground that section 54 was applicable to individuals and not to a Hindu undivided family. The appeals filed before the Commissioner (Appeals) were dismissed as the Commissioner was also of the same view. The assessees, therefore, preferred appeals before the Tribunal. The Tribunal also agreed with the view that section 54 had no application as both the assessees were Hindu undivided families and not individuals and, therefore, dismissed the appeals. The assessees thereupon moved the Tribunal for referring the abovestated question to this court.

What is contended by learned counsel for the assessees is that though the Hindu undivided family is an assessable entity under the Income Tax Act, under the Hindu law or any other law, it is not a legal entity but is a collection of individuals in the garb of a family. It was further submitted that it cannot be contended that a family cannot have a residence. Residence of the members is the residence of the family. He also submitted that the beneficent extension in favour of parents was the object in using the words "or a parent of his" and "or the parent'' own residence" and, therefore, those word cannot be regarded as qualifying the word "assessee" and for construing the said word as an "individual". He submitted that the narrow interpretation put on the word "assessee" by the Tribunal is not justified and it should be held that "assessee" as used in section 54 also includes "Hindu undivided family".

The relevant part of section 54 as it stood then read 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 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 (hereafter in this section referred to as ''the original asset''), 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...."

A bare reading of the section is enough to show that its object was to relieve the rigour of taxation in respect of residential houses. The question which, however, arises for further consideration is which assessee was under the contemplation of the Legislature when it enacted the said provision. The question arises for the reason that the word "assessee" has a wide meaning as it includes not only an individual but also a Hindu undivided family a company, association persons or body of individuals, local authority and other artificial juridical persons not falling within the definition of categories enumerated. What is required to be considered is whether the word "assessee" in the context in which it was used in section 54 meant not only an individual but also a Hindu undivided family. The assessee who was contemplated by the Legislature for the purpose of section 54 was that assessee who was capable of using a building or land appurtenant thereto as his own residence. As pointed out by the Madhya Pradesh and Karnataka High Courts in Shrigopal Rameshwardas Vs. Addl. Commissioner of Income Tax, and Commissioner of Income Tax, Karnataka-II Vs. C. Chandrashekar, the word "residence" ordinarily means a place where a living person resides or a dwelling place, that is, where he ordinarily lives and sleeps. A Hindu undivided family cannot be said to be a living person. It was, however, contended by learned counsel for the assessees that even a Hindu undivided family can have a residence in the sense that it is a place where members of Hindu undivided family reside together. It is not possible to accept this contention for the reason that a Hindu undivided family under the Income Tax Act is a separate entity and has its own existence apart from its members. Therefore, for the purpose of section 54, we cannot equate a Hindu undivided family with the members of the Hindu undivided family. The words "mainly for the purpose of his own", in our opinion, clearly suggest that an individual was within the contemplation of the Legislature. We respectfully agree with the Madhya Pradesh and Karnataka High Courts that the words "his own" and "parent of his" indicate that section 54 was intended to be applied to individuals only and not to Hindu undivided families. The assessee contemplated by section 54 was that assessee who was capable of having a "parent". Obviously, a Hindu undivided family cannot have a parent.

Even the legislative history of section 54 supports the view that we are taking. The provision as it stood between April 1, 1983, and March 31, 1988, made it absolutely clear that the said provision was applicable to an individual only and not to a Hindu undivided family. When the Legislature wanted to confer the benefit on a Hindu undivided family it made a specific provision in that behalf with suitable changes in the phraseology employed in the section.

We, therefore, answer the question referred to us in both these references in the negative, that is, against the assessee and in favour of the Revenue. References are disposed of accordingly. No order as to costs in each of them.