The term "assessee" in section 54 of the Income-tax Act, 1961, should be interpreted liberally to include the legal heirs of the deceased assessee.

K. AMARESHWARI, J.

( 1 ) THE following question is referred to us for our opinion under section 256 (i) of the Income-tax Act, 1961 :"whether, on the facts and in the circumstances of the case, the denial of exemption under section 54 of the Income-tax Act, 1961, by the Appellate Tribunal for the relevant assessment year 1976-77 is correct in law ?"

( 2 ) LATE Mir Gulam Ali Khan, during his lifetime, sold his residential house situated at Nallakunta in Hyderabad in December, 1975, for a sum of 2 lakhs. Immediately thereafter, he entered into an agreement for purchase of another house at Purani Haveli and paid an advance amount or Rs. 1,000. He died on 16/04/1976, soon after the payment of the earnest money. The transaction was subsequently completed by the legal representatives of the deceased and the house was purchased on 23/12/1976, i. e. , within one year from the date of sale of the original house. There is no dispute that the house sold was used for residential purpose and the house purchased was also for residential purpose. The question is whether the legal representatives were entitled to claim exemption under section 54 of the Income-tax Act. The Income-tax Officer negatived the claim on the ground that the assessee who sold the house is not the same as the person who purchased the house. The legal representatives carried the matter in appeal to the Appellate Assistant Commissioner who dismissed the appeal. He however, modified the quantum of the capital gains to Rs. 93,750 as against Rs. 1,01,250 included by the Income-tax Officer. On a further appeal by the legal representative to the Income-tax Tribunal, the views of the Income-tax Officer and the Appellate Assistant Commissioner were confirmed. In reaching this conclusion, the Tribunal relied upon decisions of the Karnataka High Court in Smt. Vijayalakshmi v. CIT [1975] 100 ITR 648 and the Gujarat High Court in CIT v. Tikyomal Jasanmal [1971] 82 ITR 95.

( 3 ) LEARNED counsel for the assessee, Mr. Ranganatham, contended that this is a case where exemption ought to have been allowed under section 54 of the Act. Section 54 of the Act is as follows :"54. Profit on sale of property used for residence - (1) Where, in the case of an assessee, being an individual, the capital gain arises from the transfer of a long-term capital asset to which the provisions of section 53 are not applicable, being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head Income from house property (hereafter in this section referred to as the original asset) and the assessee has within a period of one year before or after the date on which the transfer took place purchased, or has within a period of three years after that date constructed a residential house, 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 residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of capital gain and the cost of the new asset shall be charged under section 45 as the 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. Explanation.- For the purpose

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