The main legal point established in the judgment is that the exemption under section 54(1) of the Income Tax Act, 1961, is available only to individuals who are assesses and not to other taxable entities such as HUF.

Mohammad Sharif J.--The following question has been referred for the opinion of this court under s. 256(1) of the I.T. Act, 1961 ("the Act" called shortly).

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the exemption of capital gain contemplated by section 54(1) of the Income Tax Act, 1961, is available to an HUF also ?"

2. The facts behind the legal formulation are as follows :

3. The assesses-HUF had an old house. That house was sold and a new house was constructed within two years thereof. The assesses claimed exemption of capital gains amounting to Rs. 11,250 under s. 54(1) of the Act. The ITO found that the house which was sold was not used by the assesses or his parents for residence, but it was let out. He accordingly did not allow exemption under s. 54(1) of the Act. The assesses appealed to the AAC. It was urged in that appeal that the house which was sold was under the self-occupation of the assesses and not let out to any third person. The appellate authority accepted that contention and directed the ITO to grant exemption under s. 54(1) of the Act. The revenue appealed to the Tribunal challenging the order of the AAC. The Tribunal dismissed the appeal. It has, however, referred the aforesaid question for the opinion of this court.

4. We do not think that the question debated before us needs any elaborate consideration. The scope of s. 54(1) has been considered by this court in South Kanara Central Co-operative Wholesale Stores Vs. Commissioner of Income Tax, Karnataka-I, ILR (1978) KAR 1673. The question which arose in that case was as to whether the exemption provided under s. 54 is available to an assesses which was a co-operative society. In dealing with that question, this court observed at page 301 :

"Section 54, by its very terms, speaks of a residence of an individual or his parent. The expression 'parent' can only be understood in relation to a human being and not in the case of an artificial person or society. Section 45 is the main section under which a person is made liable for capital gains, save as otherwise provided in section 54 and certain other sections. Therefore, a person claiming benefit under section 54 must first establish that he comes under the category of person entitled to that benefit and further that he satisfies the other conditions specified therein. The object of section 54 also appears to be only to relieve the rigour of taxation in respect of residential houses occupied by individuals. The assesses which is a co-operative society cannot claim the status of an individual so as to claim the benefit under section 54."

5. It is seem from the above observations that the words used in s. 54 "being used by the assesses or a parent of his mainly for the purpose of his own or the parent's own residence" must relate to the residence of an individual or his parents. The reference to the word "parent" must necessarily relate to the assesses who is an individual and not a statutory person or a juridical person.

6. Mr. Sarangan for the assesses does not, and indeed could not, dispute the above proposition. He, however, submitted that the HUF, which is an assesses in the instant case, was the owner of the house in question and the HUF was in occupation of that house like any other individual. The concept of an HUF under the I.T. Act is not quite different from the concept of an HUF under the Hindu law and, indeed, both carry the same meaning. Under the Hindu law, it is not the HUF, which is the owner of the joint family property, but the members thereof. That even if we construe the assesses as an individual, then the group of individuals like the HUF, can take the benefit of s. 54(1). So ran the contentions of Mr. Sarangan.

7. The above analysis of the learned counsel appears to be attractive at the first sight, but difficult to sustain upon close scrutiny. Under the Act, for the purpose of assessment, an HUF, is a taxable en