The requirement of constructing a house property for the assessee's own residence under section 54 of the Income-tax Act, 1961, means that the property must be used exclusively for that purpose.

JUDGMENT :

STATEMENT OF CASE

By this application, the Commissioner of Income-tax, Gujarat-I, Ahmedabad, requires the Appellate Tribunal to state a case on three questions, said to be questions of law arising out of the Tribunal's order dated March 4, 1968, passed in I.T.A. No. 1682 of 1967-68. Inasmuch as, in our opinion, questions of law do arise out of the Tribunal's order, we do hereby draw up a statement of the case and refer the same to the High Court of Gujarat at Ahmdeabad, under section 256(1) of the Income-tax Act, 1961.

2. The statement of the case relates to the assessment year 1963-64.

3. The assessee is an evacuee from Pakistan. He has been assessed to tax for the assessment year 1963-64 in the status of an individual. The assessee purchased a property for Rs. 6,825. It was acquired by him on allotment in settlement of his claim for compensation of his properties left in Pakistan. The said property which was acquired by him on the basis of allotment was solely occupied by him for the purpose of his residence. On June 26, 1962, the assessee sold the said property for a sum of Rs. 40,000, which resulted in a capital gain of Rs. 33,175. By the use of the sale proceeds of the said house, the assessee purchased a piece of land on July 30, 1962, and began construction of a house in August, 1962. By March, 1963, the construction of the entire ground floor was completed at a cost of Rs. 34,000. The floor area of the said ground floor was 1,389 sq. ft. Its cost of construction to the assessee was Rs. 34,000. The construction of the first floor was taken up by the assessee late in 1964 and the balance of Rs. 6,000 out of the sale proceeds of his former residence was utilised by bim for the said purpose. The built up area of the first floor was 132 sq. ft. An area of 734 sq. ft. on the ground floor was let out by the assessee to the tenants and the balance of the area of 655 sq. ft. on the ground floor was occupied by the assessee for his personal residence. The assessee's occupation of the said ground floor of the house started in February, 1963, and the letting out of the remaining portion of the ground floor was in March, 1963.

4. On those facts, the assessee claimed exemption from payment of tax in respect of the capital gain made by him on the ground that in the two years immediately preceding the date of sale, the said house had been used by the assessee for the purposes of his own residence and that the assessee within a period of two years after the date of sale had constructed a house property for the purposes of his own residence. The Income-tax Officer rejected the assessee's claim, broadly, on two grounds : (1) the new property was not exclusively used by the assessee for his residence, and (2) the construction had not been completed but had gone beyond the period of two years from the date of sale of the property. On appeal, the Appellate Assistant Commissioner justified the Income-tax Officer's action, refusing to admit the assessee's claim of exemption. Copies of the assessment order and of the Appellate Assistant Commissioner's order form parts of the statement of the case as annexures " A " and "B".

5. Aggrieved by the order of the Appellate Assistant Commissioner, rejecting the above claim for exemption, the assessee filed an appeal to the Tribunal. Before the Appellate Tribunal, the assessee repeated his claim.

6. For the purposes of ready reference, the relevant portion of section 54 of the Income-tax Act, 1961, is reproduced below :

"54. Where a capital gain arises from the transfer of a capital asset .... 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 .... mainly for the purposes of his own .... residence, and the assessee has .... within a period of two years after that date constructed, a house property for the pur