The requirement in section 54 of the Income-tax Act, 1961, that the new property be purchased for the assessee's residence does not mean that it has to be exclusively used for that purpose.

JUDGMENT :

P.D. Desai, J.

In the year 1957, the assessee purchased a house property (hereinafter referred to as the " old property ") for a consideration of Rs. 5,850. At the time of its purchase, the old property consisted of a ground floor only. In the years 1958 and 1959, two more floors were constructed thereon by the assessee. The ground floor was then let out and the upper two floors were used by the assessee for the purposes of his own residence.

2. In Samvat year 2023, that is, in the year of account relevant to the assessment year 1968-69, the assessee sold the old property for a consideration of Rs. 27,011. In the same year, he purchased another house property (hereinafter referred to as the " new property ") for a consideration of Rs. 43,000 and spent a sum of Rs. 3,000 on repairs thereof. He then occupied a major portion of the new property but let out some portion thereof to a tenant.

3. In the course of proceedings for assessment to income-tax for the assessment year 1968-69, the assessee claimed before the Income-tax Officer that the profit arising to him on the sale of the old property was not chargeable to tax under the head " capital gains " under section 45 of the Income-tax Act, 1961 (hereinafter called " the Act "), since it was within the exempting provisions contained in section 54. The Income-tax Officer computed the cost of the old property (including the cost of improvement) in the hands of the assessee at Rs. 6,430 and on that basis held that the capital gain arising on sale of the said property was Rs. 20,581 (Rs. 27,011 minus Rs. 6,430 = Rs. 20,581). He negatived the claim for exemption primarily on the ground that the transaction was an adventure in the nature of trade and that profit arising therefrom was liable to be taxed as business profit. Accordingly, a sum of Rs. 20,581 was brought to tax in the hands of the assessee.

4. On appeal, the Appellate Assistant Commissioner recomputed the cost of the old property in the hands of the assessee at Rs. 13,850 (Rs. 5,850, being the cost of acquisition plus Rs. 8,000, being the cost of improvement made thereto = Rs. 13,850). He also found that a major portion of the old property was used for residence by the assessee since only the ground floor was let out and that, therefore, the old property could be said to have been used by the assessee mainly for the purposes of his own residence. So far as the new property was concerned, he found that its cost of acquisition was Rs. 46,000. He further found that a major portion, namely, nearly seventy-five per cent. of the total area thereof, was in the occupation of the assessee for the purposes of his own residence and only a portion thereof, namely, about twenty-five per cent. of the total area, was let out to a tenant. According to the Appellate Assistant Commissioner, the transaction in question was not an adventure in the nature of trade and the profit arising from the sale of the old property could not, therefore, be taxed as business profit. However, he negatived the assessee's claim for exemption on the ground that in order to claim the benefit of section 54 the assessee must show that the new property was purchased by him exclusively for the purposes of his own residence and that since that condition was not satisfied in the present case inasmuch as a portion of the said property was let out, the assessee was not entitled to claim exemption. Accordingly, the capital gain of Rs. 13,161 (Rs. 27,011 minus Rs. 13,850 = Rs. 13,161) was held chargeable to tax in the hands of the assessee under section 45.

5. On further appeal, the Income-tax Appellate Tribunal held that since section 54 nowhere used the word " exclusively " while dealing with the newly acquired property, it was not necessary for the assessee to show that the new property was purchased by him with the end in view of using it only for the purposes of his own residence and that having regard to the fact that nearly seventy-five per cent. of the total