The commencement of construction of a new house before the sale of the old house does not disentitle the assessee from claiming exemption under Section 54 of the Income-tax Act, 1961.

(1.) ON the application of the Revenue made under Section 256(1) of the Income-tax Act, 1961 (briefly, "the Act"), the Appellate Tribunal referred the following questions for the opinion of this court :

"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the assessee had complied with the requirements of Section 54 of the Income-tax Act, 1961, in respect of the construction of the house at 54, Surya Nagar, Agra, and that he was entitled to exemption out of the capital gain from the sale of the house at Golf Link to the extent of the cost of construction of the house at 64, Surya Nagar, Agra ?

2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that for availing of the benefits under Section 54 of the Income-tax Act, 1961, it is not necessary that the construction of the new house should begin after the sale of the old house ?

3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that for availing of the benefits under Section 54 of the Income-tax Act, 1961, it is not necessary that the sale proceeds of the old residential house must be used in the construction of the new residential house ?"

(2.) THE facts are that the assessee and his brother owned a residential house at Golf Link in moiety. THE said property was sold on July 10, 1963, for a sum of Rs. 4,11,000. THE Income-tax Officer computed the capital gains from the sale of one-half share of the assessee at Rs. 1,28,477 after allowing the initial exemption of Rs. 5,000.

The assessee pleaded before the Income-tax Officer that capital gains to the extent of being invested in the construction of a new house at Safdarjang Enclave, New Delhi was not taxable under Section 54 of the Act. Whereas the Income-tax Officer accepted the contention that the Golf Link house had been used for the purpose of residence for more than two years before the sale, he rejected the contention of the assessee that the Safdarjang Enclave, New Delhi house, had been completed by the assessee within a period of two years from the date of sale of the Golf Link house. The Income-tax Officer was, therefore, of the view that Section 54 was not applicable.

(3.) IN the alternative, the assessee pleaded before the Income-tax Officer that he started the construction of another residential house at 64, Surya Nagar, Agra, on March 10, 1963, and that came to be completed within two years of the sale of the Golf Link house and that the capital gains to the extent of being invested in the construction of the Surya Nagar house was not taxable under Section 54 of the Act. The Income-tax Officer, however, took the view that the assessee had started construction of this house prior to the sale of the Golf Link house. He, therefore, rejected the alternative contention too of the assessee.

(4.) ON appeal, the Appellate Assistant Commissioner had agreed with the Income-tax Officer.

On further appeal, the Appellate Tribunal reproducing Section 54 in its order found as follows :

"A perusal of the above provision will show that it does not lay down that the construction of any house must be begun after the sale of the old residential house and that the sale proceeds of the old residential house must be used for the construction of the new residential house. We are, therefore, of the opinion that the assessee complied with the requirement of Section 54 in respect of the construction of the house at 64, Surya Nagar, Agra, and that he is entitled to the exemption out of the capital gains from the sale of the house at Golf Link to the extent of the cost of construction of the house at 64, Surya Nagar, Agra. We, therefore, direct the Income-tax Officer to modify the assessment accordingly."

(5.) THE question for consideration is whether exemption on capital gains could be refused to the assessee sim