Context-sensitive ownership test under section 54F denied exemption, but full disclosure defeated concealment penalty.

For section 54F, "owns" was interpreted in a context-sensitive and practical sense, so effective dominion, long possession and entitlement to use a residential flat were sufficient even without formal conveyance; the assessee was therefore treated as owning a residential house and the exemption on capital gains from sale of the plot was denied. On penalty, the claim was based on a debatable interpretation of "owns", "owner" and "owned", and all material facts were fully disclosed, so a mere wrong claim did not amount to concealment or furnishing inaccurate particulars; penalty under section 271(1)(c) was therefore not leviable and was deleted.

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Issues: (i) Whether the assessee was the owner of a residential flat, so as to attract the proviso to section 54F and deny exemption on capital gains arising from sale of the plot. (ii) Whether penalty under section 271(1)(c) was leviable for claiming exemption under section 54F.

Issue (i): Whether the assessee was the owner of a residential flat, so as to attract the proviso to section 54F and deny exemption on capital gains arising from sale of the plot.

Analysis: The flat had been allotted on hire purchase, the instalments had been paid, possession had been with the assessee for years, and no eviction proceedings under section 66 of the Maharashtra Housing and Area Development Act, 1976 had been taken. The expression "owns" in the proviso to section 54F was held to be context-dependent and not confined to formal conveyance. Applying the principle of dominion, possession, and entitlement to use the property in one's own right, the flat was treated as a residential house owned by the assessee for section 54F purposes. The deemed-ownership principles reflected in section 27 of the Income-tax Act, 1961 were treated as applicable in substance to the section 54F context.

Conclusion: The assessee was held to own a residential house on the relevant date, and the exemption under section 54F was denied.

Issue (ii): Whether penalty under section 271(1)(c) was leviable for claiming exemption under section 54F.

Analysis: The claim under section 54F turned on a debatable interpretation of "owns", "owner" and "owned". All material facts were disclosed, the capital gains were deposited in the specified scheme, and the claim was not found to be false or lacking bona fides merely because it failed on merits. A wrong claim, by itself, was held insufficient to justify penalty in the absence of concealment or furnishing of inaccurate particulars.

Conclusion: Penalty under section 271(1)(c) was held not leviable and was deleted.

Final Conclusion: The substantive tax relief claim failed, but the penalty imposed for that claim was set aside because the issue was debatable and the particulars were fully disclosed.

Ratio Decidendi: For section 54F, "owns" is to be understood in a context-sensitive and practical sense, covering effective dominion and possession of a residential house even without formal title; where the claim is based on a debatable legal interpretation and full particulars are disclosed, penalty for concealment is not attracted.

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