Capital gains exemption denied for sale of "residential" property found uninhabitable, not actually used as a house u/s54.

Exemption under s. 54 for capital gains on sale of a residential property was denied because the assessee's own admission that the property was "not worth occupying" established it was not inhabitable, and factual findings showed only a garage and servant quarters existed with no actual residential occupation (no servant/tenant stay or cooking). On this legal and factual basis, the Tribunal correctly held that the asset was not a residential house used for residence so as to attract s. 54, and the assessee was rightly assessable to capital gains for AY 1972-73; the reference was answered in favour of the Revenue.

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Issues involved:
The issue involves the rejection of the assessee's claim for exemption u/s 54 of the Income-tax Act, 1961, and the correctness of assessing the assessee on the capital gains for the assessment year 1972-73.

Judgment Details:

The assessee sold property E-64, Greater Kailash, New Delhi, for Rs. 2,50,000 in 1971, with a cost of Rs. 1,57,554. He purchased a plot at E-58, Greater Kailash, New Delhi, in January 1971 for Rs. 80,000 and claimed exemption for constructing a residence within two years. The construction cost was claimed at Rs. 1,10,000, with an additional Rs. 30,000 for construction. The Income-tax Officer rejected the claim due to lack of evidence of residential use, supported by the assessee's statement that the building was not habitable. The Appellate Assistant Commissioner and Tribunal upheld this decision, leading to the reference.

The Tribunal's consideration of servant quarters being constructed was challenged by the assessee, arguing that the property's use for residence was essential for exemption, regardless of status or total built area. The Revenue's counsel highlighted the assessee's statement on the building's inhabitable nature. The Court found the Tribunal failed to address the dispute's essence based on factual records. The assessee's admission of the property being uninhabitable, along with the construction being for garage and servant quarters, supported the denial of exemption. The absence of actual occupation or use for residence further justified the decision against the assessee.

The Court answered the question in favor of the Revenue, upholding the rejection of the assessee's exemption claim and affirming the assessment of capital gains. The reference was disposed of accordingly.

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