Court Affirms Denial of Section 54 Relief: Continuous 2-Year Residence Rule Emphasized

The court upheld the Tribunal's decision, denying the assessee relief under section 54 of the Income-tax Act, 1961, as the property was not continuously used for own residence for two years before the transfer. The judgment emphasized the necessity of continuous two-year occupation for claiming exemption on capital gains from property sale under section 54, rejecting the argument that any period of occupation within two years sufficed. The court stressed strict compliance with statutory conditions for exemptions and relied on previous judicial interpretations to support its decision.

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Issues:
- Interpretation of section 54 of the Income-tax Act, 1961 regarding exemption for capital gains from the sale of property.
- Whether the property must be continuously used for own residence for two years preceding the transfer date to qualify for the exemption.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the applicability of section 54 for exemption of capital gains from the sale of a property. The assessee claimed exemption under section 54 for selling a property in which she had a share, as she had purchased a new residential accommodation within the specified period. However, the Income-tax Officer rejected the claim stating the property was not used by the assessee for her own residence for a continuous two-year period before the transfer date.

The Commissioner (Appeals) allowed the claim, stating that any period of occupation within two years sufficed for section 54, contrary to the Tribunal's decision. The Tribunal, following a Madras High Court decision, held that continuous two-year occupation was necessary. The High Court, referring to a previous judgment, reiterated that the property must be continuously used for own residence for two years before the transfer to qualify for the exemption under section 54. The court rejected the assessee's argument that any period of occupation within two years was sufficient, as per the clear statutory language and previous judicial interpretations.

In conclusion, the court upheld the Tribunal's decision, denying the assessee relief under section 54 due to the property not being used for own residence continuously for two years before the transfer. The judgment clarified that the expression "in the two years immediately preceding the date of transfer" required continuous occupation for two years. The court relied on previous decisions to support its interpretation, emphasizing the importance of strict compliance with the statutory conditions for claiming exemptions under the Income-tax Act, 1961.

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