Section 54 residential exemption remains available despite partial letting out when the property is mainly used as the assessee's residence.

Section 54 relief is available where the transferred property was mainly used by the assessee for residential occupation during the relevant period. Partial letting out of a small portion does not, by itself, defeat the exemption if the major portion of the building was used as a residence. The Madras HC noted that prior authority supports this approach and accepted the finding that the property was principally used for the assessee's residence, so the exemption was correctly granted.

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Issues: Whether exemption under section 54 of the Income-tax Act, 1961 was available where the sold property had been mainly used by the assessee for residential purposes, although a part of it had been let out for rent.

Analysis: Section 54 grants relief where the transferred residential property has been used mainly for the assessee's or the assessee's parent's residence for the prescribed period. The property in question was occupied by the assessee for residence for the relevant period, while only a part had been let out earlier. Prior authority recognized that the benefit is not lost merely because a small portion of the building was rented out, so long as the major portion was used for residential occupation.

Conclusion: The Tribunal's finding that the property was mainly used for the assessee's residence was upheld, and the exemption under section 54 was correctly granted in favour of the assessee.

Final Conclusion: The reference was answered against the Revenue and the assessee's entitlement to relief under section 54 was affirmed.

Ratio Decidendi: For section 54 relief, partial letting out does not defeat the exemption if the property was mainly used for the assessee's residential occupation during the relevant period.

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