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Issues: (i) Whether the sum in question was assessable under section 45 of the Income-tax Act, 1961 read with section 54 in the hands of the assessee. (ii) Whether exemption under section 54 could be claimed without proof of an unbroken or continuous period of two years' residence.
Issue (i): Whether the sum in question was assessable under section 45 of the Income-tax Act, 1961 read with section 54 in the hands of the assessee.
Analysis: The question turned on the availability of exemption under section 54, which depended on satisfaction of the statutory residence requirement for the residential house concerned. Since the assessee did not establish the requisite continuous residence, the capital gain could not be excluded from assessment on that basis.
Conclusion: The amount was assessable, and the finding in favour of the assessee was not sustainable.
Issue (ii): Whether exemption under section 54 could be claimed without proof of an unbroken or continuous period of two years' residence.
Analysis: The governing view of the Court was that residence for the purpose of section 54 must be proved for an unbroken or continuous period of two years. A contrary view of another High Court was not followed.
Conclusion: Continuous residence for two years was necessary, and the assessee's contention was rejected.
Final Conclusion: The questions referred were answered against the assessee and in favour of the Revenue, and the exemption claim under section 54 failed.
Ratio Decidendi: Exemption under section 54 requires proof of an unbroken or continuous period of two years' residence in the residential house.
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