High Court: Continuous residential use required for u/s 54 benefits

The High Court of Madras ruled against the assessee in a case concerning the interpretation of u/s 54 of the Income Tax Act, 1961 for the assessment year 1966-67. The court held that continuous residential use of the property for the full two-year period preceding the sale was necessary to qualify for the benefits under u/s 54, despite acknowledging the potential harshness of this interpretation. The judgment clarified that any ambiguity in tax statutes should be resolved in favor of the revenue unless the language is unequivocal, directing each party to bear their own costs.

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Issues involved: Interpretation of u/s 54 of the Income Tax Act, 1961 for the assessment year 1966-67.

Summary:
The High Court of Madras considered the question of whether the assessee was entitled to the benefit u/s 54 of the Income Tax Act, 1961 for the assessment year 1966-67. The case revolved around the purchase and subsequent sale of a residential building by the assessee, which was used for residential purposes. The key contention was whether the continuous use of the house as a residential property for the entire two-year period preceding the sale was necessary to qualify for the benefits under u/s 54.

The court analyzed the language of u/s 54, particularly the phrase "two years immediately preceding the date of sale" and "was being used." It was argued by the assessee that the section did not explicitly require continuous residential use for the entire two-year period, but rather any use during that time frame should suffice. However, the court interpreted the language to indicate a past continuous use extending up to the date of transfer, thereby necessitating uninterrupted residential use for the full two years preceding the sale.

Despite acknowledging the potential harshness of the interpretation in this case, the court emphasized that it is the legislature's intent that must be followed, and any ambiguity in tax statutes should be resolved in favor of the revenue unless the language is unequivocal. Consequently, the court ruled in favor of the department and against the assessee, directing each party to bear their own costs.

In conclusion, the judgment clarified the interpretation of u/s 54 of the Income Tax Act, 1961, emphasizing the requirement of continuous residential use for the entire two-year period preceding the sale to avail of the benefits provided under the section.

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