Section 54(1) residential-use requirement can be met by tenant occupancy before transfer, not only ownership.

Section 54(1) allows exemption where the original asset was used mainly for the assessee's own residence in the two years immediately preceding transfer, and that residential use need not be in the capacity of owner. Residence as a tenant also satisfies the statutory condition if the other requirements are met. On the stated facts, continuous occupation of the flat since 1972, first as tenant and later as owner, fulfilled the residential-use requirement, so the exemption was available.

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Issues: Whether exemption under section 54(1) of the Income-tax Act, 1961 is available where the assessee used the original house for residence for two years immediately preceding transfer partly as a tenant and partly as an owner.

Analysis: Section 54(1) requires that the original asset must have been used by the assessee mainly for the purposes of his own residence in the two years immediately preceding the transfer. The provision does not insist that such residence must be in the capacity of an owner. Residence as a tenant also satisfies the statutory condition if the other requirements are met. On the facts, the assessee had continuously resided in the flat since 1972, first as a tenant and thereafter as owner, so the residential use requirement stood fulfilled.

Conclusion: The assessee was entitled to exemption under section 54(1).

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