JUDGMENT
Mrs. Sujata Manohar, J.
1. This reference pertain to five assessees, whose cases have been decided by the Tribunal by a common judgment. The reference pertains to the assessment year 1973-74. The question which is referred to us under section 256(1) of the Income-tax Act, 1961, is as follows :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the benefit of section 54 of the Income-tax Act, were to be given to the assessee ?”
2. The five assessees along with the other person were the owners of a property knows as “Adville”. This property consisted of a bungalow with some vacant land appurtenant to it. This property was of the co-ownership of the assessees plus one other person. Two of the assessees had each a 1/6th share in the property and the other there assessees had a 1/9th share each. The sixth co-owner, who is not before us, held the remaining 1/3rd share. The entire property was in the actual occupation of six co-owners during the two years that preceded the assessment year 1973-74. The income from this property was also being regularly assessed to tax in their hands as income from house property.
3. On October 5, 1972, the assessees entered into an agreement for the sale of this entire property including the bungalow in which they were residing and also including the available F.S. I. in respect of their property for a consideration of Rs. 24 lakhs. Accordingly, a regular conveyance deed was executed by the six co-owners in favour of Messrs. Mahavir Enterprises on December 23, 1972. One of the terms of the sale deed was that the purchasers would convey back to the sellers only the residential building portion for a consideration of Rs. 7 lakhs.
4. After the sale deed of December 23, 1972, the assessees continued to reside in the residential bungalow, but as tenants. They paid a monthly rent of Rs. 300 to the purchasers.
5. On December 14, 1973, there was a second agreement between the vendors, i.e. assessees and the other co-owner and purchasers under which the earlier agreement to sell the building portion of the property to the six co-owners for Rs. 7 lakhs was gain agreed upon. On this date, i.e., December 14, 1973, the conveyance deed as also the agreement were lodged for registration. On December 19, 1973, the assessees paid by cheque a sum of Rs. 7 lakhs for the bungalow. Thereafter, the assessees remained in occupation of the bungalow as owners without any liability to pay rent.
6. By utilising the available F.S.I., purchasers have constructed a new building on the vacant land appurtenant to the bungalow. The flats, on construction, have been handed over to the respective buyers under the Maharashtra Ownership Flats Act. Although the facts are not very clear, it seems that there was an unavoidable delay in executing the conveyance in respect of the bungalow in favour of the assessees because the buyers of the property had by then not completed the construction of the flats on the open land and the ultimate conveyance could not be effected or completed until the flats were constructed and possession was handed over to the respective buyers in terms of the Maharashtra Ownership Flats Act. (This is set out in the order of the Appellate Assistant Commissioner which is annexed at annexure “B-III”).
7. In their respective assessments, the six co-owners claimed exemption in respect of the sum of Rs. 7 lakhs paid for obtaining back the house property under section 54 of the Income-tax Act, 1961. This was denied by the Income-tax Officer on the ground that the later purchase was of the same property which was sold by the assessees and hence it was not covered by section 54. However, the Appellate Assistant Commissioner held that, after the sale of the entire property by the assessee, the title to the property was transferred in favour of the purchasers. When a part of it was repurchased by the assessees, such a purchase would come within section 54 of the Income-tax Act, 1961. The decision of the Appellate Assistant Commissioner has been upheld by the Tribunal. Hence, the above question has been referred to us.
8. Dr. Balasubramanium has contended that, in the present case, there is no purchase of the house by the assessee because no conveyance has been executed in respect of the bungalow in favour of the assessee. In this connection, he relies upon a decision of the Supreme Court in the case of Alapati Venkataramiah v. CIT [1965] 57 ITR 185. In that case, the appellant who owned certain lands and buildings entered into an agreement to sell the same. This agreement was dated March 17, 1948. Appropriate entries were made in the books of account of the appellant as well as of the purchasers relating to the purchase price on March 20, 1948. The sale deed, however, was executed only on November 22, 1948, and the agreement was approved by the board of directors of the purchaser-company only on March 16, 1949, and by the shareholders of the company at the general meeting on April 10, 1949. The question was whether capital gains arose from the sale in the previous year ending March 31, 1948. The court held that before section 12B of the Indian Income-tax Act, 1922 (equivalent to section 54 of the present Act) could be attracted, there must be a sale deed which was executed and registered. Since the sale deed was not executed and registered till November 22, 1948, no sale took place during the previous year ending on March 31, 1948, and hence no capital gains arose in the relevant previous year. These is another judgment of the Supreme Court in the case of CIT v. Bhurangya Coal Co. [1958] 34 ITR 802, which is relied upon by the Department. This judgment also dealt with the date as to when a sale can be said to have taken place of the property giving rise to capital gains. Dr. Balasubramanium also relied upon a decision of the Karnataka High Court in the case of Smt. Vijayalakshmi v. CIT [1975] 100 ITR 648. We are not referring to this case since the facts of this case are not similar to our case.
9. We are here concerned not with the date when the sale took place, but with the interpretation of the second part of section 54 under which a benefit is given to the purchaser, i.e., the following part : “When the assessee has, within a period of one year before or after that date, purchased or has, within a period of two years after that date, constructed a house property for the purposes of his own residence”, then he gets certain benefits which are set out in section 54. On the question of what will constitute “purchase” to attract the benefit conferred by section 54, courts have taken a somewhat different view. Thus, the Supreme Court, in the case of CIT v. T. N. Aravinda Reddy [1979] 120 ITR 46, considered a case where the assessee had sold his own house incurring capital gains tax. There was common house belonging to the joint family. Each of his three brothers executed a release deed valuing his share in the common house at Rs. 30,000 in favour of the assessee towards the extra share which was agreed to be given to him on partition of joint family property. The question before the Supreme Court was whether this would amount to purchase of the house by the assessee attracting section 54(1). The Supreme Court held that the word “purchase” in section 54(1) had to be given its common meaning, viz., buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Each release in this case was a transfer of the releasor’s share for consideration to the release and the transferee-assessee “purchased” the share of each of his brothers and the assessee was, therefore, entitled to the relief under section 54(1).
10. Mr. Dwarkadas, learned counsel for the assessee, has also drawn our attention to a judgment of the Andhra Pradesh High Court in the case of CIT v. Mrs. Shahzada Begum [1988] 173 ITR 397, where the assessee who was the owner of property under self-occupation, sold the property for a consideration incurring capital gains. Thereafter, the assessee entered into an agreement for purchase of another property within the period prescribed under section 54(1) and also paid full consideration for it within the prescribed period. However, the sale deed of the property was registered beyond the prescribed period. The High Court negatived the contention that the date of purchase must be taken to be the date of registration of the document under which the second property was purchase. The court said that the expression “purchase” under section 54(1) connoted the domain and control over the property given into the assessee’s hands. It held that, apart from the payment of substantial purchase consideration, the assessee secured possession of the property within the prescribed period of one year. The delay in obtaining formal registration of the sale deed was immaterial and, therefore, the assessee was eligible for exemption under section 54(1).
11. In the present case also, the assessees have paid the full consideration amount and have obtained possession of the bungalow as owners within the prescribed period of one year. Prior to such payment, the assessees were in possession only as tenants and were paying rent. In these circumstances, in out view, the assessee must be considered as having purchased this property within the prescribed period of one year and, therefore, they become eligible for exemption under section 54(1).
12. It is, however, contended by Dr. Balasubramanium that this is not a genuine purchase by the assessees. According to him, the entire transaction must be looked at only as a conveyance by the assessees of the land and they must be considered as not having sold the bungalow at all. Hence, the question of relief under section 54(1) does not arise at all in the facts of the present case. We are unable to accept this contention. The conveyance which has been executed by all the co-owners is clearly a conveyance of the bungalow as well as the land appurtenant thereto. Such a conveyance appears to have been made in order to ensure the availability of the F.S.I. for construction on the remaining land. Undoubtedly, there is simultaneous agreement to reconvey only the bungalow to the original co-owners. But, after the conveyance was executed, the co-owners have clearly ceased to be the owners of the bungalow and have paid rent in respect of the bungalow to the purchasers. Thereafter, in addition to and apart from the original terms in the conveyance, there is also an independent agreement for purchase of this bungalow by the co-owners in respect of which they have paid by cheques an amount of Rs. 7 lakhs, after expiry of several months, although within the period of one year. The said transaction cannot, therefore, be considered as bogus or non est, and the arrangement for the repurchase of the bungalow cannot be ignored. We fail to see why section 54(1) is not attracted in a case where the seller decides to repurchase a part of the property which he had sold for the purpose of his residence.
13. It was also submitted by Dr. Balasubramanium that the land appurtenant to the bungalow which has been sold by the assessee should not be treated as land appurtenant to the bungalow and he cited in support a decision of the Madras High Court in the case of S. Radhakrishna v. CIT [1984] 145 ITR 170 and another decision of the Andhra Pradesh High Court in the case of CIT v. Zaibunnisa Begum [1985] 151 ITR 320. This point has not been raised before any of the Department authorities by the Revenue and it has never been the case of the Revenue that the land which was sold was not the land appurtenant to the bungalow. We also have no factual data before us in this connection since this aspect has not been urged at any time by the Department. We, therefore, cannot go into this question.
14. In the premises, the question which is referred to us is answered in the affirmative and in favour of the assessees.
15. The question is answered accordingly.
16. No order as to costs.