JUDGMENT
Dr. B.P. Saraf, J.
1. By this reference under section 256(1) of the Income-tax Act, 961, made at the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the conditions of section 54 of the Act were fulfilled although the assessee used the flat only for sixty-two days in the two years immediately preceding the transfer ?”
2. This reference pertains to the assessment year 1973-74, the corresponding previous year being the financial year ending March 31, 1973. The assessee is an individual. He had held a one-half share in a flat at Usha Kiran Building, Bombay. The said flat was sold during the relevant previous year for a sum of Rs. 4,50,000. The assessee’s share, being 50 per cent. of the total consideration, worked out to Rs. 2,25,000. His contribution to the total cost of acquisition was Rs. 1,38,396. His share of long-term capital gains from the sale of the above flat worked out to Rs. 35,182. The assessee claimed exemption in respect of the entire amount of a capital gain arising from the sale of the said flat on the ground that the flat in question had been used as a residential unit for two years immediately preceding the date on which the transfer took place and within a period of one year from the date of sale, he had purchased a flat at Delhi for the purpose of his own residence, and hence, section 54 of the Act was applicable. The above claim of the assessee was rejected by the Income-tax Officer on the ground that section 54 of the Act was not applicable to the case of the assessee, because, within the two years immediately preceding the date of transfer, it was not being used by the assessee or his parents mainly for the purpose of his own or his parent’s residence. It was observed that the that in question was let out to the Deputy British High Commissioner up to February 17, 1971, and thereafter it was lying vacant for a period of eleven months. The Income-tax Officer, therefore, held that it was not being used by the assessee or his parents for the purpose of own residence in the two years preceding the date on which the transfer took place as required under section 54 of the Act. An appeal against the above order of the Income-tax Officer was rejected by the Appellate Assistant Commissioner of Income-tax, who observed that the claim of the assessee in regard to the user and occupation of the flat, in the two years immediately preceding the date on which the transfer took place, was not correct. The assessee went in further appeal to the Income-tax Appellate Tribunal (“the Tribunal”). The Tribunal also found that the assessee was in occupation of the flat in question only for a period of 62 days during the two years immediately preceding the date on which the transfer took place. Despite that, it held that the occupation or user of the property for the purpose of residence even for 62 days during the period of two years immediately preceding the date on which the transfer took place, fulfilled the requirement of section 54 of the Act inasmuch as, in its opinion, for the purpose of availing of the benefit of section 54 of the Act, it was not necessary that the property should have been so used by the assessee or his parent throughout the period of two years prior to the date of transfer. Accordingly, the Tribunal allowed the appeal of the assessee, set aside the order of the Income-tax Officer and the Appellate Assistant Commissioner, and held that the assessee was entitled to the benefit of section 54 of the Act. Hence, this reference at the instance of the Revenue.
3. Learned counsel for the assessee, Mr. S. J. Mehta, fairly stated before us that there is no dispute in this case about the fact that during the two years preceding the date of transfer, i.e., from February 4, 1970, to February 4, 1972, the flat in question was let out to the Deputy British High Commissioner, who was in occupation thereof up to February 8, 1971, and thereafter, it remained vacant for over ten months. Despite all that, according to him, the that in question should be deemed to have been kept for use of the assessee for two years in view of the fact that it was let out for getting some income for the purpose of maintaining the same. According to counsel for the assessee, the user of the flat by him even for 62 days in the preceding two years amounted to sufficient compliance with the requirements of section 54 of the Act. Reliance was placed in support of this contention on certain observations in a recent decision of this court in CIT v. Indulal C. Kamdar [1995] 214 ITR 143 (Bom). On the other hand the submission of learned counsel for the Revenue Mr. G. S. Jetley, is that to fall within the purview of section 54 of the Act and to get the benefit thereof, the house or the flat should have been used in the two years immediately preceding the date of transfer for the use of the assessee or his parents’ own residence. It is a condition precedent and only on its fulfilment, the benefit of section 54 can be claimed. Mr. Jetly also relies on the same decision of this court in CIT v. Indulal C. Kamdar [1995] 214 ITR 143 on which reliance has been placed by the assessee and submits that the ratio of the said decision fully supports his contention. According to him, reference to certain observations from decisions out of context by the assessee and reliance placed on them is improper and misplaced.
4. We have given our careful consideration to the rival submissions in the light of the facts of the present case. We have also perused the decision of this court in CIT v. Indulal C. Kamdar [1995] 214 ITR 143 On a careful consideration of the same, we find it extremely difficult to agree with the construction sought to be put on section 54 by counsel for the assessee and the submission purportedly made on the basis of the above decision that even in a case like the one before us where admittedly the flat was in occupation of the tenant for over one year in the two years immediately preceding the sale, benefit of section 54 of the Act would be available.
5. Section 54 of the Act, as it stood at the material time, reads :
“54. Profit on sale of property used for residence. – Where a capital gain arises from the transfer of a capital asset to which the provisions of section 53 are not applicable, being buildings or lands appurtenant thereto the income of which is chargeable under the head ‘Income from house property’, which in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his mainly for the purposes of his own or the parent’s own residence, and 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, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say, –
(i) if the amount of the capital gain is greater than the cost of the new asset, the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil : or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.”
6. A bare reading of the above section makes it clear that the “use of the house in the two years immediately preceding the date of transfer by the assessee or a parent of his for the purpose of his own or his parents’ own residence” is a condition precedent for applicability of this section. The expression “in the two years” cannot be construed to mean “at any time within the two years”, meaning thereby “during the entire period of two years” and it has to be read and understood accordingly. It has been rightly held by this court in CIT v. Indulal C. Kamdar [1995] 214 ITR 143 that the benefit of section 54 of the Act cannot be availed of by the assessee merely because he had used the property “at any time” within the period of two years immediately preceding the transfer of the asset. It was observed that if such an interpretation is upheld, the very purpose of using the expression “in the two years immediately preceding the date of transfer” and the object of the section would be defeated. It was further held that merely because the expression is “in the two years” and not “for the two years”, it cannot be interpreted so as to nullify the effect of the key words used therein. The reference in the above decision by the court to situations where non-user of a house kept exclusively or mainly for the assessee’s own residence might not disentitle him from availing of the benefit of section 54 of the Act, such as absence from the place for a certain period during the two years immediately preceding the date of transfer, cannot be read out of context. The ratio of the decision in Indulal’s ease [1995] 214 ITR 143 (Bom) is clear : The house property in question must be used by the assessee by himself as his own residence or by a parent of his as own residence in the two years immediately preceding the date of transfer. If it is so used, temporary non-user of the house due to absence from the place or for any other such reason would not disentitle the assessee from availing of the benefit of the said section. In other words, if a house is found to have been used by the assessee for his own or his parents’ residence, he will be entitled to the benefit of section 54 despite his absence from the place or non-user of the same in extraordinary circumstances. That, in our opinion, is the ratio of the decision in CIT v. Indulal [1995] 214 ITR 143 (Bom).
7. We do not find anything in the above judgment to support the contention of the assessee that even in a case like the one before us, where during the period of two years immediately preceding the date of transfer for one year, it was used by the Deputy British High Commissioner, who was in occupation thereof as a tenant, and thereafter was lying vacant for ten months without any user thereof and was used by the assessee only for 62 days, the requirement of section 54 can be said to have been fulfilled. The submission of the assessee, in our opinion, is based on an erroneous reading of the said judgment. It is well-settled that the ratio of a decision alone is binding, because a case is only an authority for what it actually decides and not what may come to follow from some observations which find place therein. The ratio of the decision has to be distinguished from propositions assumed by the court to be correct for the purpose of disposing of the particular case, because it is the ratio and not the propositions which are relevant and binding. It is, therefore, not proper to regard every word, clause or sentence occurring in a judgment of the court as containing a full exposition of the law. Judgments of the courts should not be construed as statutes. They must be read as a whole and observations made therein should be considered in the light of the facts and circumstances of that case and the questions before the court. A decision of the court takes its colour from the questions involved in the case in which it is rendered. The legal position in this regard has been summed up in a recent decision of the Supreme Court in CIT v. Sun Engineering Work P. Ltd. [1992] 198 ITR 297 in the following words (at page 320) :
“It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by this court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this court, to support their reasonings.”
8. We, now, revert to section 54 of the Act. As stated before, one of the conditions precedent for the availability of the benefit of this section is the user of the property in the manner set out therein in the two years immediately preceding the transfer. The material expression used in the section is :
“which in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his mainly for the purposes of his own or the parent’s own residence.”
The crux of the above requirement is “user by the assessee as his own residence” which also includes user by his parent but for the same purpose. Such user should be “in the two years immediately preceding the date of transfer”.
9. The language of the above expression is plain and clear. We do not find any ambiguity in it. It is not open to diverse meanings. It is not permissible in such a situation to invent fancied ambiguities to attribute to it a meaning which is neither borne out by its clear language nor appears to have been contemplated by the Legislature. This expression, therefore, has to be construed in the context of the provisions of section 54 and in the light of the scheme and purport thereof.
10. On a reading of the above expression in the light of the above principles, it is clear that user of the property by the assessee for his residence must be for a continuous period of two years immediately preceding the date of transfer. It cannot be construed to mean “at any time during the period of two years”. Such a construction is not borne out from the language of the above expression and the context in which it appears in section 54.
11. We are supported in our above conclusion by the decision of the Madras High Court in M. Viswanathan CIT [1979] 117 ITR 244, where, it was held that the expression” two years immediately preceding the date of transfer” connotes continuous user which extends up to the date of transfer. Following the above decision, it was held by the Madras High Court in CIT v. R. Mala [1982] 135 ITR 302 that, for obtaining the benef it of section 54, the assessee must have been in the occupation of the building for a continuous period of two years before the sale.
12. It may also be expedient in this connection to refer to the decision of the Madras High Court in CIT v. K. N. Srinivasan [1987] 163 ITR 320. In this case also, the question for consideration before the court was whether the assessee can claim exemption under section 54 of the Act in respect of a residential house even though the house in question had not been used by the assessee or his parents for an unbroken or continuous period of two years as residence. The court followed its earlier decision in M. Vishanathan v. CIT [1979] 117 ITR 244 and CIT v. R. Mala [1982] 135 ITR 302 and answered the question in the negative.
13. In the above case, the court also noticed the decision of a single judge of the Delhi High Court in S. Harnam Singh Suri v. CBDT [1984] 143 ITR 159, where a different view has been taken. It, however, did not accept the same.
14. We have perused the decision of the Delhi High Court in S. Harnam Singh Suri. v. CBDT [1984] 145 ITR 159, where disagreeing with the decisions of the Madras High Court, it has been held that : (i) the word “in” can never mean continuously “for not less than”; and (ii) that it means that the assessee should have used the building for residence within the preceding two years; and (iii) that there is no requirement of use for a minimum of two years. We find it extremely difficult to accept the above propositions which, in our opinion; are not borne out from the language of section 54 of the Act. With due respect, we express our inability to agree with the above decision. For the same reason, we are also unable to agree with the decision of the Karnataka High Court in M. Abdul Sattar v. CIT [1987] 163 ITR 642 to the effect that the term “in the two years immediately preceding the date of transfer” can only mean “at any time within two years”.
15. Before we conclude, two other aspects of the controversy deserve consideration. One, the true meaning of the word “was being used”; two, the meaning, intent and purpose of the expression “mainly for the purposes of his own or the parent’s own residence”. So far as the word “used” is concerned, bereft of qualifying words, the expression means “used for the purpose of residence”. Its true meaning has to be ascertained from the context in which it appears. So construed, it would mean that it is used for residence and for no other purpose. If it is so used, it will satisfy the above requirement. It is not necessary to further establish that the assessee physically resided therein continuously during that period. Addition of any such restrictions would amount to substitution of the expression “used by the assessee for the purpose of his own residence” by the expression “resides there” – which is not permissible. Hence, evidence of actual stay of the assessee in the property is not necessary, once it is established that it was used for the purpose of his own residence. It would, however, cease to be “used for the purpose of his residence”, if it is let out or used for a non-residential purpose.
16. In the instant case, for one year during the material period, the property was in the occupation of the Deputy British High Commissioner to whom it had been let out. It cannot, therefore, be said that it had been used during the specified period by the assessee for his own residence.
17. So far as the implication of the use of the word “mainly” is concerned, it appears that it qualifies the word “own” used with reference to the purpose of user. It has been used in contradistinction to “wholly” or “exclusively” to clarify that the requirements of section 54 would be satisfied if the house is used “mainly” for the purpose of the residence of the assessee or his parent. It is intended to nip in the bud any possible argument that user of the house by the assessee for his own residence would mean user by the assessee to the exclusion of all other members of his family, friends or guests and to make it clear that the requirement would be satisfied if it is “mainly” used by the owner for his own residence.
18. In view of the above, we are of the opinion that the Tribunal was not right in holding that the condition of section 54 of the Income-tax Act, 1961, was fulfilled despite the user of the flat by the assessee only for a period of 62 days in the two years immediately preceding the date of transfer. We, therefore, answer the question referred to us in the negative and in favour of the Revenue.
19. In the facts and circumstances of the case, we make no order as to costs.