JUDGMENT
Chandrashekhar, J.
1. At the instance of the assessee, the Income-tax Appellate Tribunal, Bangalore Bench (hereinafter referred to as “the Tribunal”) has, under sub-section (1) of section 256 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), referred to this court the following question of law :
“Whether on the facts and in the circumstances of the case, the assessee was entitled to exemption under section 54 of the Income-tax Act, 1961, on the long-term capital gains arising on the sale of her house property at Bombay ?”
2. The material facts relevant to the above question are briefly these : The assessee had purchased a flat in Bombay in the year 1962. She had leased it to her husband on a monthly rent of rupees seven hundred and was also living with him therein. In the year April 1, 1969, to March 31, 1970, (relevant to the assessment year 1970-71) she sold that flat for Rs. 80,000. About the same time, she purchased another flat in Bombay for Rs. 63,000. The Income-tax Officer determined the long-term capital gain arising out of the sale of the first flat as amounting to Rs. 49,000 and he brought that amount to tax after giving the basic exemption and 45% deduction.
3. The claim of the assessee for exemption from income-tax on the capital gain arises out of the sale of the first flat was under section 54 of the Act. The material portion of that section reads :
“54. Profit on sale of properly used fro 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 had within a period of one year before or after that date purchased, or has within a period of two years after that date constructed, 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 – ….”
4. It is clear from the above section that two conditions have to be satisfied by an assessee to claim exemption thereunder. Undoubtedly, the assessee satisfied the condition, that within a period of one year before or after the sale of the first flat another flat was purchased. The only other condition she had to satisfy to claim exemption under that section was that in the two years immediately preceding the date on which she sold the first flat, it was being used by her mainly for the purpose of her own residence.
5. The Income-tax Officer held that the latter condition was not satisfied by the assessee. But in the appeal preferred by her, the Appellate Assistant Commissioner of Income-tax held that she had satisfied that condition also and was entitled to the exemption under section 54 of the Act. In the further appeal preferred by the income-tax department, the Tribunal held that she did not satisfy that condition since she had let out the first flat to her husband and that hence it could not be said that it was used by her mainly for the purpose of her own residence, even though she was incidentally residing therein.
6. Mr. G. Sarangan, learned counsel for the assessee, contended that the view taken by the Tribunal was unsustainable because the assessee was using the flat mainly for her own residence in spite of her having leased it to her husband. Mr. Sarangan maintained that all the ingredients of that condition were satisfied inasmuch as the flat was used mainly for residential purpose and it was also used for the assessee’s own residence.
7. On two grounds we find it difficult to accept the contention that the flat sold by the assessee was being used by her mainly for the purpose of her own residence. As she had leased that flat, though to her own husband, the main purpose for which it was used was for letting out to earn rent and not for her own residence, though she happened to reside therein as a member of the tenant’s family. Secondly, that flat was being used mainly for the purpose of her husband’s own residence because it was he who was legally entitled to actual possession thereof, being the tenant thereof. The assessee had no legal right to possession of that flat and she could only reside there as a member of the family of the tenant, namely, her husband. When her husband had the legal right to be in possession and to the use of that flat, and her right to reside therein was only was a member of his family, how can it be said that the flat was being used mainly for the purpose of her own residence ?
8. On both the above grounds we agree with the view taken by the Tribunal and our answer to the question referred to us is in favour of the department and as follows :
“On the facts and in the circumstances of the case, the assessee was not entitled to exemption under section 54 of the Income-tax Act, 1961, on the long-term capital gains arising on the sale of her house property in Bombay.”
9. In the circumstances of the case, the parties are directed to bear their own costs in this reference.
