Condition precedent for claiming exemption under section 54

We have carefully considered the rival submissions and perused the record. Marginal heading of section 54 of the Act, which is relevant in this context, refers to “profit on sale of property used for residence”. Main section speaks of transfer of a capital asset- being building or lands appurtenant thereto and being a residential house – the income of which is chargeable under the head income from house property. It is not the case of the assessee that the roofed structure built on the Banjara Hills land was either self-occupied or let out and there is nothing on record to suggest that it was intended to be used as residence. Considering the market value of the property, the so called “house” constructed on the property cannot be said to be for use of the assessee or for letting out as a residential house. Similarly, the assessee purchased tow plots for a total consideration of Rs. 68,27,300/- which contain small temporary structures covered with asbestos roofing in a corner of the plots. These plots also cannot be said to have been purchased to use the temporary structures as residential houses. Since the expression ‘residential house’ is not defined under the Income Tax Act, a purposive meaning has to be adopted to such expression instead of going by the technical meaning assigned under various enactments or the dictionary meaning given in the dictionary. It is appropriate herein to reproduce the observations of the Supreme Court, as extracted by the Author – Justice G. P.Singh, in the book ‘Principles of Statutory Interpretation’, Seventh Edition, at page 94. “ The words of a statute, when there is doubt about their meaning are to be understood in the sense in which they best harmonise with the subject of the enactment and the object which the Legislature has in view. Their meaning is found not so much in a strict grammatical or etymological propriety of language, nor even in its popular use, as in the subject or in the occasion on which they are used, and the object to be attained”. As could be noticed from the marginal heading, the original intention in inserting the provisions of section 54 of the Act and the amendments made from time to time to mitigate the unintended hardship by originally using the expression used by the “assessee or parent of his…” without changing the expression “used for residence” in the marginal heading and also by specifying the nature of building by use of the expression “being a residential house”, it has to be assumed that the intention of the legislature was to extend the benefit of exemption under section 54 of the Act only when the property sold as well as the property purchased by the assessee were intended to be used as residential houses, whereas the totality of circumstances clearly indicate that they were never intended to be used as residential houses either for self-occupation or for letting of. We are, therefore, of the view that the assessee is not entitled to exemption under section 54 of the Act on the sale value of the impugned property.