1. The petitioner is in service of Bank of Baroda. He purchased a flat in Suvamadeep Co-operative Housing Society Limited (for short ‘Suvamadeep’), Santacruz, Bombay on 21st March, 1973 for a sum of Rs. 49,140/- for the purpose of his residence. He was residing in the flat. On 24th October, 1979, he sold the said flat for Rs. 1,25,000/- and on the same date purchased another flat in Jai Priyadarshini Co-operative Housing Society Limited at Khar, Bombay (for short ‘Priyadarshini’) for a sum of Rs. 1,11,000/-. He resided in the Khar flat from 24th October, 1979 to 25th July, 1980. On 26th July, 1980, he sold the Khar flat also for a sum of Rs. 1,20,000/- and purchased another flat on the same date in Kalpana Co-operative Housing Society Limited (for short ‘Kalpana’), Santacruz, Bombay for Rs. 1,20,000/-. Thereafter he started residing in this flat. He vacated the flat on 16th May, 1981 on being transferred to Baroda. From 27th May, 1981 to 1st July, 1983, the flat in Kalpana is let out to Bank of Baroda, his employers.
2. For assessment year 1980-1981, the petitioner claimed that surplus of Rs. 75,860/- arising on the sale of his flat in Suvamadeep on 24th October, 1979 was not taxable as he had invested more than the said amount in the purchase of flat in Kalpana on 26th July, 1980 for residence. The Income-tax Officer (for short ‘I.T.O’), partly accepted the claim, and held that the surplus was invested in the purchase of a flat in Priyadarshini, Khar on 24th October, 1979 and not in the purchase of flat in Kalpana, Santacruz on 26th July, 1980 as claimed. The petitioner filed a revision petition under section 264 of the Income-tax Act, 1961 which was rejected by the Commissioner of Income-tax vide order dated 5th February, 1985. It is pertinent to mention that two issues, viz., (i) whether the petitioner had a choice to choose the property against which the capital gains which had arisen on the transfer of a capital asset are to be adjusted; and (ii) whether the property purchased but not actually used for residence for three years fulfils the requirement of section 54(1) of the Income-tax Act, 1961, were raised before’ the Commissioner. While accepting the contention that the petitioner had choice and could claim relief under section 54 against the purchase of flat on 26th July, 1980 even though he had purchased a flat on 24th October, 1979 in the meantime, the Commissioner held that flat having not been occupied by the petitioner for his residence for three years, he was not entitled to relief under section 54 against the purchase of that flat. For assessment year 1981-1982, following his order for earlier assessment year, the I.T.O held that the Khar flat purchased by the petitioner on 24th October, 1979 was sold on 26th July, 1980, i.e, within a year. Therefore, the surplus was chargeable to short term capital gains. For this very reason, he also held that to the extent the petitioner had availed of relief under section 54 against the purchase of this flat on 24th October, 1979, the cost of the flat was required to be reduced. Accordingly he computed the short term capital gains for the year at Rs. 82,860. The petitioner's appeal thereagainst failed. According to the Commissioner of Income-tax (Appeals), the petitioner had no option or choice. Relief under section 54 was or could be available only against the purchase of the first property for residence after the sale of the residential house capital gains arising on the transfer of which were sought to be adjusted.
3. The petition was admitted on 30th August, 1985 when interim relief in terms of prayer (g) was also granted. It is proposed to dispose of the preliminary objection first. It was contended by Dr. Balasubramanian for the Revenue that the Income-tax Act provides a complete machinery for assessment of tax, imposition of penalty and for granting relief in respect of any improper order passed by the income-tax authorities. A person aggrieved by an order of the I.T.O had, thus, adequate remedies available to him by way of appeal to the Commissioner (Appeals) and the Tribunal. Jurisdiction of this Court under Article 226 of the Constitution is an extraordinary jurisdiction. The petitioner can invoke this jurisdiction only when there is no alternative and effective remedy. It is not established that the petitioner had in this case no alternative and/or effective remedy. Fairly admitting that the order passed by the Commissioner under section 264 of the Income-tax Act in revision was not appealable. Dr. Balasubramanian stated that it was due to a conscious provision made by the legislature in this behalf. The petitioner had chosen not to go in appeal and to avail of a remedy which was available. In any event, that fact by itself would not entitle the petitioner to invoke the writ jurisdiction of this Court as a matter of course. The contentions were repelled by Shri Sonde, the learned counsel for the petitioner. It was pointed out that though extraordinary, the jurisdiction under Article 226 was discretionary. When the petition has already been entertained, it may not be proper or legal for the same Court to consider the question of entertaining it once again at the time of final hearing.
4. In my judgment, the petition having already been entertained and the jurisdiction being, though extraordinary, discretionary, I will prefer to dispose of the petition on merits. This was also the view taken by this Court (Goa Bench) in Writ Petition No. 174.B/1981 decided on 2nd August, 1984.
5. In order to appreciate the rival contentions on merits of the petition, it is desirable to refer to the provisions of section 54 of the Income-tax Act as they were during the relevant period. Section 54 is reproduced hereunder:
“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. Evidently relief is not available under the section in respect of capital gains arising on the transfer of any and every capital asset. Relief is available only if the capital asset is such that its income is chargeable under the head income from house property and which in the two years immediately preceding the transfer was being used by the assessee or a parent of his for the purpose of his own or the parent's own residence. There is no dispute that this condition is satisfied in the present case as the flat in Suvamadeep was used by the petitioner from 1973 to 1979 for his own residence and income from it, if any, would have been chargeable under the head ‘income from house property’. The second condition for availing of the relief is that the assessee must within a period of one year before or after the date of transfer of such a capital asset puchase or within a period of two years after that date construct a house property for his own residence. In this case both the house properties, i.e the flat in Priyadarshini and the flat in Kalpana, were purchased by the petitioner within one year of the date of the sale of the flat in Suvamadeep and both the flats were purchased for the purpose of residence. In the absence of any provision to the contrary, in my judgment, the petitioner is entitled to avail of the relief in respect of the capital gain arising on the sale of his flat in 1979 against the flat purchased in that year as also against the flat purchased on 26th July, 1980. It has, of course, to be adjusted against one of the flats only. The petitioner has chosen to seek that relief against the purchase of the flat on 26th July, 1980 and as held by the Commissioner in his order under section 264 of the Income-tax Act for assessment year 1980-1981, I am inclined to hold that it is for the petitioner to claim relief under this section against the purchase of any one of the flats provided that other conditions mentioned in the section are satisfied. There being no dispute that the flat purchased by the petitioner in Kalpana on 26th July, 1980 satisfies the conditions laid down in section 54, i.e, it was purchased within one year of the sale of the Suvarnadeep flat and for the purpose of his own residence, the petitioner is entitled to seek adjustment of capital gains against the purchase of this flat.
7. However, Clause (i) provides that if the new asset for the purchase of which the assessee sought relief of capital gains under section 54 is sold within a period of three years of its purchase or construction, the cost of the new asset will be required to be reduced to the extent of relief availed of on account of capital gains earned but adjusted. It is for this reason that it has become important to consider whether the new asset, i.e, the flat in Kalpana purchased by the petitioner on 26th July, 1980, which was admittedly let out by the petitioner to his employer, Bank of Baroda, on and from 27th May, 1982 on his transfer to Baroda can be said to be a factor that would bring the petitioner within the mischief of Clause (i). In this context, it is desirable to refer to Gujarat High Court decision in the case of Commissioner of Income-tax, Ahmedabad v. Tikyomal Jasanmal, 82 I.T.R 95. The facts in that case were that out of the total constructed portion of the house admeasuring 1389 sq. ft., the assessee had let out an area of 734 sq. ft., i.e. more than half, immediately on completion of the construction. It was held that the new house was not constructed by the assessee for the purpose of his own residence. The Court, however, observed that it was not the case of the assessee that the house was originally constructed by him for the purpose of his own residence but by reason of subsequent events or supervening circumstances it became impossible or impracticable for him to occupy a part of the house for the purpose of his own residence and was let out to tenants for that reason. Such indeed could not be the case of the assessee since no period of time elapsed between the completion of construction of the ground floor and the letting out of a major portion of it to tenants. In the second decision in the case of Commissioner of Income-tax, Gujarat III v. Natu Hansraj, 105 I.T.R 43, the Gujarat High Court held that no single factor including whether or not the property newly acquired by the assessee was wholly or substantially acquired by him for the purpose of his own residence after purchase his own residence after purchase or construction, as the case may be, would be determinative of the matter. Even if the new property was not substantially put to use for his own residential purposes by the assessee within a reasonable time and if the failure to do so was without any fault on his part, that is, by reason of some unforeseen subsequent events or supervening circumstances, it might still be possible to hold in a given case, provided other circumstances point in that direction, that the real belief, intention or motive entertained by the assessee at or about the time of purchase or construction as regards the use of the newly acquired house property was to occupy it himself.
8. From the above two decisions of the Gujarat High Court, it can fairly be inferred that the petitioner in the present case had purchased the new flat in Kalpana on 26th July, 1980 for his own residence. He resided in that flat until his transfer to Baroda. His transfer to Baroda is an unforeseen and subsequent event and, therefore, there is no warrant for construing the relevant expression in the manner suggested by the Revenue to hold that the flat was not purchased by the petitioner for the purpose of his residence just because it had to be let out to Bank of Baroda in the circumstances mentioned above.
9. Dr. Balasubramanian had stated that the scheme of section 54 was that the relief in respect of capital gains arising on transfer of a capital asset was available against the purchase of first house property for the assessee's residence following the sale. The assessee had no choice in this regard as held by the Commissioner (Appeals). He also argued that the fact that the petitioner had to vacate and let out the flat on his transfer to Bank of Baroda was not germane to the issue. The fact is that the flat was not occupied by the petitioner for a period of three years. In my view, the manner in which the provision in this regard has been constructed by the Gujarat High Court in its aforesaid two decisions is reasonable and requires to be accepted. The expression “for the purpose of his own residence”, in my judgment, means and refers to a situation where a new capital asset, i.e, the house property, is purchased by the assessee with the intention to use the same as his own residence. If for some reason over which he has no control or something unforeseen happens as a result of which he has to reside at a place other than the place where such a new capital asset situate, it could not be held that the new capital asset was not purchased for the purposes of his own residence. In the above view of the matter, both the conditions are satisfied in this case. Accordingly, the petition succeeds. Rule is made absolute in terms of prayer clauses (b) and (d). No order as to costs.
Petition allowed.