(1979) 120 ITR 46 (SC)
Exemption on profit from sale of residential house property
Yes. 'Purchase' bears its ordinary meaning of acquiring for a price, and includes acquiring a share from co-owners. A narrow, technical construction is not warranted.
Does 'purchase' in Section 54 cover the acquisition of a co-owner's share in a jointly held house, by way of a release deed on partition?
On the partition of a Hindu undivided family, the assessee and his three brothers became entitled to shares in family residential property. The assessee paid each of his brothers a sum of money, and they executed release deeds in his favour relinquishing their interests in one of the houses, so that he became its sole owner. Having earlier sold another residential house and realised capital gains, he claimed exemption under Section 54 on the footing that he had purchased a residential house with the gain. The Revenue denied the claim, contending that a release on partition is not a purchase.
The Tribunal allowed the assessee's claim and the High Court agreed. The Revenue appealed to the Supreme Court.
For the assessee
Money was paid and property was acquired in return. That is a purchase in the ordinary sense in which the word is used in commercial life, and the section uses no technical expression requiring a formal sale deed.
For the Revenue
A release deed executed on partition operates as a relinquishment of a pre-existing right, not as a conveyance on sale. What the assessee received was his own share adjusted on partition, and no purchase took place.
Justice Krishna Iyer declined to read the word 'purchase' narrowly. He observed that the section does not employ the expression in any technical sense drawn from the law of conveyancing, and that its ordinary meaning is to acquire property for a price paid in money. On the facts, the brothers had each received a sum and had in return given up their interests in the house, leaving the assessee its full owner. The transaction therefore had every commercial characteristic of a purchase, whatever the label on the instrument. The Court rejected the suggestion that a release deed executed in the course of partition is incapable of amounting to a purchase, pointing out that the form chosen by the parties cannot govern the substance of what occurred. It added that the provision is intended to relieve an assessee who reinvests the proceeds of one residence in another, and that construing it restrictively would frustrate that object without serving any discernible purpose of the statute.
The liberal reading of 'purchase' carries into Section 82 and is routinely relied on for family settlements, partitions and buy-outs of co-owners' shares, where the Revenue seeks to deny relief on the form of the instrument rather than its substance. It is among the most frequently cited decisions on residential property reinvestment relief.