COMMISSIONER-OF INCOME-TAX, ANDHRA PRADESH vs. T. N. ARAVINDA REDDY

SPECIAL LEAVE PETITION (CIVIL) No. 1557/1979Supreme Court[1980] 1 S.C.R. 87205 October 1979Bench: 2 JudgesAuthor: V.R. KRISHNA IYER, D.A. DESAI3 pages
AI SummaryDismissed

What were the facts?

The assessee, T. N. Aravinda Reddy, sold his house, attracting capital gains tax. To preempt this demand, he acquired a common house from his three brothers through separate release deeds. Each deed involved a consideration of Rs. 30,000/-, which was adjusted towards an extra share (leshthabhaga) agreed to be given to the assessee. The core issue was whether these release deeds constituted a 'purchase' within the meaning of Section 54(1) of the Income Tax Act, 1961, which would exempt the capital gains from tax. The High Court had previously held that these transactions amounted to a purchase. The Revenue challenged this decision by filing a Special Leave Petition before the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the release deeds amounted to a purchase of house property within the meaning of Section 54(1) of the Income Tax Act, 1961. The Court reasoned that each release deed represented a transfer of the releaser's share for a consideration of Rs. 30,000/- to the releasee (the assessee). In plain English, the assessee purchased the share of each of his brothers for a price. The Court found no reason to divorce the ordinary meaning of the word 'purchase' – as buying for a price or its equivalent by payment in kind or adjustment towards an old debt or for other monetary consideration – from its legal meaning in Section 54(1). The purpose of the section is to provide an exemption for reinvestment in a new house, and a narrow, legalistic interpretation of 'purchase' would defeat this purpose. The Court affirmed the High Court's decision. No issue was expressly left undecided.

What were the issues?

1. Whether release deeds executed by sharers in favour of one of them, where joint ownership becomes separate ownership of one, amount to a 'purchase of house property' within the meaning of Section 54(1) of the Income Tax Act, 1961, for the purpose of exemption from capital gains tax? Assessee's Contention: The assessee argued, and the High Court held, that the transactions were indeed purchases. The consideration paid, even if adjusted towards an extra share, represented a price paid for acquiring the brothers' shares in the common house. The ordinary meaning of 'purchase' as acquiring for a price or its equivalent should apply. Revenue's Contention: The Revenue contended that the release deeds, particularly because the consideration was adjusted towards an extra share and not paid in cash, did not constitute a 'purchase' in the strict sense. They relied on the principle that purchase primarily means acquisition for money paid, not adjusted, citing Hobshaw Brothers Ltd. v. Mayer. The Revenue sought to distinguish this from a typical purchase from unrelated owners.

Which sections of the Income-tax Act were involved?

Section 54(1)

AI-generated summary — verify with the full judgment below

; 872 '\. A COMMISSIONER-OF INCOME-TAX, ANDHRA PRADESH B c ( v. T. N. ARA VINDA REDDY . October 5, 1979 [V. R. KRISHNA IYER AND D. A. DESAI, JJ.] / ' ' t'l Income-tax .A:ct-1961 Section 54(1)~cope of-Words & Phrase~-Purclzase .) ... . -Meaning of. · ' 1 ~ The te!pondent sold his house at a price sufficient to attract capital gains,. but he~ pre-empted the demand of tax by acquiring the common house from hiS brothers for a consideration of b. 30,000/- each through ~eparate release t'~~s. On behalf of the Petitioner, it was contended that release deeds by sl' ··-B in favour of one of them amounts to purchase within the meaning of , \> of the Act. The High Court having held it is, the Revenue came 1 1 of Special Leave • . :.Jissing the Petition. :.0 : Each release i~ a transfer of the releaser's share for consideration releasee. ·. In plain English, the transferee purchases the shue of each brothers· for a price. Had thls b'~en taken from non-fraternal owners ~s or from one stranger owner, plain spoken people would have called ··chase. The reason i9 ~upported by decision in Hobshaw Brothers Ltd. r, [1956(3) AER 833 and 835] that purchase primarily mean

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