Section 54 exemption can apply on purchase by agreement and possession, without registered conveyance

Section 54 exemption depends on a purchase of a residential house within the prescribed period, and the text states that this requirement can be satisfied by an agreement to buy, payment of substantial consideration, and taking possession. It further states that registration of the conveyance is not a necessary condition where the transaction otherwise amounts to a purchase for consideration. On that reasoning, the absence of a registered document was treated as irrelevant to eligibility for exemption under section 54.

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Issues: Whether the assessee had purchased the new residential property within one year from the date of sale of his residential house so as to qualify for exemption under section 54 of the Income-tax Act, 1961, and whether registration of the document was necessary to constitute such purchase.

Analysis: The assessee sold his residential house and, within one year, entered into an agreement to purchase another residential property, paying a substantial part of the consideration and obtaining possession. The statutory scheme of section 54 turns on purchase of a residential house within the prescribed period, and does not require that the assessee must first become the owner by registered conveyance. The expression "purchase" is to be understood in its common legal sense, and prior authority has held that registration is not a condition precedent where the transaction otherwise amounts to purchase for consideration. The reliance placed on absence of registration was therefore misplaced.

Conclusion: The assessee was held entitled to exemption under section 54, and the requirement of registration was rejected as unnecessary for the purposes of that provision.

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