Residential house purchase agreement timing for s.54(1) capital gains exemption; relief allowed based on timely investment.

The dominant issue was whether exemption under s.54(1) could be allowed by treating the date of an agreement to purchase/construct a residential house as the "date of purchase," where the agreement was executed within one year of sale and substantial instalments were paid within two years. The HC held that s.54(1) relief turns on investment of sale proceeds in acquisition/construction of a residential house for the assessee; it is immaterial whether the assessee constructs personally or through a contractor/third party. Since the Tribunal's view aligned with the statutory purpose and the assessee had invested within the prescribed time, interference was unwarranted; the question was answered in favour of the assessee and against the Revenue.

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Issues Involved:
The judgment involves the interpretation of section 54(1) of the Income-tax Act, 1961 regarding exemption for capital gains tax on the sale of a residential property and purchase of a new property within a specified period.

Summary of Judgment:

Issue 1: Interpretation of Section 54(1) - Exemption Criteria
The assessee sold a flat and entered into an agreement to purchase another flat within the stipulated period. The Assessing Officer allowed partial exemption, but the Tribunal considered the entire investment and granted exemption u/s 54(1). The Andhra Pradesh High Court and the apex court's decisions were cited to support the view that registration is not necessary for exemption under section 54(1) if payment and possession are within the specified period.

Issue 2: Investment in Constructed Property
The assessee invested in a flat under construction within three years of selling her property. The court deliberated whether the requirement for exemption u/s 54(1) necessitates self-construction of the house or if purchasing a property under construction suffices. Referring to the purpose of the provision, the court emphasized that the intent is to exempt capital gains tax when the sale proceeds are reinvested in a residential property, regardless of self-construction.

Judicial Interpretation and Decision
Citing the Supreme Court's stance on modifying statutory provisions to align with legislative intent, the court emphasized that the purpose of section 54(1) is to provide relief when sale proceeds are reinvested in a residential property, irrespective of self-construction. The Tribunal's decision to grant exemption based on the investment in a property under construction was upheld, ruling in favor of the assessee and against the Revenue.

Conclusion
The court affirmed that investing in a property under construction within the specified period qualifies for exemption u/s 54(1), aligning with the legislative intent to relieve capital gains tax on reinvestment in residential properties. The application was disposed of, with all parties instructed to act in accordance with the judgment.

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