Purposive reading of capital gains exemption rules allows relief on enhanced compensation invested within six months of receipt.

Section 54EA exemption was held applicable to enhanced compensation invested in notified securities within six months of receipt, even though the original compulsory acquisition occurred earlier. The provision was construed purposively alongside section 45(5), so that enhanced compensation is taxed on receipt and the reinvestment period runs from that receipt date. A narrow reading tied only to the original transfer would make the relief unworkable and defeat the legislative object of encouraging reinvestment in specified assets. On that construction, the assessee qualified for the exemption and the Revenue's objection based on timing was rejected.

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Issues: Whether the assessee was entitled to exemption under section 54EA of the Income-tax Act, 1961, in respect of investment made within six months of receipt of enhanced compensation from compulsory acquisition, notwithstanding that the original transfer had taken place earlier and section 54H did not then refer to section 54EA.

Analysis: Section 54EA grants exemption where the net consideration from transfer of a long-term capital asset is invested within six months in notified securities. Section 45(5) treats enhanced compensation as income in the year of receipt, and the later legislative scheme showed an intention to align tax treatment of enhanced compensation with the date of receipt for reinvestment relief. A technical reading that fixed the six-month period only from the original acquisition date would make compliance impossible and would defeat the object of the concession. The provision therefore had to be construed purposively to advance the legislative intent of encouraging reinvestment in specified modes rather than denying relief on an artificial timing objection.

Conclusion: The assessee was entitled to the benefit of section 54EA on the enhanced compensation invested within six months of receipt, and the answer to the question was in favour of the assessee and against the Revenue.

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