Section 54 exemption requires investment in a residential house; vacant land, swimming pool and lawn did not qualify here.

Section 54 exemption applies only when capital gains are invested in the purchase or construction of a residential house within the prescribed time, and compliance with the capital gains deposit scheme is required where applicable. On the facts, vacant land had been acquired earlier than the transfer of the original residential property, no timely deposit was made in the capital gains account, and the later works on the land were limited to a swimming pool and lawn adjacent to an existing house. Those improvements did not amount to purchase or construction of a residential dwelling unit, so the claim for exemption failed.

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Issues: Whether the assessee was entitled to exemption on capital gains under section 54 of the Income-tax Act, 1961 for expenditure incurred on purchase of vacant land and construction of a swimming pool and lawn adjacent to an existing house property.

Analysis: The exemption under section 54 is available only where the capital gains are invested in purchase or construction of a residential house within the stipulated period. On the facts, the assessee had purchased vacant land much earlier than the transfer of the original residential property and had not deposited the amount in the capital gains deposit scheme within the prescribed time. The material on record showed that the subsequent activity on the land consisted of construction of a swimming pool and lawn adjacent to an existing house, and not construction or purchase of a residential house capable of being treated as a dwelling unit. The reasoning that land appurtenant to a house could by itself qualify for exemption was not accepted on these facts.

Conclusion: The assessee was not entitled to exemption under section 54 of the Income-tax Act, 1961. The disallowance was upheld and the appeal failed.

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