Section 54 exemption depends on transfer by possession and timely residential investment, not later registration of the sale deed.

Section 54 exemption was available where the assessee had entered into an agreement for sale, handed over possession, and invested in a residential house within the statutory period, even though the registered sale deed was executed later. For tax purposes, the transfer was treated as occurring on the date possession passed under section 2(47) read with section 53A of the Transfer of Property Act, so later registration did not postpone the relevant transfer date. The exemption could not be denied merely because the new residential investment was made before registration of the sale deed, provided the investment otherwise satisfied the time window prescribed by section 54.

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Issues: Whether exemption under section 54 of the Income-tax Act, 1961 could be denied merely because the registered sale deed was executed later, when the agreement for sale and handing over of possession had already taken place and the assessee had invested in a residential house before registration.

Analysis: The agreement for sale showed that possession of the property was handed over to the purchaser before execution of the registered sale deed. In the context of section 2(47) of the Income-tax Act, 1961 read with section 53A of the Transfer of Property Act, 1882, such handing over of possession constituted a transfer for tax purposes, notwithstanding the later registration. The Tribunal further held that section 54 does not require that the sale consideration must be invested only after receipt of sale proceeds or only after registration of the sale deed. What is material is that the investment for purchase or construction of the new residential house falls within the statutory time window, and the assessee's investment satisfied that requirement.

Conclusion: Exemption under section 54 was allowable, and the disallowance was unsustainable.

Ratio Decidendi: For purposes of section 54, the relevant transfer date is the date on which transfer occurs under section 2(47), including transfer by possession under section 53A, and the exemption cannot be denied merely because investment in the new residential house was made before registration of the sale deed if it otherwise falls within the statutory period.

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