Capital gains computation and section 54 relief must be tested on the correct documents and provision, not section 54F conditions.

Three separate purchase agreements for 1/3rd undivided interests had to be examined when computing the cost of acquisition and indexation for long-term capital gains, and the authorities' narrower basis was found unsustainable because the supporting documents were not properly considered. A claim for deduction under section 54 could not be denied by importing the multiple-residential-house restriction from section 54F, since that condition does not govern section 54. Both matters were therefore reopened for fresh consideration by the Assessing Officer.

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Issues: (i) Whether the cost of acquisition of the transferred flat was correctly taken for computing long-term capital gains and indexation benefit; (ii) Whether deduction under section 54 of the Income-tax Act, 1961 was wrongly denied by applying the conditions of section 54F of the Income-tax Act, 1961.

Issue (i): Whether the cost of acquisition of the transferred flat was correctly taken for computing long-term capital gains and indexation benefit

Analysis: The flat was acquired through three separate agreements from three co-owners, each agreement relating to 1/3rd undivided right, title and interest and each recording consideration of the same amount. The documentary material showed that the total purchase consideration was not confined to the figure adopted by the authorities. The lower authorities failed to properly examine the agreements and the supporting evidence.

Conclusion: The computation of long-term capital gains on the basis adopted by the authorities was found unsustainable, and the issue was restored to the Assessing Officer for fresh adjudication.

Issue (ii): Whether deduction under section 54 of the Income-tax Act, 1961 was wrongly denied by applying the conditions of section 54F of the Income-tax Act, 1961

Analysis: The claim before the authorities was under section 54, but the first appellate authority proceeded on the footing of section 54F and applied the restriction relating to ownership of multiple residential houses. Those conditions were not relevant to a claim under section 54. The denial of deduction therefore proceeded on a misapplication of law and facts.

Conclusion: The disallowance of deduction under section 54 was set aside and the matter was restored to the Assessing Officer for de novo adjudication.

Final Conclusion: The appeal succeeded to the extent that both the computation of capital gains and the claim for deduction were reopened for fresh consideration by the Assessing Officer.

Ratio Decidendi: Where the authorities fail to examine the relevant documentary evidence and apply an inapplicable statutory provision, the resulting capital gains computation and denial of deduction cannot stand and must be reconsidered afresh.

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