Capital gains exemption fails where registered transfer timing and land character do not satisfy sections 54F and 54B conditions.

Deduction under section 54F was not allowable because the residential house was purchased before the legally effective transfer of the capital asset; the earlier agreement to sell did not create enforceable transfer rights, so the purchase fell outside the statutory time window. Deduction under section 54B was also not allowable because, on the date of the registered conveyance, the land had already been converted into non-agricultural land and was conveyed in that character, so the asset transferred was not agricultural land as required by the provision. The capital gains exemption claims therefore failed and the additions were sustained.

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Issues: (i) Whether deduction under section 54F of the Income-tax Act, 1961 was allowable where the residential house was purchased before the registered transfer of the capital asset and the agreement to sell did not create a legally enforceable transfer. (ii) Whether deduction under section 54B of the Income-tax Act, 1961 was allowable where the land sold was non-agricultural in character on the date of registered conveyance.

Issue (i): Whether deduction under section 54F of the Income-tax Act, 1961 was allowable where the residential house was purchased before the registered transfer of the capital asset and the agreement to sell did not create a legally enforceable transfer.

Analysis: The exemption under section 54F requires purchase of a residential house within one year before or two years after the date of transfer, or construction within three years after the transfer. The land was finally transferred only on execution of the registered sale deed, because the earlier agreement to sell did not confer enforceable rights on the purchaser in view of the restrictions on transfer of agricultural land under the tenancy law. The Court distinguished the rule applied in the precedent relied upon by the assessee, since no court order or similar legal restraint prevented execution of the sale deed here. The house purchase on 22.04.2010 was therefore outside the permissible period reckoned from the actual transfer on 03.07.2012.

Conclusion: Deduction under section 54F was not allowable and the disallowance was upheld.

Issue (ii): Whether deduction under section 54B of the Income-tax Act, 1961 was allowable where the land sold was non-agricultural in character on the date of registered conveyance.

Analysis: Section 54B applies only to transfer of land used for agricultural purposes and reinvestment in agricultural land within the prescribed period. On the date of the registered sale deed, the land had already been converted into non-agricultural land and was conveyed as such. Since the asset transferred was not agricultural land at the relevant time, the statutory condition for exemption was not satisfied. The authorities below were therefore correct in treating the claim as outside the scope of section 54B.

Conclusion: Deduction under section 54B was not allowable and the disallowance was upheld.

Final Conclusion: The assessee failed to establish entitlement to either capital gains exemption claimed, and the additions made by the tax authorities were sustained.

Ratio Decidendi: For exemption under sections 54F and 54B, the relevant transfer is the legally effective transfer evidenced by a registered conveyance, and the statutory conditions must be satisfied with reference to the character of the asset and the time limits prescribed by the Act.

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