Section 54 exemption: pre-sale construction and deposit within the extended return period can still qualify for relief.

Section 54 exemption may be claimed where construction of the new residential house begins before sale of the original asset, because the provision requires completion or investment within the prescribed period and does not bar prior commencement. The article also states that a deposit in the capital gains account scheme made after the due date under section 139(1) but before the extended filing period under section 139(4) satisfies the statutory condition for exemption. On this reasoning, both the pre-sale construction cost and the timely deposit within the extended period were treated as eligible for deduction under section 54.

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Issues: (i) Whether investment made in construction of a new residential house before the date of sale of the original asset qualifies for deduction under section 54; (ii) Whether deposit made in the capital gains account scheme after the due date under section 139(1) but before the extended time under section 139(4) qualifies for deduction under section 54.

Issue (i): Whether investment made in construction of a new residential house before the date of sale of the original asset qualifies for deduction under section 54.

Analysis: The acquisition of the flat was treated as construction of a residential house. The statutory condition for exemption required construction of a new residential house within the prescribed period, but did not impose any bar on commencement of construction before sale of the original asset. The provision being beneficial in nature called for liberal interpretation, and the construction timeline, rather than the commencement date, was material.

Conclusion: The investment made before the sale of the original asset was eligible for deduction under section 54, and the disallowance of those amounts was unsustainable.

Issue (ii): Whether deposit made in the capital gains account scheme after the due date under section 139(1) but before the extended time under section 139(4) qualifies for deduction under section 54.

Analysis: Section 139(4) was applied as an extension of the filing time contemplated under section 139(1). Since the deposit in the capital gains account scheme was made before the expiry of the extended period available for filing the return, the statutory requirement for preservation of exemption stood satisfied.

Conclusion: The deposit was eligible for deduction under section 54 and the disallowance on this count was deleted.

Final Conclusion: The assessee was entitled to the full exemption claimed under section 54, and the appeal succeeded in full.

Ratio Decidendi: For exemption under section 54, construction need not commence only after sale of the original asset, and the time limit for deposit in the capital gains account scheme is governed by the extended return-filing period under section 139(4) where it applies.

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