Section 54F exemption cannot be denied for failure to use the Capital Gains Account Scheme when the sale proceeds are invested in a new residential house in time.

Deduction under section 54F could not be denied merely because the sale proceeds were not deposited in the Capital Gains Account Scheme where the assessee ultimately applied the consideration towards purchase of a new residential house within the statutory period. The tribunal treated the non-deposit as a procedural lapse and held that the substantive condition for exemption was satisfied by investment in the new house within the time allowed. On that basis, the section 54F deduction was allowable and the disallowance was unsustainable.

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Issues: Whether deduction under section 54F could be denied merely because the assessee did not deposit the sale proceeds in the Capital Gains Account Scheme, despite purchasing a new residential house within the stipulated period.

Analysis: The assessee sold the original property and kept the sale consideration in fixed deposit with a bank before using it to purchase a new residential house within two years of transfer. The decisive factor was that the sale proceeds were ultimately applied toward acquisition of the new residential house within the time allowed by section 54F. The non-deposit of the amount in the Capital Gains Account Scheme was treated as only a procedural lapse and not a ground to defeat the exemption where the substantive condition of investment in a new residential house had been satisfied.

Conclusion: Deduction under section 54F was allowable and the disallowance was unsustainable.

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