Section 54(1) exemption turns on actual allotment and possession of a co-operative housing flat, not mere society membership.

For section 54(1) exemption, a flat in a co-operative housing society is treated as acquired when it is actually allotted and possession is obtained after completion of construction, not merely when the assessee becomes a member or holds society shares. On the stated facts, the new flat was found to have been acquired on 1-4-1975, which was within one year before the transfer of the old flat on 1-9-1975. The capital gains exemption under section 54(1) was therefore available, and the capital gains computation had to be revised accordingly.

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Issues: Whether the assessee was entitled to exemption under section 54(1) of the Income-tax Act, 1961 on the capital gains arising from sale of the old flat, having regard to the date on which the new flat in the co-operative housing society was acquired and occupied.

Analysis: The transfer of the old flat was accepted as having taken place on 1-9-1975. The decisive question was when the new flat came to be purchased or acquired. The evidence showed that the society building was not complete by 1-1-1975, that possession was given only after completion, and that the assessee was put in possession and charged municipal and maintenance dues from 1-4-1975. Mere membership of the co-operative society or prior allotment of shares did not make the assessee the owner of the flat before the flat was actually allotted and occupied. The allotment of a flat in a co-operative housing society after completion of construction was treated as acquisition of the residential house property for the purpose of section 54(1).

Conclusion: The assessee acquired the new flat on 1-4-1975, which was within one year before the transfer of the old flat, and the exemption under section 54(1) was available.

Final Conclusion: The capital gains computation was required to be revised by allowing the assessee the relief admissible under section 54(1), and the appeal succeeded only to that extent.

Ratio Decidendi: For the purposes of section 54(1), a flat in a co-operative housing society is acquired when it is actually allotted and possession is obtained after completion of construction, not merely when the assessee becomes a member or holds shares in the society.

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