Real purchaser and habitable-cost principles expand section 54 relief to the assessee's full exemption claim.

For section 54 exemption, the real purchaser is the person who in substance provides the consideration and acquires beneficial ownership, even if other family members are named as co-purchasers in the conveyance. As the assessee paid the entire consideration and her parents disclaimed any right or interest, full exemption was allowed on the basis that she was the actual owner for income-tax purposes. Necessary expenditure incurred to repair and make the new flat habitable was also treated as part of the cost of the new residential asset, because section 54 covers the cost of acquisition in substance, not merely the price stated in the deed. The repair expenditure was therefore includible in the deduction computation.

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Issues: (i) Whether the assessee, who alone paid the consideration but whose parents were shown as co-purchasers in the conveyance, was entitled to full exemption under section 54 of the Income-tax Act on the footing that she was the real purchaser of the new flat; (ii) Whether the expenditure of Rs. 40 lakhs incurred for repairs and making the new flat habitable formed part of the cost eligible for deduction under section 54.

Issue (i): Whether the assessee, who alone paid the consideration but whose parents were shown as co-purchasers in the conveyance, was entitled to full exemption under section 54 of the Income-tax Act on the footing that she was the real purchaser of the new flat.

Analysis: The term "purchase" was not defined in the Income-tax Act and had to be understood in common parlance. The assessee had paid the entire purchase consideration and related expenses from her own funds, while the parents filed affidavits stating that they had no right, title or interest in the flat. Applying the principle reflected in section 45 of the Transfer of Property Act, the real entitlement depended on the source of consideration and the agreement between the parties. The concept of constructive ownership was also treated as applicable in income-tax proceedings.

Conclusion: The assessee was held to be the purchaser of the flat, and full exemption under section 54 was allowable on that basis.

Issue (ii): Whether the expenditure of Rs. 40 lakhs incurred for repairs and making the new flat habitable formed part of the cost eligible for deduction under section 54.

Analysis: The repairs were found to be genuine and necessary to make the flat habitable. The statutory expression refers to the cost of the new asset, not merely the price stated in the conveyance deed. The expenditure was incurred as an integral part of acquiring and putting the new residential unit into usable condition, and it could not be disallowed merely because it was spent after execution of the conveyance.

Conclusion: The assessee was entitled to include the Rs. 40 lakhs repair expenditure in the cost of the new flat for the purpose of section 54 deduction.

Final Conclusion: The revenue challenge failed, and the assessee succeeded on both the ownership and repair-cost issues, resulting in full relief on the disputed section 54 computation.

Ratio Decidendi: For section 54, the real purchaser is the person who in substance provides the consideration and acquires beneficial ownership, and the cost of the new residential asset includes necessary expenditure incurred to make it habitable.

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