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Issues: Whether the assessee was entitled to exemption under section 54 of the Income-tax Act, 1961 for the entire long-term capital gain on purchase of the residential flat, and whether the requirement of deposit under section 54(2) survived once the new residential house had been purchased and possession taken within the stipulated period.
Analysis: The assessee had entered into agreements for purchase of the flat, paid the agreed consideration, and obtained possession within the period allowed by section 54(1). The transaction was treated as a transfer in the sense contemplated by section 2(47)(v), read with section 53A of the Transfer of Property Act, 1882, because possession was given in part performance of the contract. The purchase cost exceeded the capital gain, so the whole gain stood appropriated towards the new residential house. In that situation, the statutory deposit requirement under section 54(2) was held to be unnecessary. Support was taken from the principle that section 54 does not insist that the very sale proceeds of the original asset must be utilised, only that the assessee should acquire the qualifying residential house within the prescribed period.
Conclusion: The assessee was entitled to exemption under section 54 for the entire capital gain, and the Revenue's objection to the claim failed.
Ratio Decidendi: Where an assessee purchases a residential house within the prescribed period and the cost of that acquisition absorbs the capital gain, exemption under section 54 cannot be denied for want of deposit under section 54(2).
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