Capital gains exemption under section 54E applied on earlier transfer date, preserving bank deposit investment relief

Section 54E exemption for capital gains was considered in the context of a sale deed executed before 1-3-1979 but registered later, raising whether the amended requirement of investment in National Rural Development Bonds applied. The analysis treated the amendment as prospective for transfers governed by the earlier regime, with the operative date of transfer examined alongside section 47 of the Registration Act and the substitution of the eligible asset. On that basis, the earlier bank deposit route remained available, and the assessee was entitled to the section 54E relief.

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Issues: Whether the assessee was entitled to exemption under section 54E of the Income-tax Act, 1961 where the sale deed was executed before 1-3-1979 but registered later, and whether the amended requirement of investment in National Rural Development Bonds applied to such transfer.

Analysis: Section 54E granted exemption on reinvestment of capital gains in specified assets, and the amendment introduced by section 8 of the Finance Act, 1979 altered the specified asset for transfers after 28-2-1979. The transfer of immovable property had to be examined with reference to the interaction between execution and registration of the sale deed, the operation of section 47 of the Registration Act, and the date from which the amended provision became effectively operative. The reasoning adopted treated the exemption provision as one meant to advance reinvestment relief, construed the amendment prospectively in a manner consistent with the availability of the new investment avenue, and declined to deprive the assessee of the earlier bank deposit route when the substitution had not effectively come into force for the relevant transaction.

Conclusion: The assessee was entitled to the rebate under section 54E, and investment in the fixed deposit with the bank could not be disqualified. The appeal was allowed.

Ratio Decidendi: Where an exemption provision for capital gains is amended to substitute the eligible investment asset, the amendment cannot be applied so as to defeat relief for a transfer that, on the relevant facts, falls within the earlier regime before the substituted condition became effectively operative.

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