Section 54F exemption for residential house investment allowed where prior gift, construction status and due-date compliance were established.

Section 54F exemption was available on long-term capital gains from sale of unquoted shares because the disqualifying residential-house conditions were not cumulatively met on the facts found. One property had already been gifted to the assessee's daughter before the transfer of the original asset, and the later formalisation did not alter that prior transfer. The other property was under construction on the transfer date and was not treated as a completed house property for the proviso. The investment in land and deposit in the Capital Gains Account Scheme were made within the applicable due date under section 139(1), and purchase of land for a new residential house with construction completed in time satisfied the exemption requirements.

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Issues: Whether exemption under section 54F on long-term capital gains arising from sale of unquoted shares was allowable where the Revenue objected that the assessee owned more than one residential house, invested the capital gains after the originally assumed due date, and had purchased land for construction of the new residential house.

Analysis: The exemption under section 54F is a beneficial provision and must be construed liberally to advance its object. The evidence on record established that one house property had been gifted to the assessee's daughter long before the transfer of the original asset, and the later formalisation of the gift did not negate the earlier transfer on the facts found. The other property was under construction on the transfer date and was not chargeable as house property income at that stage, so the disqualifying conditions in the proviso were not attracted cumulatively. The assessee was also a partner in a firm whose accounts were audited, making the relevant due date under section 139(1) 31 October 2022, and the investment in land and the deposit in the Capital Gains Account Scheme were made within that period. Purchase of land for constructing a residential house, followed by completion of construction within the prescribed time, satisfied section 54F; the exemption could not be denied merely because the construction did not occupy the entire plot.

Conclusion: The assessee was entitled to exemption under section 54F and the Revenue's challenge failed.

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