Section 54F exemption applies when sale proceeds are reinvested in a residential house within the statutory period despite deposit formalities.

Section 54F's exemption applies where net consideration from sale of a long-term capital asset is invested in a new residential house within the statutory period; the statutory deposit into a notified capital gains account scheme in sub-section (4) is required only where the net consideration has not been appropriated to purchase or construct the new asset before filing the return. Authorities construe the provision to prioritise reinvestment of sale proceeds over formal deposit requirements, and accordingly the deduction is allowable where the entire sale consideration was invested in the house within the prescribed period despite not depositing the amount in the specified account before filing.

---

---

Issues: (i) Whether deduction under Section 54F of the Income-tax Act, 1961 is available where the entire sale consideration has been invested in purchase of a residential house within the statutory period, despite not depositing the entire amount in a specified capital gains account scheme before furnishing the return.

Analysis: Section 54F provides exemption from capital gains tax where the net consideration from transfer of a long-term capital asset (other than a residential house) is invested in a new residential house within the periods specified in subsection (1). Sub-section (4) prescribes deposit in a notified capital gains account scheme only where the net consideration is not appropriated towards purchase or construction of the new asset before furnishing the return. Authorities have interpreted sub-section (4) as inapplicable when the assessee has in fact invested the sale proceeds in acquisition or construction of the new residential house within the prescribed period, so that the legislative purpose of Section 54F - reinvestment of capital gains into a residential house - is satisfied even if the deposit formalism into the capital gains account was not followed.

Conclusion: Deduction under Section 54F of the Income-tax Act, 1961 is allowable in favour of the assessee because the entire sale consideration was invested in the purchase of a residential house within the statutory period, notwithstanding that the whole amount was not deposited in the specified capital gains account scheme prior to furnishing the return.

---