Capital gains exemption under Section 54F upheld where prior payments for an under construction residence qualify if completed within statutory period.

Examines eligibility for deduction under the capital gains exemption for investment in an under construction residential property where substantial payments were made before sale of the old asset. Applies the legal principle that the exemption does not insist on physical application of the exact sale proceeds only after transfer; payments made prior to sale toward acquisition or construction may qualify if the new property is completed within the statutory period. On the facts and documentary evidence considered, the analysis concludes the deduction is allowable and that reassessment disallowing the deduction is liable to be quashed.

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Issues: Whether the assessee is eligible for deduction under section 54F of the Income-tax Act, 1961 in respect of net sale proceeds invested in an under-construction residential property where payment was made prior to the sale of the old property, and whether the reassessment disallowing that deduction is liable to be quashed.

Analysis: The appeal examines the scope of exemption under Section 54F of the Income-tax Act, 1961 and the temporal tests for acquisition or construction of a new residential property. Relevant facts include sale of an old property on 19.08.2014, payment of substantial consideration for an under-construction villa between February and May 2014, claim of deduction under Section 54F in return filed 24.08.2015, and execution/purchase deed dated 26.04.2017. Authorities relied upon establish that Section 54(1)/54F does not mandate that the very same money received on sale must be physically applied only after the date of transfer, and that acquisition or construction within statutory periods may include prior payments/land costs where the new property is completed within the prescribed time. On the recorded facts the assessee had paid the sale consideration prior to filing return and documentary confirmations support application of the invested amount to the new residential unit. The reassessment and appellate orders disallowed the deduction on the ground that possession/purchase deed date fell beyond the two-year limit; however, precedent affirms that prior purchase/land cost and payments made before transfer can be considered for exemption where statutory conditions are otherwise satisfied.

Conclusion: Deduction under section 54F of the Income-tax Act, 1961 is allowable to the assessee on the facts and documentary evidence presented; the reassessment disallowing the deduction is quashed and the appeal is allowed in favour of the assessee.

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