Section 54 capital gains relief extends to multiple residential properties and later investments within the rollover framework

Section 54 relief was interpreted broadly for the relevant assessment year: the phrase "a residential house" was read in context to include investment in more than one residential property, and the later substitution of "one residential house" was treated as a prospective amendment. The note also states that, under the Section 54(2) framework, investments made after the return-filing due date could still be considered for exemption where the statutory conditions for rollover relief were otherwise met. On that construction, capital gains exemption was available on both counts.

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Issues: (i) whether exemption under Section 54 of the Income-tax Act, 1961 is available where the assessee invests the capital gains in more than one residential property; (ii) whether investment made after the due date for filing the return, but within the extended statutory framework, can be considered for exemption under Section 54 of the Income-tax Act, 1961.

Issue (i): whether exemption under Section 54 of the Income-tax Act, 1961 is available where the assessee invests the capital gains in more than one residential property.

Analysis: The expression used in Section 54 was construed in the light of judicial precedent holding that the word "a" in the phrase "a residential house" is not necessarily confined to a single unit and may include more than one residential house when read in context. The subsequent amendment substituting "a residential house" with "one residential house" was treated as prospective, showing that the earlier provision was understood to permit plurality for the relevant assessment year.

Conclusion: The assessee was entitled to exemption under Section 54 in respect of investment made in more than one residential property.

Issue (ii): whether investment made after the due date for filing the return, but within the extended statutory framework, can be considered for exemption under Section 54 of the Income-tax Act, 1961.

Analysis: The statutory scheme governing Section 54(2) was applied to hold that investment made beyond the return-filing due date could still qualify for exemption where the assessee's claim otherwise satisfied the conditions for rollover relief. The investments were therefore required to be considered while computing the exemption.

Conclusion: The assessee's investments made beyond the due date were directed to be considered for granting exemption under Section 54.

Final Conclusion: The assessee succeeded on both substantive claims relating to capital gains exemption, and the appeal was allowed.

Ratio Decidendi: For the relevant assessment year, Section 54 of the Income-tax Act, 1961 was to be interpreted broadly so that "a residential house" was not restricted to a single unit, and the later narrowing amendment operated prospectively only.

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