Section 54F exemption depends on timely reinvestment, single-house ownership status, and asset-wise capital gain testing.

Section 54F exemption is available where sale consideration is invested in a residential house before filing a return under section 139(4), and the capital gains account deposit requirement does not apply to amounts already utilised within that filing period. Ownership disqualification depends on whether the assessee ically holds more than one residential house; a one-third undivided share in a single contiguous dwelling was not treated as ownership of two separate houses. Eligibility under section 54F must be tested with reference to the capital asset giving rise to the gain, and not by aggregating share transactions or using unrelated long-term capital loss to defeat the exemption.

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Issues: (i) Whether exemption under section 54F was available where the sale consideration was invested in a residential house before filing the return under section 139(4), without deposit in the capital gains account; (ii) Whether the assessee could be treated as owning more than one residential house for the purposes of section 54F; (iii) Whether exemption under section 54F had to be computed by aggregating all share transactions and after setting off long-term capital loss.

Issue (i): Whether exemption under section 54F was available where the sale consideration was invested in a residential house before filing the return under section 139(4), without deposit in the capital gains account.

Analysis: The return was filed before the expiry of the period contemplated under section 139(4), and the sale proceeds were already utilised towards purchase of the new residential house before that return was furnished. On that factual footing, the requirement to deposit unutilised consideration in the capital gains account did not arise. The condition in section 54F was therefore read with the return-filing framework under section 139 as a whole, and not confined only to section 139(1).

Conclusion: The assessee was entitled to claim section 54F exemption on the amount invested before filing the return under section 139(4), and the disallowance on this ground was unsustainable.

Issue (ii): Whether the assessee could be treated as owning more than one residential house for the purposes of section 54F.

Analysis: The material showed that the assessee held only a one-third undivided share in the property at Preet Vihar, and the property functioned as a single contiguous residential unit occupied by the brothers together. On that footing, the assessee could not be treated as the owner of two separate residential houses so as to attract the bar in section 54F.

Conclusion: The assessee was not disqualified from exemption on the ground of owning more than one residential house.

Issue (iii): Whether exemption under section 54F had to be computed by aggregating all share transactions and after setting off long-term capital loss.

Analysis: Section 54F applies to capital gain arising from the transfer of any long-term capital asset, and the entitlement has to be examined with reference to the capital asset giving rise to the gain. The approach of clubbing all share sales together and applying set-off of loss before testing eligibility for exemption did not accord with the statutory scheme. Long-term loss on other capital assets could not be used to deny exemption on eligible long-term capital gains already identified for section 54F purposes.

Conclusion: The assessee's method of claiming exemption was accepted, and the adjustment based on aggregation and set-off was rejected.

Final Conclusion: The assessment disallowance under section 54F was deleted in full, and the assessee's appeal succeeded.

Ratio Decidendi: For section 54F, reinvestment made before filing the return under section 139(4) satisfies the statutory requirement, no capital gains account deposit is needed for such utilised amounts, and eligibility must be tested asset-wise without impermissible aggregation that defeats the exemption.

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