Section 54 deduction requires actual residential house acquisition and timely capital gains deposit before the due date.

Deduction under section 54 is available only where the capital gain is applied within the statutory time to purchase or construct a residential house, and any unutilised amount is deposited in the prescribed capital gains account by the due date under section 139(1). A mere acquisition of a plinth or plot intended for future villa construction does not amount to purchase of a residential house unless construction has actually commenced or a residential house has substantially come into existence. Where no statutory deposit was made and the balance was invested only up to the belated return stage, the deduction was not allowable.

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Issues: (i) Whether investment in a plinth / plot intended for construction of a villa qualified as purchase of a residential house for deduction under section 54; (ii) Whether amounts invested after the due date under section 139(1), but before filing of the return under section 139(4), were eligible for deduction under section 54 when the unutilised capital gain was not deposited in the capital gains account scheme.

Issue (i): Whether investment in a plinth / plot intended for construction of a villa qualified as purchase of a residential house for deduction under section 54.

Analysis: The agreement showed that the assessee acquired a long-term lease of a plinth and land with permission to construct a villa or timber chalet, subject to a further construction arrangement and completion obligations. The record did not show that construction had commenced or that a residential house had been substantially brought into existence. A mere purchase of land or plinth, even if intended for future construction, did not by itself satisfy the requirement that the investment result in purchase or construction of a residential house within the statutory period.

Conclusion: The assessee was not entitled to deduction on the footing that the plinth itself was a residential house.

Issue (ii): Whether amounts invested after the due date under section 139(1), but before filing of the return under section 139(4), were eligible for deduction under section 54 when the unutilised capital gain was not deposited in the capital gains account scheme.

Analysis: Section 54 required the capital gain to be appropriated towards purchase or construction within the stipulated period, and any unutilised amount had to be deposited in the prescribed account by the due date under section 139(1). The assessee had not made such deposit and the remaining investment was made only up to the belated return stage. On the facts, the statutory conditions were not satisfied and the plea of substantial compliance could not override the express requirement of deposit and timely utilisation.

Conclusion: The assessee was not entitled to deduction for the amounts invested after the due date under section 139(1).

Final Conclusion: The disallowance of the claim under section 54 was sustained and the assessee's appeal failed.

Ratio Decidendi: For deduction under section 54, the investment must culminate in purchase or construction of a residential house within the prescribed time, and any unutilised capital gain must be deposited in the statutory account by the due date under section 139(1); a mere acquisition of land or plinth for intended future construction does not suffice.

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