Section 54 exemption can survive non-deposit in the capital gains account scheme if gains were used for a new home before filing return.

Section 54 exemption is available where capital gains are actually utilised to purchase a new residential house before filing the return, and the exemption is not denied merely because the unutilised balance was not deposited in the capital gains account scheme by the due date under section 139(1). The Tribunal distinguished precedent dealing with unutilised gains and treated actual pre-return utilisation as sufficient in principle under the statutory scheme. However, the factual payment record for the new property was not fully verified, so the matter was remanded to the Assessing Officer for limited verification of the payments and consequential allowance.

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Issues: Whether deduction under section 54 of the Income-tax Act, 1961 was allowable where the assessee did not deposit the unutilised capital gains in the capital gains account scheme before the due date under section 139(1), but claimed to have invested the sale consideration in the new residential property before filing the return under section 139.

Analysis: Section 54(1) grants exemption where the capital gain is invested in purchase or construction of a new residential house within the prescribed period, while section 54(2) requires only the unutilised amount to be deposited in the notified account before furnishing the return, not later than the due date under section 139(1). The decisive question was whether the assessee had already utilised the capital gain for purchase of the new property before filing the return. The jurisdictional precedent relied upon by the Revenue was distinguished on the footing that it addressed a case of unutilised capital gains not deposited within time, whereas the present facts were treated as falling within the line of authority recognising that actual utilisation before the return date can satisfy the statutory scheme. Since the record before the Tribunal did not fully verify the payment details for the new property, the claim could not be finally concluded without that factual verification.

Conclusion: The assessee was held entitled in principle to deduction under section 54 if the capital gains had been utilised for purchase of the new property before filing the return, and the matter was remanded to the Assessing Officer for limited verification of the payments and consequential allowance.

Final Conclusion: The appeal succeeded to the extent that the deduction claim was accepted in principle, but the grant of relief depended upon verification of the payment record by the Assessing Officer.

Ratio Decidendi: Where the capital gains are actually utilised for purchase of a new residential house before filing the return, the exemption under section 54 cannot be denied merely for non-deposit in the capital gains account scheme, though the factual utilisation must be verified.

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