Section 54 exemption cannot be denied for non-deposit in the capital gain scheme when the new house is timely purchased.

Exemption under Section 54 was held not to be denied merely because the assessee failed to deposit the unutilised capital gain in the Capital Gain Deposit Scheme by the due date under Section 139(1), where the new residential house was purchased within the statutory period. The deposit requirement was treated as a procedural condition for regulating unutilised gains, not as a substantive bar overriding timely investment in a qualifying residential house. As a beneficial provision, Section 54 was applied on the basis of substantive compliance, and denial for a procedural lapse was held unsustainable.

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Issues: Whether exemption under Section 54 of the Income-tax Act, 1961 could be denied merely because the assessee did not deposit the unutilised capital gain in the Capital Gain Deposit Scheme by the due date under Section 139(1) of the Income-tax Act, 1961, when the new residential house was purchased within the prescribed period.

Analysis: The assessee had sold a residential house and reinvested the sale consideration in a new residential house within the period permitted by Section 54. The only objection was non-deposit of the unutilised amount in the Capital Gain Deposit Scheme before the due date for filing the return under Section 139(1). The requirement of deposit was treated as a procedural condition meant to regulate utilisation of unutilised capital gains and not as a condition overriding the substantive requirement of investment within the stipulated period. The exemption provision was applied as a beneficial provision, and denial on a purely procedural lapse was held unsustainable.

Conclusion: The exemption under Section 54 could not be denied on the ground of non-deposit in the Capital Gain Deposit Scheme before the due date under Section 139(1); the disallowance was set aside and deleted.

Ratio Decidendi: Where an assessee has made the qualifying investment within the statutory period, the exemption under Section 54 cannot be refused solely for failure to deposit the unutilised capital gain in the prescribed scheme by the return-filing due date, since the deposit requirement is procedural and the substantive entitlement prevails.

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