Section 54 exemption can apply to an under-construction flat when allotment and timely payment secure property rights.

Section 54 relief was available where the assessee invested capital gains in an under-construction residential flat, received allotment letters, and paid substantial consideration within time. The fact that possession was not yet handed over and registration was incomplete did not defeat the exemption, because booking of the flat and acquisition of enforceable rights in the property were treated as sufficient compliance with the statutory requirement. The material relied upon also supported a liberal construction of the exemption when completion delays were beyond the assessee's control, and the deduction was upheld.

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Issues: Whether deduction under section 54 was allowable where the assessee invested the capital gains in an under-construction residential flat, received allotment letters, and paid the consideration, though possession was not handed over and the registration was not completed.

Analysis: Section 54 grants relief where the capital gain is invested in purchase or construction of a residential house within the prescribed period. The record showed that the assessee had paid the substantial consideration within time, had received allotment letters from the builder, and the delay in completion was beyond the assessee's control. The judicial material relied upon supported the view that booking of an under-construction flat and acquisition of rights in the property, coupled with payment of the requisite amount, satisfies the statutory requirement even if possession and registration are deferred. The cited CBDT circulars and precedents also supported a liberal construction of the exemption provision in such circumstances.

Conclusion: The deduction under section 54 was rightly allowed, and the Revenue's challenge failed.

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