Section 54 exemption survives when capital gains are actually used for a new house before filing a return under section 139(4).

Actual utilisation of capital gains for construction of a new residential house before filing a valid return under section 139(4) satisfies section 54, and the exemption cannot be denied merely because the amount was not deposited in the capital gains account by the due date under section 139(1). The disallowance was therefore unsustainable, and the assessee was entitled to the benefit of section 54.

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Issues: Whether the assessee was entitled to exemption under section 54 of the Income-tax Act, 1961 when the balance capital gains were utilised for construction of a new house property before filing the return under section 139(4), though not deposited in the capital gains account before the due date under section 139(1).

Analysis: The assessee had invested a substantial part of the capital gains before the return was filed and produced material showing that the entire balance was also spent on construction before the return under section 139(4) was furnished. The disallowance proceeded on the view that non-deposit in the capital gains account before the due date under section 139(1) was fatal. The governing principle applied was that, where the capital gains are actually utilised for the specified residential purpose before filing the return within the extended time permitted by section 139(4), the exemption cannot be denied merely because the amount was not parked in the capital gains account by the original due date.

Conclusion: The assessee was entitled to the benefit of section 54, and the disallowance was unsustainable.

Ratio Decidendi: Actual utilisation of capital gains for the eligible residential purpose before filing a valid return under section 139(4) satisfies section 54, and non-deposit in the capital gains account before the section 139(1) due date does not by itself defeat the exemption.

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