Section 54F relief upheld for escrow-linked flat investment and timely court-directed use of capital gains funds.

Section 54F relief was available where sale consideration was effectively routed through an escrow arrangement towards a specifically allotted residential flat, even though registered conveyance and possession were delayed because of the builder dispute; the investment condition was satisfied in substance, and delay not attributable to the assessee did not defeat the claim. Relief was also available for amounts first deposited in the Capital Gains Accounts Scheme and then deposited with the High Court under interim directions, because the funds were timely applied towards the intended residential acquisition within the statutory period. The assessee's exemption claim under Section 54F was accepted in full, and the capital gains addition did not survive.

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Issues: (i) whether deduction under Section 54F of the Income-tax Act, 1961 was allowable where the assessee had entered into an escrow arrangement, received an allotment of a residential flat, and had effectively applied the sale consideration towards the flat though possession was delayed due to the builder's dispute; (ii) whether the amount deposited in the Capital Gains Accounts Scheme and later deposited with the High Court pursuant to interim directions could be denied the benefit of Section 54F.

Issue (i): Whether deduction under Section 54F was allowable on the amount adjusted towards the allotted flat.

Analysis: The assessee had entered into an escrow arrangement under which a specifically identified residential flat was allotted in an under-construction project, and the sale consideration of the shares was effectively routed towards that flat. The subsequent delay in execution of the registered conveyance and handing over of possession was attributable to the builder dispute and not to any failure on the assessee's part. The residential flat was thus treated as having been acquired for the purposes of Section 54F(1), and the absence of possession did not defeat the claim where the assessee had already fulfilled the investment condition in substance.

Conclusion: Deduction under Section 54F was held to be allowable in respect of the amount adjusted towards the flat, in favour of the assessee.

Issue (ii): Whether the amount deposited in the Capital Gains Accounts Scheme and thereafter deposited with the High Court could be denied exemption under Section 54F.

Analysis: The amount standing in the Capital Gains Accounts Scheme was withdrawn and deposited in court in compliance with judicial directions within the stipulated period. The statutory scheme under Section 54F(4) contemplates taxation only upon non-utilisation after the prescribed period, and the facts showed timely application of the funds towards the intended residential acquisition. The amount therefore satisfied the requirement of investment for purposes of Section 54F and could not be denied in the year under appeal.

Conclusion: Deduction under Section 54F was held to be allowable for the amount deposited under the Capital Gains Accounts Scheme, in favour of the assessee.

Final Conclusion: The assessee's claim for exemption under Section 54F was accepted in full, and the capital gains addition made by the tax authorities did not survive.

Ratio Decidendi: Where an assessee has, within the prescribed period, effectively applied the sale consideration towards a specifically allotted residential house under an escrow arrangement, mere delay in possession caused by the builder does not defeat Section 54F relief; amounts duly invested through the Capital Gains Accounts Scheme and subsequently utilised in compliance with court directions also satisfy the statutory requirement.

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