Section 54 relief on enforceable flat rights, spouse-clubbed capital gains, and full transfer expense deduction upheld.

Section 54 was treated as a beneficial provision and allowed where the assessee had invested within the prescribed period in enforceable rights linked to a specific, identifiable residential flat under a redevelopment arrangement; the later formal conveyance did not defeat the exemption. Capital gains arising from assets transferred to a spouse without consideration were held to fall within section 64(1)(iv), and once clubbed in the transferor's hands, the corresponding section 54 deduction attached to that income could not be denied. Legal charges, brokerage and consultancy fees were held fully deductible because the expenses were actually incurred and proved by invoices and bank statements, and the ownership-share objection was rejected.

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Issues: (i) whether deduction under section 54 of the Income-tax Act, 1961 was allowable on investment made in rights linked to a specific residential flat under a redevelopment arrangement; (ii) whether capital gains arising from assets transferred to the spouse without consideration were liable to be clubbed under section 64(1)(iv) of the Income-tax Act, 1961 and, if so, whether consequential deduction under section 54 had to follow; and (iii) whether the full transfer expenses on legal charges, brokerage and consultancy fees were deductible.

Issue (i): Whether deduction under section 54 of the Income-tax Act, 1961 was allowable on investment made in rights linked to a specific residential flat under a redevelopment arrangement.

Analysis: The investment was made within the prescribed period and was supported by the chronology of payments and the registered deed of transfer. The rights acquired were found to be referable to a specific and identifiable residential unit, and section 54, being a beneficial provision, was held to warrant a liberal construction. The Court treated acquisition of enforceable rights in a residential flat as sufficient compliance, and held that the later formal conveyance did not govern the exemption claim.

Conclusion: Deduction under section 54 was allowed to the assessee.

Issue (ii): Whether capital gains arising from assets transferred to the spouse without consideration were liable to be clubbed under section 64(1)(iv) of the Income-tax Act, 1961 and, if so, whether consequential deduction under section 54 had to follow.

Analysis: The Court held that capital gains are income for the purposes of the clubbing provision and that gains arising from assets transferred to a spouse without adequate consideration fall within section 64(1)(iv). It was further held that once such capital gains are assessed in the transferor's hands, the computation mechanism attached to that income must also be given effect, including the deduction otherwise available on the spouse's corresponding investment in the same residential project.

Conclusion: Clubbing under section 64(1)(iv) was upheld, but consequential deduction under section 54 was directed to be allowed.

Issue (iii): Whether the full transfer expenses on legal charges, brokerage and consultancy fees were deductible.

Analysis: The expenditure was found to have been actually incurred and paid by the assessee, supported by invoices and bank statements, and the genuineness of the claim was not disputed. The restriction based solely on ownership share was rejected as too narrow in the facts of the case, especially where the Revenue itself had clubbed the spouse's share of capital gains in the assessee's hands.

Conclusion: The entire transfer expenditure was held allowable.

Final Conclusion: The appeal succeeded on the principal exemption and expenditure issues, while the clubbing provision was sustained only with consequential relief, resulting in partial relief to the assessee.

Ratio Decidendi: Section 54 is to be construed liberally so that substantial and enforceable investment in a specific residential unit qualifies for relief, and where income is clubbed under section 64(1)(iv), the corresponding computation benefits attached to that income cannot be denied.

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