Section 54 exemption for full capital gain allowed when entire proceeds were reinvested in a new residential house.

Section 54 is a beneficial exemption and must be construed liberally to advance its object. Where the assessee entered into agreements for a new residential flat, took possession within the stipulated period, and invested the entire long-term capital gain in the qualifying property, exemption was available for the full gain. The reference in section 54(2) was held to be to section 139 generally, not section 139(1) alone, so no additional reading-in of a narrower deposit requirement was justified. As the whole capital gain was appropriated towards the new residential house within time, deposit in the capital gains account scheme was not required.

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Issues: Whether the assessee was entitled to exemption under section 54 of the Income-tax Act, 1961, on the entire long-term capital gain arising from sale of the residential house, and whether the requirement of depositing any unutilized amount under section 54(2) was attracted.

Analysis: Section 54 is a beneficial provision and must be construed so as to advance its object. The assessee had entered into agreements for purchase of a new residential flat and taken possession within the stipulated period, and the cost of the new asset exceeded the capital gain earned. On a plain reading of section 54(2), the reference is to section 139 generally and not to section 139(1) alone. The provision does not warrant adding words or restricting its scope by implication when the statutory language is clear. Since the entire capital gain was appropriated towards purchase of the new residential property within time, there was no occasion to require deposit in the capital gains account scheme.

Conclusion: The assessee was entitled to exemption under section 54 for the entire capital gain, and the Revenue's appeal failed.

Final Conclusion: The decision affirms that where the whole capital gain is invested within the prescribed period in a qualifying residential house, exemption under section 54 cannot be denied by reading into section 54(2) a narrower requirement than the statute expresses.

Ratio Decidendi: A beneficial exemption provision must be given its plain and liberal meaning, and where the assessee has invested the full capital gain in a qualifying residential house within the stipulated period, no additional deposit requirement can be implied beyond the text of section 54(2).

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