Investment of sale proceeds in house constructed by third party entitles assessee to exemption under Section 54(1) of the Income-tax Act, 1961.

( 1 ) ON an application under Section 256 (1) of the Income-tax Act, 1961, the following question set out at page 2 of the application, has been referred by the Tribunal for our opinion :"whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assessee is entitled to exemption under Section 54 (1) since the agreement of purchase was made within one year from the date of sale and since substantial parts of instalments were paid within two years from the date of sale and thereby treating the date of agreement as the date of purchase ?"

( 2 ) THE assessee had sold her flat at Rs. 1,40,000 on April 30, 1981. The asses-see thereupon entered into an agreement on April 29, 1982, for purchase of ownership flat from Akash Deep Corporation for a sum of Rs. 1,40,000. As per the agreement, she had to pay Rs. 10,000 on or before the execution of the agreement and the balance amount she has to pay as under :

Date of payment Amount (Rs.)

22-4-1982 10,000

25-3-1983 10,000

25-4-1983 10,000

4-6-1983 10,000

5-7-1983 10,000

27-7-1983 10,000

14-11-1983 50,000

21-1-1984 20,000

3-3-1984 10,000

( 3 ) THE assessee claimed the benefit of exemption under Section 54 (1) of the Income-tax Act, 1961. According to the Assessing Officer, the assessee is entitled to only the benefit to the extent of Rs. 30,000 which she has invested during two years from the date of sale.

( 4 ) IN appeal before the Deputy Commissioner of Income-tax (Appeals), the Deputy Commissioner of Income-tax (Appeals) dismissed the appeal of the assessee.

( 5 ) IN appeal before the Tribunal, the Tribunal has considered the decision of the Andhra Pradesh High Court in the case of CIT v. Mrs. Shahzada Begum and also considered the decision of the apex court in the case of CIT v. J. H. Gotla and allowed the claim of the assessee. When the assessee has invested the entire amount within three years, she is entitled to exemption under Section 54 (1) of the Act.

( 6 ) THE facts are not in dispute that after sale of her flat on April 30, 1981, she entered into an agreement for purchase of an ownership flat on April 29, 1982, and the entire amount of the flat, that is, Rs. 1,40,000 has been paid within three years from the date of sale of her flat.

( 7 ) IN Mrs. Shahzada Begum's case the Andhra Pradesh High Court has taken the view that the expression "purchased" would undoubtedly connote the domain and control of the property given into the assessee's hands. Therefore, registration is not necessary. If money is paid and possession has been taken within the stipulated period under Section 54 (1), the assessee is entitled to benefit under Section 54 (1 ).

( 8 ) THE provisions of Section 54 (1) of the Act provide that subject to the provisions of Sub-section (2), where capital gain arises from the transfer of a long-term capital asset, the income of which is chargeable under the head "income from the house property" and the assessee has within a period of one year before or two years after the date on which a transfer took place purchased, or has within a period of three years after that date constructed a residential house, then, instead of capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the provisions in the section.

( 9 ) THE admitted facts are that the assessee has entered into an agreement within two years for purchase of a residential flat and the flat was under construction. The amount was paid in instalments, but all the instalments are paid within three years from the date of sale of her flat, i. e. , on April 30, 1981. The provisions of Section 54 (1) permit the assessee in case the assessee invests the sale proceeds in the construction of a house within three years, the assessee is exempted from the capital gain tax arising out of the sale of the earlier house. Here no doubt,