Capital Gains Exemption u/s 54F Allowable for Purchase of Residential Property Using Sale Proceeds of Land, as Construction Agreement Was Signed Prior to Sale: ITAT

The Income Tax Appellate Tribunal (ITAT) has allowed a taxpayer to claim capital gains exemption under Section 54F of the Income Tax Act for the purchase of a new residential property. The unique aspect of the case was that the construction agreement for the new property was signed before the sale of the original asset (a plot of land). The tax department had denied the exemption on this ground. However, the ITAT took a pragmatic view, noting that the sale proceeds from the land were ultimately used for the purchase of the new house. The tribunal held that as long as the investment in the new property is made within the timeframes prescribed in the Act, the exemption should be allowed. This ruling focuses on the substance of the transaction—the reinvestment of sale proceeds—rather than on the strict sequence of the agreements.