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Issues involved: Interpretation of section 54 of the Income-tax Act, 1961 regarding exemption on capital gains from the sale of residential properties.
Issue 1: The Income-tax Appellate Tribunal's decision on compliance with section 54 for exemption. The Appellate Tribunal held that the assessee complied with the requirements of section 54 for constructing a new house at a different location and was entitled to exemption from capital gains. The Tribunal directed the Income-tax Officer to modify the assessment accordingly. Issue 2: Requirement of the timing of construction for availing benefits under section 54. The Tribunal determined that the construction of the new house did not need to begin after the sale of the old house to avail benefits under section 54. The key factor was the investment of capital gains in the new property, as per the Tribunal's interpretation. Issue 3: Necessity of using sale proceeds for construction under section 54. The Tribunal did not find it necessary that the sale proceeds of the old residential house must be used in the construction of the new residential house to avail benefits under section 54. The Tribunal emphasized the importance of investment in the new property for exemption from capital gains. The judgment highlighted a case where the assessee sold a residential property and invested in constructing a new house. The Income-tax Officer initially rejected the application of section 54, but the Appellate Tribunal disagreed. The Tribunal's decision aligned with a similar case in the Karnataka High Court, emphasizing that the timing of construction did not affect the exemption under section 54. Ultimately, the High Court ruled in favor of the assessee on issues 1 and 2, while issue 3 was deemed misconceived and left unanswered.
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