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Issues Involved:
1. Eligibility for exemption under Section 54 of the IT Act, 1961. 2. Nature of the transaction involving the purchase of a residential flat. 3. Compliance with Section 54(2) regarding the deposit of unutilized capital gains. Issue-wise Detailed Analysis: 1. Eligibility for Exemption under Section 54 of the IT Act, 1961: The assessee claimed exemption for the entire long-term capital gain of Rs. 29,73,048 under Section 54 of the IT Act, 1961, asserting that the amount was utilized for acquiring a residential house within the stipulated time. The CIT(A) partially allowed the claim, granting exemption for Rs. 14,43,254, the amount paid by the assessee up to 31st August 1996, and disallowed the remaining amount since it was not deposited in a separate capital gain account as required by Section 54(2). 2. Nature of the Transaction Involving the Purchase of a Residential Flat: The assessee sold a one-fourth share in 'Jalan House' for Rs. 40 lacs, resulting in a capital gain of Rs. 29,73,048. To claim exemption, the assessee purchased a flat in Calcutta for Rs. 30 lacs from joint owners via two separate agreements. The AO contended that the transaction was a sub-lease and not a purchase, thus not qualifying for exemption under Section 54. However, the CIT(A) held that the grant of a lease amounted to a transfer of a capital asset, thereby qualifying for exemption. 3. Compliance with Section 54(2) Regarding the Deposit of Unutilized Capital Gains: The AO argued that the assessee did not comply with Section 54(2) as the unutilized capital gains were not deposited in a specified bank account. The CIT(A) agreed partially but allowed exemption for the amount paid by the stipulated date. The Tribunal, however, found that the assessee had appropriated the entire capital gain for the purchase of the new asset within the stipulated time, thus complying with Section 54(1) and negating the need for compliance with Section 54(2). Tribunal's Conclusion: The Tribunal concluded that the assessee had indeed complied with the requirements of Section 54(1) by purchasing the flat for Rs. 30 lacs within the specified period. It was held that the entire capital gain of Rs. 29,73,048 was utilized appropriately, and the assessee was entitled to full exemption under Section 54. The Tribunal relied on the Kerala High Court decision in ITO vs. K.C. Gopalan, which held that the law does not mandate the utilization of the exact sale consideration for the purchase of a new asset, but rather that the acquisition should be within the specified period. Final Judgment: The appeal filed by the assessee was allowed, granting full exemption for the capital gains, while the appeal by the Department was dismissed.
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