Law:

Section:

Section 54 [as it stood before amendment made by the Finance Act, 1978], read with section 155(8), of the income-tax act. 1961-Capital gains-Arising from sale of property used for residence-Capital gains partly invested on purchasb of another house and partly on construction of additional floor to the same house within the prescribed time limit- ITO restricted exemption to investment on purchase only holding that exemption under section 54 is admissible either for purchase or for construction but not for both-Whether exemption admissible for both items-Held, yes-Whether by virtue of section 155(8) assessment could be rectified to grant exemption in respect of amount spent on both purchase and construction within stipulated time-Held, yes-Whether in such a case conditions of section 154 have to bb independently fulfilled too-Held, no Facts The assessee sold his dwelling house on 26-7-1974 for a consideration of Rs. 3,15,000. The entire capital gain of Rs. 2,31,199 resulting from the transaction was utilised by him on the purchase of a house property on 13-6-1975, i.e., within one year of sale of the house property (Rs. 1,23,001), and on construction of an additional floor to the same house before 31-3-1976, i.e., within two years of the sale (Rs. 1,08,300). The new house property was used by the assessee for the purpose of his own residence. The assessee initially claimed exemption under section 54 (as it stood prior to amendment made by the Finance Act, 1978 with retrospective effect from 1-4-1974) for the amount of Rs. 1,23,001 spent on the purchase of the new house, and this was allowed by the ITO on the basis of a Tribunal order. Subsequently, the assessee represented that the sum of Rs. 1,08,000 spent on the construction of additional floor was also eligible for exemption, since the expenditure was incurred within two years of sale of old house as required under section 54, and hence requested the ITO to amend the assessment under section 155(8) so as to allow this exemption. The ITO rejected the assessee's plea on the ground that section 54 contemplated exemption either for the purchase of a new house or for the construction of a new house, but not for…

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