Under the I T Act, section 54F provides exemption of capital gains tax on long term asset (other than residential house) if the sale consideration is invested in residential house.Mr X has sold the land and invested in two properties -residential houses.

Unfortunately in that case , the same section 54 under Sub section 2 provides as follows:

“(2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head Income from house property, other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head Capital gains relating to long-term capital assets of the previous year in which such residential house is purchased or constructed.”Therefore ,unfortunately, Mr X will lose the exemption on account of Section 54F(2) of the I T Act.

In my view ,Mr X could have taken benefit of section 54EC He should deposit the balance amount in bonds issued by REC which is open right now. CBDT has extended the date for investment of consideration in respect of long-term capital asset was transferred between 29.09.2005 and 30.09.2006 (both dates inclusive).So if the site was sold within that period ,invest the amount in REC bonds.