A perusal of the provision of section 54 shows that the exemption under the said section is available on transfer of along term capital asset in respect of residential house and land or building appurtenant thereto to an assessee who is either individual or Hindu undivided family. It is also essential that the income of the same is chargeable under the head ‘Income from house property’. Further requirement under this provision is that the assessee within a period of one year before or two years after that date purchases or within a period of three years after that date constructs a residential house. 

In the instant case, in order to examine the entitlement of the assessee for exemption under section 54, it is to be seen whether the assessee had constructed residential house within three years of the transfer of his property. For doing so, the meaning of the term ‘house’ is to be explored. The term ‘house’ has not been given any statutory definition and, thus, has to be assigned meaning as understood in common parlance. As per dictionary, it means abode, a dwelling place or building for human habitation. A building, in order to be habitable by a human being, is ordinarily required to have minimum facilities of washroom, kitchen, electricity, sewerage, etc.

The lower authorities had come to the conclusion that only one room had been built with bricks and mud. There were no amenities like boundary wall, kitchen, toilet, electricity, water and sewerage connection, etc. Further theresidential plot was situated in Janta Enclave, a colony approved by PUDA. As per bye-laws of PUDA, no construction could be made without getting the map and drawings approved from PUDA, which had not been done. Still further no source of investment had been established. In view of the above, the house in question was not a residential house and, therefore, the assessee was not entitled to the benefit under section 54.