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# S.54 – Section 54(1) is mandatory and compliance under section 54(2) is directory.

The question for consideration is whether an assessee is entitled for benefit of deduction under section 54 even though the amount was not deposited in the capital gain account as required under section 54(2). Held: section 54(2) cannot be read in isolation and on the other hand, application of section 54(2) should take place only when the assessee failed to satisfy the requirement under section 54(1). While the compliance of requirement under section 54(1) is mandatory and if complied, has to be construed as substantial compliance to grant the benefit of deduction, the compliance of requirement under section 54(2) could be treated only as directory in nature. If the assessee with the material details and particulars satisfies that the amount for which deduction is sought for under section 54 is utilised either for purchasing or constructing the residential house in India within the time prescribed under section 54(1), the deduction is bound to be granted without reference to section 54(2), which compliance would come into operation only in the event of failure on the part of the assessee to comply with the requirement under section 54(1). Mere non-compliance of a procedural requirement under section 54(2) itself cannot stand in the way of the assessee in getting the benefit under section 54, if he is, otherwise, in a position to satisfy that the mandatory requirement under section 54(1) is fully complied with within the time limit prescribed therein. Venkata Dilip Kumar v. CIT [2019] 419 ITR 298 (Mad).