The object of section 54 is to give relief to an assessee who has replaced his existing residential house either by a new one or constructed a new house. By merely making payment to a builder pursuant to an agreement does not amount to purchase of new residential house. The builder may or may not deliver the house to the assessee depending upon various circumstances. The decisions of the courts though mostly in favour of the assessee do not appear to be correct?
what is relevant is utilisation of sale proceeds of the transferred house. once the funds are ploughed back either by payment to a builder or own construction ,the exemption is justifiable.
One must see into the intention of the section. In present scenario,it is almost difficult for anyone to get his own house constructed, you have to depend on the builder. Once you make payment to builder for purchase of house, one must get deduction unless and until it is done with a motive of fraud.