Case Law Details
I.T.O. Vs Shri Mahesh Gobind Dalamal (ITAT Mumbai)
Conclusion: Exemption under Section 54 was available to assessee for properties purchased in foreign countries as there was no condition in the provision that the property must be purchased in India prior to amendment in the provision in 2015.
Held:
AO noticed that the sale consideration received on sale of the immovable property in India was utilized by assessee to purchase the new residential house at Dubai, UAE. Therefore, assessee was denied the exemption under section 54 by holding that the exemption envisaged under Sec.54 was available only where assessee had invested towards purchase or construction of a new residential property in India. It was noted the term “constructed a residential house‟ had been substituted by „constructed, one residential house in India”, vide the Finance (No.2) Act, 2014 w.e.f 01.04.2015, in itself revealed the legislative intent of restricting the exemption available under the aforesaid statutory provision only in respect of a residential house which was either constructed or purchased by assessee in India with effect from assessment year 2015-16. In the present facts, as the entitlement of an assessee to claim exemption under Sec.54 was not qualified by any such condition that the investment towards construction or purchase of new residential house was to be made in India during the year under consideration, hence the claim of exemption so raised by him under Sec. 54 in respect of the new residential house that was purchased by him at Dubai, UAE was well in order.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-56, Mumbai, dated 23.08.2017, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „IT Act‟), dated 26.12.2016. The assessee assailing the order of the CIT(A) has raised before us the following grounds of appeal :
“1. Whether on facts and in law, the Ld.CIT(A) is correct in holding that the amount of capital gains invested in the new residential house Dubai is eligible for deduction u/s.54 when the provisions of Income Tax Act, 1961 extend to the whole of India as per section 1(2) of the I.T. Act, 1961.
2. The Appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.
3. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
2. Briefly stated, the assessee who is a non-resident Indian had filed his return of income for A.Y. 2014-15 on 28.07.2014, declaring total income at Rs.8,03,790/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
3. During the year under consideration the assessee was in receipt of Income from capital gains and Income from other sources. On a perusal of the working of “Long Term Capital Gains” (for short „LTCG‟), it stood revealed that the assessee and his sister Mrs. Karina (Manisha) Mhatani had jointly sold a residential house property on 29.05.2013 for a consideration of Rs. 14,75,00,000/-. The share of LTCG in the hands of the assessee worked out at Rs.7,16,78,788/-. It was observed by the A.O that the assessee had claimed the entire amount of LTCG arising from the sale of the aforesaid property as exempt under Sec. 54 of the IT Act on the ground that he had invested an amount of Rs.7,68,93,288/- (i.e in excess of the LTCG) for purchase of a new residential house at Dubai i.e. Apartment No. 3404, 34thFloor, Al Seeef Tower, Dubai Marina, Dubai, UAE. It was noticed by the A.O that the sale consideration received on sale of the immovable property in India was utilized by the assessee to purchase the new residential house at Dubai, UAE. The A.O being of the view that the exemption envisaged under Sec.54 of the IT Act was available only where the assessee had invested towards purchase or construction of a new residential property in India, thus declined to allow the aforesaid claim of exemption that was raised by the assessee in respect of the investment made towards purchase of the new residential house at Dubai. On the basis of his aforesaid deliberations the A.O assessed the income of the assessee at Rs.7,24,82,580/-.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee that the exemption envisaged under Sec. 54 during the period relevant to the year under consideration was also available in respect of an investment made by an assessee towards purchase or construction of a new residential property situated abroad was persuaded to subscribe to the same. It was observed by the CIT(A) that the issue before him was to be viewed in context of the situation prior to the amendment that was made available on the statute vide the Finance Act, 2014. Apart there from, it was noticed by him that the issue under consideration was covered by the judgment of the Hon’ble High Court of Gujarat in the case of Leena Jugalkishor Shah Vs. ACIT (2017) 392 ITR 18 (Guj) and an order of the ITAT, Mumbai in the case of ITO Vs. Mr. Nishant Lalit Jadhav (ITA No. 6883/Mum/2014; dated 26.04.2017). The CIT(A) observed that as per the pre-amended Sec. 54 (i.e prior to the amendment made available on the statute vide the Finance Act, 2014 w.e.f 01.04.2015) there was no explicit requirement that the investment in the new residential house was to be made only in India. On the basis of his aforesaid observations the CIT(A) finding favour with the contentions of the assessee observed that the claim of exemption raised by him was in order and thus allowed the appeal.
5. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Departmental Representative (for short „R’) relied on the order of the A.O. It was submitted by the ld. D.R that investment by the assessee towards purchase of a residential property in Dubai shifted the tax base from India which was not the intention of the legislature while enacting the said statutory provision. In sum and substance, it was the contention of the ld. D.R that the exemption envisaged in Sec. 54 was in respect of an investment made by an assessee towards purchase or construction of a new residential property in India and the same did not take within its sweep acquisition of a new residential property in a foreign land.
6. Per contra, the ld. Authorized Representative (for short „R‟) for the assessee relied on the order passed by the CIT(A). It was submitted by the ld. A.R that prior to the amendment made available on the statute vide the Finance Act, 2014 i.e. w.e.f. 01.04.2015, there was no explicit requirement enshrined in Sec. 54 of the IT Act that investment towards purchase or construction of a new residential house was to be made only in India. It was the contention of the ld. A.R that no infirmity did emerge from the order of the CIT(A) who had rightly concluded by taking support of certain judicial pronouncements that the investment made by the assessee towards purchase of new residential house at Dubai was eligible for exemption envisaged under Sec.54 of the I.T. Act.
7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that Sec. 54 of the IT Act which envisages the exemption of capital gain arising to an assessee being an individual or Hindu undivided family on sale of property used for residence as relevant to the year under consideration viz. A.Y.2014-15, read as under:
“[(1)][Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of a long-term capital asset [***], being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property” (hereafter in this section referred to as the original asset), and the assessee has within a period of [one year before or two years after the date on which the transfer took place purchased], or has within a period of three years after that [“constructed, a residential house”] then], instead of the capital gain being charged to income tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—
(i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.
[*****]
1(2) The amount of the capital gain which is not appropriated by the assessee wards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for -purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:
Provided that if the amount deposited under this sub-section is not utilized wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,—
(i) the amount not so utilised shall he charged under section 45 as the income of the previous year in which the period of three years from the (late of the transfer of the original asset expires; and
(iii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.”
On a perusal of the aforesaid statutory provision as was available on the statute during the period relevant to the year under consideration viz. A.Y 2014-15, it can safely be gathered that prior to the amendment made available to Sec. 54 by the Finance (No. 2) Act, 2014 with effect from 01.04.2015 i.e from A.Y. 2015-16, there was no explicit requirement that the investment in new residential house was to be made only in India. Rather, we find that the legislature in all its wisdom had only pursuant to the amendment to Sec. 54 by the Finance (No.2) Act, 2014 had w.e.f 01.04.2015 restricted the entitlement of an assessee towards exemption therein envisaged by providing a rider that the new residential house purchased or constructed shall be situated in India. In sum and substance, the legislature had w.e.f A.Y 2015-16 squeezed the scope and gamut of the exemption contemplated in Sec. 54 and had restricted the same only in respect of an investment made by the assessee towards purchase or construction of a residential house situated in India. The aforesaid legislative intent can safely be gathered from a perusal of the “Notes on clauses” explaining the purpose behind the aforesaid amendment to Sec. 54, vide the Finance (No.2) Act, 2014 w.e.f 01.04.2015, which reads as under:
“Clause 22 of the Bill seeks to amend section 54 of the Income-tax Act relating to profit on sale of property used for residence.
The existing provisions contained in sub-section (1) of Sec. 54 provide that where capital gain arises from the transfer of a long term capital asset, being a residential house, and the assessee within a period of one year before or two years after the date of transfer purchases, or within a period of three years after the date of transfer constructs, a residential house then the amount of capital gains to the extent invested in the new residential house is exempted.
It is proposed to amend the aforesaid subsection so as to provide that the exemption is available, if the investment is made in purchase or construction of one residential house situated in India.”
We find that our aforesaid view is fortified by the judgment of the Hon’ble High Court of Gujarat in the case of Leena Jugalkishor Shah Vs. ACIT (2017) 392 ITR 18 (Guj), wherein the Hon’ble High Court in context of a similarly placed Sec. 54F had observed as under:
“It is also not in dispute that the appellant has not purchased the residential house in United States of America. In fact, she has purchased a residential house in U.S.A. out of the capital gain on sale of the plot in India and thus she has fulfilled the conditions stipulated in section 54F of the Income-tax Act. She has invested the capital gains in a residential house within the stipulated time. There was no condition in section 54F of the Income-tax Act at the relevant time that the capital gain arising out of transfer of capital asset should be invested in a residential house situated India. The language of section 54F of the Income-tax Act before its amendment was that the assessee should invest capital gain in a residential house. It is only after the amendment to section 54F of the Income-tax Act by the Finance (No. 2) Act, 2014, which came into effect with effect from 1.4.2015 that the assessee should invest the sale proceeds arising out of sale of capital asset in a residential house situated in India within the stipulated period. Thus on a plain reading of section 54F of the Income-tax Act before its amendment by the Finance (No.2) Act leaves no room for any doubt that the assessee should restrict her investment within India or outside India. The only condition was that the assessee should invest in a residential house. The Tribunal has wrongly interpreted section 54F of the Income-tax Act by holding that the assessee should purchase the residential house situated in India. Prior to amendment to section 54F of the Act, the only condition stipulated was investment in a residential house. When the section 54F of the Income-tax Act was clear and unambiguous, there is no scope for importing into the statute the words which are not there. Such importation would be not to construe but to amend the statute. If there is any defect in the Act, it can be remedied only by the legislation and not by judicial interpretation.
10. In the present case the assessee has purchased the residential house in U.S.A. out of the sale proceeds of the plot in India and thus she has fulfilled the conditions of section 54F of the Income-tax Act before its amendment by the Finance (No. 2) Act. Moreover, when the language of a taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt the interpretation which favours the assessee. Section 54F of the Act before its amendment was clear that the assessee should investment in a residential house. The language of section is clear and unambiguous. Therefore, we cannot import into the statute the words ‘in India’ as interpreted by the authorities. Thus, taking into consideration the above facts, we are of the opinion that benefit of section 54F before its amendment can be extended to a residential house purchased outside India. In that view of the matter, the appeal is allowed. The order of the Tribunal is set aside. We answer the question in favour of the assessee and against the revenue.”
We further find that a similar view had also been taken by the coordinate benches of the Tribunal i.e. (i). ITAT, Mumbai in the case of ITO Vs. Mr. Nishant Lalit Jadhav (ITA No. 6883/Mum/2014; dated 26.04.2017); and (ii). ITAT Bangalore in the case of Vinay Mishra Vs. ACIT (2013) 30 taxmann.com 341 (Bang). In the case of Vinay Mishra (supra) it was observed by the Tribunal that a plain reading of the provisions of Sec. 54F did not reveal anything which would suggest that the new residential house acquired should be situated in India. Rather, it was observed by the Tribunal that the word „in India‟ cannot be read into Sec. 54F (as was then available on the statute), specifically when the parliament in its legislative wisdom had deliberately not used the said words in Sec. 54F. We also find that the Authority of Advance Rulings (for short „AAR‟) in the case of Dipankar Mohan Ghosh, in re (2018) 401 ITR 129 (AAR) following the view taken by the Hon‟ble High Court of Gujarat in the case of Leena Jugalkishor Shah Vs. ACIT (2017) 392 ITR 18 (Guj), had concluded that the benefit of Sec. 54F before its amendment extended to a residential house that was purchased by the assessee outside India.
8. We have deliberated at length on the issue before us and are of the considered view that as per the pre-amended Sec. 54 of the IT Act (i.e prior to its amendment by the Finance (No. 2) Act, 2014 w.e.f 01.04.2015), there was nothing available in the said statutory enactment which would suggest that the new residential house acquired should be situated in India. In our considered view, the aforesaid amendment as per which the term „constructed a residential house‟ has been substituted by „constructed, one residential house in India‟, vide the Finance (No.2) Act, 2014 w.e.f 01.04.2015, in itself reveals the legislative intent of restricting the exemption available under the aforesaid statutory provision only in respect of a residential house which was either constructed or purchased by the assessee in India with effect from assessment year 2015-16. Our aforesaid view further stands fortified from a perusal of the “Notes on clauses” to the Finance (No. 2) Bill, 2014, which as observed by us hereinabove clearly reveals that the aforesaid amendment under consideration to Sec. 54 was to be given a prospective effect from A.Y. 2015-16. We are of the considered view that as the entitlement of an assessee to claim exemption under Sec.54 was not qualified by any such condition that the investment towards the construction or purchase of the new residential house was to be made in India during the year under consideration, hence the claim of exemption so raised by him under Sec. 54 in respect of the new residential house that was purchased by him at Dubai, UAE was well in order. We thus in the backdrop of our aforesaid deliberations and respectfully following the aforesaid judicial pronouncements are of the considered view that as no infirmity emerges from the order passed by the CIT(A), who had rightly directed the A.O to grant exemption to the assessee under Sec. 54 in respect of the investment made by him in the residential property in Dubai, UAE, thus uphold his order.
9. The appeal filed by the revenue is dismissed.
