TMI Blog2012 (12) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... MANMOHAN, AND SHRI RAJENDRA, JJ. Appellant by: Shri Pradip Kapasi Respondent by: Shri Suhachan Ram PER RAJENDRA, A.M. The following are the Grounds of Appeal filed by the Appellant against the order dtd. 30-12-2011 of the CIT(A)-29, Mumbai: 'I. DISALLOWANCE OF EXEMPTION U/S 54F FOR RS. 8,94,34,754/- (Page 1 Para 3 of the order) (a) The Ld. CIT(A) erred in law and on facts in upholding the disallowance made by the Ld. AO for exemption claimed u/s 54F of the Income tax Act, 1961 of Rs. 8,94,34,754/- and further erred in misconstruing the circular of the Board for denial of the exemption under the Act. (b) Your appellant submits that, (i) He was eligible for claiming exemption u/s 54F on purchase of residential premises outside India against the capital gains earned. (ii) He has satisfied all the conditions for claiming exemption u/s 54F of the Income Tax Act. (iii) As per provisions of section 54F, the new investment is required to be in a residential house irrespective of the location of that residential house. (iv) Though he is a non-resident, he is liable to Income Tax in India in respect of his capital gains and is therefore eligible for exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w to encourage house construction, that house construction should take place in India, that country would lose revenue if the exemption was allowed, that construction/ acquisition of house in India was a necessary condition for availing exemption u/s. 54 (F),that as per Section 1 of the Act, r.w.s. 225(a) of the Act was not applicable outside India. He relied upon the case law of Leena J. Shah ITA No. 206(6) SOT AHD in this regard and finally, he dis-allowed the claim made by the assessee. 3. Assessee preferred an appeal before the First Appellate Authority (FAA).After considering the facts of the case, arguments of the AO and the written submissions of the assessee, he held that issue was decided against the assessee by Ahmedabad Tribunal in the case of Leena J. Shah (supra),that decision of Prema V.Shah of ITAT Mumbai was not applicable to the facts of the case under consideration, that when income arose out of a transaction in India tax reduction could be given for a property purchased in India. Finally, he held that the capital gains arising out of transfer of plots was not eligible for deduction u/s.54 of the Act, as the sale proceeds had been invested in a property outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets', so, the 'new asset' should not be situated outside India. 5.1. Purpose of enacting any law is to make statutes workable. The cardinal principle of jurisprudence is to reject the interpretation that goes against the spirit of law. In order to arrive at the real meaning of a provision it is always necessary to have an exact conception of the aim, scope and object of the whole Act. In the case under consideration exemption from payment of tax is being claimed in India. It is totally illogical and irrational to accept the preposition that the amount ;for which exemption from tax is sought in India; should be applied outside India. Surely, Parliament could not have intended such a result to follow. From a pragmatic stand point also, such an interpretation cannot be accepted. The Income-tax Act applies to the whole of India-it is not extra-territorial in operation. The words 'in India' have necessarily to be read into the sub sections 2 and 3 to make them workable and to keep them in conformity with the application of the Act. In other words if activity of purchasing a residential house had no co-relation to the geographical boundaries of India, exemption has to be denied. Here w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a residential house in India.AO of India cannot and do not have control over the taxability of citizens of other countries except for a few exceptional circumstances. Assessee is a citizen of USA and is governed by the tax laws of that country. AO in India has no mechanism to see that provisions of section 54F are implemented in letter and spirit. Law never expects impossible to be performed. 5.2. Secondly, if submission made by the assessee has to be endorsed than it will have to be admitted that while introducing the section 54F Indian Parliament had in its mind the construction activities of other countries. If we look at the budgets of the last few years we find that lot of encouragement was being given to construction activities. Section 80IB, section 24 are the testimony of the positive steps taken by the Government of India to give impetus to construction activities-especially in the housing sector. Acute shortage of residential units for the growing young population across the country was the main reason behind the policy of encouraging construction activities. By no stretch of imagination, it can be held that by amending various provisions of the Act Parliament wanted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingredient of this principle is that provisions of statutes should be interpreted keeping in view the context in which they appears. The intention of the Legislature in enacting a particular provision should also be kept in mind. In other words purposive interpretation means to understand the purpose with which a particular provision was enacted or inserted by the Legislature. A purposive interpretation of the provision is always preferred over literal construction in case of ambiguity. It is said that not following purposive interpretation frustrates legislative purpose in certain situations. So, in cases of doubt or difficulties encountered in ascribing the proper meaning to a provision or a word in a provision, the Statement of Objects and Reasons or the Explanatory Notes on Clauses relating to the amendment or the report of the Joint Parliamentary Committee which preceded the legislation concerned are considered useful to ascertain the intention of the Legislature. In the earlier paragraphs we have already dealt this issue and have referred to circular issued by the CBDT with reference to the purposes of introducing the section 54 F. 5.4. AR of the assessee had referred to im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the assessee, even though residential property on lease was acquired outside India. We find that in the case of Prema P. Shah (supra), the issue of purchasing residential property outside India was never argued by the Departmental Representative (DR) before the ITAT. One of the arguments advanced by DR was that there was no correlation between the assets purchased and the sale of the old property. He had also argued that assessee was mentioned as lessee in the agreement entered into for purchasing the property abroad. In the case under consideration, AO as well as FAA has clearly held that benefit of provisions of section 54F of the Act were not available to the assessee as the property purchased was situated outside India. In the case of Girish M. Shah (supra) Mumbai Tribunal had observed as under: "As regards the decision of the Tribunal in the case of Leena J. Shah (supra), copy of which is not available to us, we find that in that case deduction u/s. 54F was considered whereas in the case before us the status of the assessee is non-resident Indian and the issue is with regard to the deduction u/s. 54 of the Act...............Therefore, the decision relied on by the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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