TMI Blog2016 (12) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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. - TAX APPEAL NO. 483 of 2006 - - - Dated:- 14-6-2016 - MR.JUSTICE KS JHAVERI AND MR.JUSTICE G.R.UDHWANI MR MANISH J SHAH, ADVOCATE MR. J.P. SHAH, ADVOCATE, for the Appellant MR KM PARIKH, SENIOR STANDING COUNSEL for the Respondent ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) The appellant has preferred this appeal under section 260A of the Income-tax Act, 1961 challenging the order of the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Nigam [226 ITR 696] and after hearing learned counsel for the parties, held that benefit under section 54F of the Income-tax Act was not allowable for a residential house purchased/constructed outside India. In that view of the matter the Tribunal dismissed the appeal of the appellant. 4. Learned counsel for the appellant Mr. Shah has contended that the appellant had, after selling the plot of land, purchased a residential house in United States of America and fulfilled the conditions laid down in Section 54F of the Incometax Act for claiming benefit under the said section and therefore, the appellant was not liable to pay any tax under the head capital gain . He has further contended that the Tribunal committed an error in holding that residential house mentioned in section 54F of the Income-tax Act must be in India and not outside India. He has further submitted that nowhere in section 54F of the Income-tax Act prior to its amendment, it is stated that the residential house is required to be purchased or constructed in India and then only the appellant entitled to get benefit of the said section. In this regard he has relied on the Explanatory Notes to unamended sections 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015 read as under: Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house - 54F (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (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 date constructed, one residential house in India (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say - (a) if the cost of new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) If the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set 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 (4) The amount of the net consideration which is not appropriated by the assessee towards 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property; (c) income derived from property held under trust- (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; (d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. Explanation.- For the purposes of clauses (a) and (b),- (1) in computing the fifteen per cent of the income which may be accumulated or set apart, any such voluntary contributions as are referred to in section 12 shall be deemed to be part of the income; (2) if, in the previous year, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the amount, if any, by which the amount so utilised exceeds the cost of the transferred asset; (b) where a capital asset, being property held under trust in part only for such purposes, is transferred and the whole or any part of the net consideration is utilised for acquiring another capital asset to be so held, then, the appropriate fraction of the capital gain arising from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified hereunder, namely:- (I) where the whole of the net consideration is utilised in acquiring the new capital asset, the whole of the appropriate fraction of such capital gain; (ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to the amount, if any, by which the appropriate fraction of the amount utilised for acquiring the new asset exceeds the appropriate fraction of the cost of the transferred asset. Explanation.-In this sub-section,- (i) appropriate fraction means the fraction which represents the extent to which the income derived from the capital asset transferred was immediately before such transfer applicable to charitable or religious pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sub-section (1) of section 139 for furnishing the return of income for the previous year: Provided that in computing the period of five years referred to in clause (a), the period during which the income could not be applied for the purpose for which it is so accumulated or set apart, due to an order or injunction of any court, shall be excluded.] Explanation.-Any amount credited or paid, out of income referred to in clause (a) or clause (b) of subsection (1), read with the Explanation to that subsection, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. (3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved. (4) For the purposes of this section property held under trust includes a business undertaking so held, and where a claim is made that the income of any such undertaking shall not be included in the total income of the persons in receipt thereof, the Assessing Officer shall have power to determine the income of such undertaking in accordance with the provisions of this Act relating to assessment; and where any income so determined is in excess of the income as shown in the accounts of the undertaking, such excess shall be deemed to be applied to purposes other than charitable or religious purposes. (4A) Sub-section (1) or sub-section (2) or subsection (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. (5) The forms and modes of investing or depositing the money referred to in clause (b) of subsection (2) shall be the following, namely :- (i) investment in savings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial development in India and which is eligible for deduction under clause (viii) of sub-section (1) of section 36; (ix) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes and which is eligible for deduction under clause (viii) of sub-section (1) of section 36; (ixa) deposits with or investment in any bonds issued by a public company formed and registered in India with the main object of carrying on the business of providing long-term finance for urban infrastructure in India. Explanation.-For the purposes of this clause,- (a) long-term finance means any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than five years; (b) public company shall have the meaning assigned to it in section 3 of the Companies Act, 1956 (1 of 1956); (c) urban infrastructure means a project for providing potable water supply, sanitation and sewerage, drainage, solid waste man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in (1973) 88 ITR 192 (SC) and Smt. Tarulata Shyam and others v. Commissioner of Income-tax, West Bengal, reported in (1977) 108 ITR 345 (SC). The Apex Court in the case of Commissioner of Income-tax, West Bengal-I v. Vegetable Products Ltd. (supra) has held as follows: Held, accordingly, that in calculating the penalty leviable under section 271(1)(a)(i) of the Income-tax Act, 1961, for failure to file the return of income (for the assessment year 1960-61) within the time without reasonable cause, the amount paid by the assessee under provisional assessment under section 23B of the Indian Income-tax Act, 1922, had to be deducted from the amount of tax determined under section 23(2) of that Act, in order to determine the amount of tax on which the computation of the penalty was to be based. If the court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt that interpretation which favours the assessee, more particularly so where the provision to the imposition of a penalty. In the case of Smt. Tarulata Shyam and others v. Commissioner of Income-tax, West Bengal (supra), the Apex Court has held as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax. If such house property purchased or constructed is transferred within a period of three years of its purchase or construction the capital gain on the property so transferred is calculated by reducing the cost of its acquisition by the amount of the capital gain exempted from income-tax. 19.2 The conditions of self-occupation of the property by the assessee or his parent before its transfer and purchase or construction of the new property to be used for the residence of the assessee for the purposes of exemption of capital gains created hardship for assessees. This was usually due to the fact of employment or business of the assessee at a place different from the place where such property was situated. 19.3 The Finance Act has made the following modification in section 54 of the Income-tax Act, namely: (I) the conditions of residence by the assessee or his parent in the property which was transferred, as also residence by the assessee in the new property purchased or constructed by him have been removed. (ii) The period for construction of a new property has been raised from two years to three years since assessees sometimes experience difficulty in complyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Where the assessee purchases or constructs any other residential house within the period aforesaid, the exemption under the proposed provision, if allowed, shall stand forfeited and the amount of capital gain arising from the transfer of the original asset, which was not charged to tax, shall be allowed to be the income chargeable under the head Capital gain relating to long-term capital assets of the previous year in which such residential house is so purchased or constructed. Net consideration in respect of the transfer of a capital asset means the full value of the consideration received or accruing as a result of the transfer of the capital asset after deduction of any expenditure incurred wholly and exclusively in connection with the transfer. 20.3 If the assessee transfers the newly acquired residential house within three years of its purchase or construction, then the amount of capital gain arising from the transfer of the original asset which was not charged to tax shall be deemed to be the income of the year in which the new asset is transferred and such income shall be charged to tax under the head `Capital gain relating to long-term capital assets. 20.4 This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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