TMI Blog2018 (1) TMI 947X X X X Extracts X X X X X X X X Extracts X X X X ..... lue of the asset on 01.04.1981 and the cost of improvement incurred by the applicant. However, the Assessing Officer would verify the correctness of the valuation furnished by the Applicant with his application, as also all material figures required for computing the taxable capital gains in the hands of the Applicant. - A.A.R. No 1356 of 2012 - - - Dated:- 22-12-2017 - Mr. R.S. Shukla And Mr. Ashutosh Chandra, JJ. For The Applicant : Mr. U.N. Marwah, A.R. Mr. K. Sundar Ms Neha For The Department : Ms Kavita Pandey, CIT(DR) And Mr. R.D. Burman, Addl. CIT (IT) RULING ( By Ashutosh Chandra) The applicant is an individual and a holder of British Passport , settled and residing in the UK. The residential status of the Applicant is Non-Resident, Person of Indian Origin and has been regularly assessed to tax in India under PAN AMRPG9569K. The application was admitted vide our order dated 11 August 2015. 2. As per the application, Mr Ajoy Kumar Ghosh, deceased father of the Applicant, was allotted Leasehold rights in residential land admeasuring 2000 Sq. yds bearing No 1/26 at Shanti Niketan, New Delhi, in terms of Sub Lease dated 15.2.1968. He con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961? ( ii) Whether on the facts and in the circumstances of the case, the Applicant is justified in taking a view that the deduction under section 54 cannot be denied, on the basis of a different view being expressed by ITAT Ahmd in case of Leena J. Shah, as it is settled law, that the interpretation in favour the applicant should be adopted? ( iii) If the answer to either of questions Number 1 or 2, is in affirmative, what would be the basis and the method of determination of long term capital gain and applicable tax thereon? 4. The Revenue, in their earlier response relied on the decision of the Mumbai Bench of the ITAT in the case of Farhad Bottlewala V. ACIT, dated 31.8. 2012, to say that the same issue had been addressed in this case and held against the assessee. The case of Leena J Shah, as decided by the ITAT, Ahmedabad Bench was also cited as it followed the above decision in the case of Farhad Bottlewala. The Revenue referred to the Explanatory Notes to the Finance (No. 2) Act 2014, to state that the amendment was made only to clarify that the benefit under sections 54/54F were intended to be granted when the investment was made in India. 4.1 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e A.Y. 2015-16 onwards the same cannot be applied in respect of any year prior to AY 2015-16. The amendment is clearly substantive and not clarificatory as the applicability was clearly made effective from a prospective year. 5.2 Under the provisions of Income Tax Act, 1961 since non-resident Indian s income is subjected to income tax and there is no specific prohibition in Income Tax Act, 1961 debarring the non-resident from the benefit of exemption under section 54 of the Act, and therefore a non-resident applicant cannot be treated differently from a resident applicant unless specifically prohibited. 5.3 The applicant had initially relied on several ITAT orders, but during the course of these proceedings, relied mainly on the decision of the Hon ble Gujarat High Court, in the case of Leena Jugalkishore Shah, and subsequent decisions, in support of his contention that the amount of reinvestment in Residential Property outside India is eligible for deduction u/s54 of the Income Tax Act, while computing taxable capital gains. 5.3.1 In Leena Jugal Kishore Shah [ Guj][2016] 72 Taxmann.com 185, it was held that: 9. .........The language of section 54F of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 54F one does not find anything therein to suggestthat the new residential house acquired should be situated in India.The words 'in India' cannot be read into section 54F, when Parliament in its legislative wisdom hasdeliberately not used the words 'in India' in section 54F.In this view of the matter, the assessee's claim for exemption under section 54F was to be allowed since all conditions laid down in this section are satisfied for availing of the said exemption. 5.5 The Applicant submitted that the decision of the Gujarat High Court in case of Leena J. Shah(Supra) is the solitary decision of any High Court in India which is in favour of the Applicant, there being no decision of any Tribunal or High Court, presently in favour of the Revenue. The decision in case of Leena J. Shah by ITAT Ahmedabad, was over-ruled by the High Court. The decision of Mumbai ITAT in Farad Bottlewala cited by the Learned DR was also over-ruled by its Coordinate benches in numerous cases.It has been submitted that in view of thefact that there being no decision against the view of the Applicant, the decision of the Hon ble High Court of Gujarat in Leena J. Shah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) read with section 49(1)(iii) and explanation to section 49(1) the cost of acquisition of the residential house at Shanti Niketan, New Delhi in India which was sold, shall be the cost of capital asset to the previous owner or the Fair Market Value as on 01.04.1981 at the option of the assessee i.e. ₹ 36, 37, 500 (50% of 72, 75, 000/-) which is its Fair Market Value as on 01.04.1981. The Applicant relied on the decision of the Bombay High Court in the case of CIT-12 vs. Manjula J. Shah [2011] 16 taxmann.com 42 (Bombay), wherein the Hon'ble High Court accepted that indexed cost of acquisition of capital asset had to be computed with reference to the year in which the previous owner first held the asset. 7.3 Regarding the cost of improvement it was stated that since the property became the property of the previous owner before 1.4.1981, therefore the cost of improvement shall include all expenditure of a capital nature incurred in making any additions or alterations to the capital asset on after the said date by the previous owner of the assessee. 7.4 The Applicant further submitted that he had filed Return of Income for AY 2012-13 pursuant to notice u/s 148 declaring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Clause (a) and (b) are the same for both Residents and Non-Resident. However, by virtue of Clause (c) to Section 5(1), the Act makes Global Income of residents chargeable to tax. The same is not true for Non-residents. Section 5(2) is for non residents. Section 5 refers to Section 14, which is the Section for classification of income under various heads for the purpose of charge and for the purpose of computation of Total Income. None of the charging sections for respective heads of income mention that the income should accrue or arise in India . The reason for this is embedded in, and intrinsic to, the charging Section for the Income Tax Act, 1961. Section 4 of the Act only provides a charge of income-tax for Total Income of a person. Hence, the charging sections for respective heads of income are foreclosed and precluded from using any different phraseology. The Act has been made to tax global income of the Residents. The charging sections under various heads do not specify residents in India and outside India , the clear reason being that having already been stipulated in Section 5, it will amount to repetition. 8.3 It is submitted that Capital Gains is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.5 The Revenue has cited the case of Gold Coin Health Food Pvt. Ltd, 304 ITR 308(SC) dated 18 August, 2008 where the Division Bench held that merely because the amendment was stated to take effect from 1.4.2003, that cannot be a ground to hold that the same did not have retrospective effect, and on the facts of the case, it was held that Explanation 4 to Section 271(1)(c) was clarificatory and not substantive. In the case of Fiduciary Shares Stock P. Ltd. vs ACIT in ITA No.321/Mum/2013 for AY 2009-10, Hon ble ITAT F Bench, Mumbai has held that the amendment made in Explanation to Section 73 of the Act by the same Finance (No.2) Act, 2014 with effect from 01.04.2015 is clarificatory in nature and will apply retrospectively for the reason that if it is not construed as such, certain piquant situations arise which cannot be supposed to arise. The ITAT referred to the decision of Hon ble Apex Court in the case of Allied Motors Pvt. Ltd vs CIT (224 ITR 677), wherein it was held that the first proviso to Section 43B of the Act was curative in nature and hence retrospective in operation, i.e. w.e.f. 01.04.1984 from when the Section was brought on the statue. 8.6 It is submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that sections 54 and 54F are not parimateria for the following reasons: 8.11.1 Section 54 was brought into the Income Tax Act 1961 from the 1922 Act. The Roll Over benefit for transfer of one house property and application of the long term capital gain to another house property was provided, and were included in Section 12B of the IT Act. This corresponded to Section 56 of the 1961 Act which after subsequent Amendments got renumbered to Section 54 of the IT Act. The provisions of the Section 54F were introduced into the IT Act in 1982, with the intention, of encouraging house construction as provided in the explanation to Finance Act 1982. 8.11.2 The intention of section 54 was to alleviate the hardship of the tax payer so that they could replace the house properties for self occupation as and when required, as can be construed from the Memorandum explaining provisions of the Finance Act 1982. The intention of the section 54F was to encourage house construction. 8.11.3 The benefit of provisions of Section 54 is applicable upon the LTCG arising upon the sale of residential house property.The benefit of provisions of Section 54F is applicable upon the LTCG arising upon the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the charging Sections of the Act to be read conjointly with the provisions of Section 5(2) of the Act in the case of a Non- Resident were not presented before Higher Judicial Authorities and have not been considered in the decisions referred to by the Ld. AR of the Applicant. 8.13 The decision of the Hon ble Supreme Court in the case of Rameshwar Lal Sanwarmal 1980 AIR 372 has been cited to say that while the Hon ble Supreme Court in the case of the assessee had given a decision favourable to the Revenue for an earlier assessment year, for a subsequent assessment year the decision has been given against the Revenue following the subsequent decision of the Supreme Court in another case. 9. The Applicant in his Rejoinder submitted that the contention of the Learned DR regarding reading the words in India into the section prior to amendment is wholly misplaced as this argument was considered by the Hon ble High Court of Gujarat in case of Leena J. Shah(Supra) and rejected. This issue has also been considered by various tribunals and have been rejected on the ground that the language prior to amendment was clear and unambiguous not requiring reading into what was not there. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 The Applicant stated that in accordance with the scheme of Act, Section 4 5 of the Act are the charging sections which determine the scope of total income of the assessee. Once a transaction is undertaken by the assessee which is covered under the scope of total income in accordance with section 5 of the Act, the income will be computed under various heads of Income u/s 14 of the Act. In the applicant s case, the gain on sale of a residential property will be treated as income as per section 5 of the Act. But the manner in which the income will be computed has been given in Chapter IV of the Act, wherein there is no restriction that the reinvestment in residential house is to be made in India. 10. We have heard both the Applicant and the Revenue, and also considered the provisions of law attracted in this case and the cases cited. 10.1 The applicant has purchased a residential house in London out of the capital gain on sale of the inherited property in India, within two years from the date of sale and the capital gains. We find that therewas no condition mentioned in the Incometax Act at the relevant time that the capital gain arising outof transfer of capital asset shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is indeed the key issue in this case, and the language of the two provisions with regard to this are similar, and which has been squarely dealt with by the Hon ble Gujarat High Court, namely whether the benefit would be available if such investment is made outside India. In fact we find that both these provisions have been referred to by both the sides before the Hon ble High Courtin this case, and were very much within its purview. The thrust of the whole decision is on this issue itself. Even when the amendment of 2014 was discussed and the Explanatory notes referred to, both the sections 54 and 54F have been considered together by the Hon ble High Court. Such was also the finding of the ITAT, Mumbai Bench in the case of Nishant Lalit Jadhav, cited by the Applicant, wherein the finding was that the two sections 54 and 54F were pari materia. On this issue, therefore, we are of the view that as far as the issue raised before us by the Applicant is concerned, the decision cited by it was as much applicable to section 54, as to section 54F. 10.4 Before proceeding further, it may be mentioned that the case of Leena Jugalkishore Shah cited by the Applicant is the only case decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r charitable trusts in section 11 of the Act, with regard to investment and application of income for charity. The intent of legislature in not only introducing the provisions of section 54 initially, ie. the un-amended section, as also the reasons for the amendment of 2014, as contained in the Explanatory Notes thereto, were also before the High Court when it considered and decided this matter in favour of the assessee. The High Court s refusal to accept that the words in India should be read into the charging sections cannot be ignored as being on distinguishable, incomplete or erroneous facts.It cannot be assumed that in giving this finding, the High Court would not have been aware of the construction of the charging sections, especially with regard to capital gains. After a detailed discussion, the Hon ble High Court held as under: Moreover, when the language of the taxing provision is ambiguous or capable of more meanings than one, then the court has to adopt the interpretation that favours the assessee. Section 54F of the Act before its amendment was clear that the assessee should invest in a residential house. The language of the section is clear and unambiguous. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case only. In the Applicant s case this discussion is academic, since he has a PAN, is assessed to tax and has been holding the property for more than 3 years. In his case recourse was taken to section 148 of the Act, and the Applicant is being assessed to tax and has made a claim of refund. This demonstrates that the provision is workable. Both residents and non residents are filing returns of Income in India, wherein the incomes are disclosed and benefits claimed. For the reason that there may be some noncompliant assessees, the taxability of and the benefits under the Act cannot be taken away. Whether an assessee is resident or non-resident, he is obliged to make a full and true disclosure of his total income.The income in the present cases arises under the Income tax Act, 1961, and is chargeable to tax under sections 4 and 5, read with sections 45 and 54. Any income arising under the Act even under the roll over provision, would be chargeable to tax in India since the benefit is provided by the Act in India. Once, the Hon ble High Court has held in the Leena J Shah case that the provision, as existed prior to the amendment, is applicable for investments outside India also, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd give a different opinion in the form of a Ruling. In the case of Kamalakshi Finance Corporation Ltd. AIR 1992 (SC) 711 the Hon ble Supreme Court held that: The principles of judicial discipline require that the order of the higher appellate authorities be followed unreservedly by the subordinate authorities. If this healthy rule is not followed, the result will only be undue harassment to assessee and chaos in administration of tax laws. 10.12.1 Further, in CIT v. Smt. Godavari Devi Saraf [Bom HC] 113 ITR 589 (BOM.), the Hon ble HC held that until contrary decision is given by any other competent High Court, which is binding on a Tribunal in the relevant State, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land. This means that once a decision is given by any of the High Courts in the country and there is no contrary decision by any other HC on the same issue then such decision of HC will be binding on all the administrative authorities and Tribunals throughout India.In Jain Exports vs. UOI(1998) 3 SC 579, it was laid down that in a tier system, decision of higher authorities are binding on l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased by the cost of any improvement of the asset incurred or borne by the previous owner or theassessee as the case may be . Benefit of indexed cost of inflation is given to ensure that the taxpayer pays capital gain tax on the real or actual 'gain' and not on the increase in the capital value of the property due to inflation. This is the object or purpose in allowing benefit of indexed cost of improvement, even if the improvement was by the previous owner in cases covered by Section 49. Accordingly the applicant will be allowed the benefit of indexation to the fair market value of the asset on 01.04.1981 and the cost of improvement incurred by the applicant. However, the exact computation of Capital Gains and valuation would have to be examined by the Assessing Officer, and is not for this Authority to go into. 13. In conclusion, the questions referred to us for our Ruling, are answered as under: Question no. 1:Yes. The applicant would be eligible for the benefit available under the provisions of section 54 of the Act, on utilisation of and to the extent of the amount reinvested in residential property in London. Question no. 2: Not required to be adjudicated. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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