TMI Blog2019 (4) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... Member And Shri Ramit Kochar, Accountant Member For the Assessee : Shri. Piyush Chhajjed For the Revenue : Miss. Deepika Arora (DR) ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal, filed by assessee, being ITA No. 5799/Mum/2017, is directed against appellate order dated 23.06.2017, passed by learned Commissioner of Income Tax (Appeals)-57, Mumbai (hereinafter called the CIT(A) ), for assessment year 2014-15, the appellate proceedings had arisen before learned CIT(A) from the assessment order dated 23.12.2016 passed by learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called the Act ) for AY 2014-15. 2. The grounds of appeal raised by assessee in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) read as under:- The grounds mentioned hereunder are without prejudice to one another: 1) The ld. Commissioner of Income Tax (Appeals) erred in confirming the addition made disallowing the exemption u/s.54 on account of Investment made in Residential house outside India. 2) The ld. Commissioner of Income Tax (Appeals) ought to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property outside India. They then go on to make a claim of benefit under section 54 on the capitals gains arising to them. 9.2 In such cases, the assessing officers are generally disallowing the claim on the basis of the following: i. By making a reference to section 1 of the Act which relates to Short title, extent and commencement of the Act and mentions that the Act extends to the whole of India. The AO's view is that the assessee cannot claim benefit of section 54 for purchase of residential house in a foreign country to which the Act does not extend. ii. By relying on the decision of Hon'ble ITAT 'F' Bench Mumbai in the case of Shri Farhad Bottlewalavs ACIT 18(3), Mumbai in ITA No. 1761/Mum/ 2012 for AY 2008-09, wherein claim of benefit u/s 54F was denied to the assessee. iii. By relying on decision of Hon'ble ITAT 'D' Bench, Ahmedabad in the case of Leena J Shah vs ACT, Circle-1(1), Baroda reported in (2006) 6 SOT 721 (Ahd.), wherein the claim of assessee while reinvesting in property outside India was not allowed u/s 54F. iv. On the basis of these decisions, the AO makes an argument in favour of interpretation of the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a 'resident', but in case of a 'non-resident', it only uses the words 'in India'. The impact of this is two-fold. First, section 4 gets inextricably and intrinsically linked to section 5, and second, the charging sections under different heads get precluded from including the word in India' as it would prevent the charge of income accruing or arising from anywhere outside India in case of residents. it is only by virtue of section 5 that the separation is made in case of residents and non-residents. Both these sections in turn are linked with section 14 of the Act, which provides that there has to be a separate charge for income classified under each of the five heads of income and also for computation of 'total income'. Thus, section 14 also links charge and total income together, thereby bringing section 5 into play. In other words, the structure of the Act is such that there is no need to mention the words 'in India' in the charging sections - they are automatically read into them by virtue of section 5(2) of the Act in case of non-residents. As section 54 is mentioned in the charging section in case of the head of income 'capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident, his or her income can only include profits and gains arising 'in India' from transfer of a capital asset, when it is read conjointly with section 5(2) of the Act. Thus, there is no need to mention the words 'In India' in section 45 or any such charging section as by virtue of section 5(2), only the income accruing or arising, or deemed to accrue or arise, or received or deemed to be received 'in India' can be included in the total income in case of a non-resident. 9.4(ii) The impact of section 5(2) of the Act on all the charging sections present in the Act can easily be highlighted. The Computation of total income is to be made in accordance with provisions contained in Chapter IV of the Act. In this regard, section 14 provides that unless it is provided otherwise, all income shall, for the purposes of: i. charge of income tax and ii. computation of total income, be classified under the heads of income 'salaries', 'income from house property', 'profits and gains of business or profession', 'capital gains' and 'income from other sources'. Thus, any item of income must fall under one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax, shall be chargeable to income-tax under the head Income from house property'. ii. In case of the head of income ''profits and gains of business or profession , the charging section (s.28) mentions that the 'following income shall be chargeable to income-tax under the head Profits and gains of business or profession , - (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year.;..... iii. In case of the head of income capital gains , the charging section (s.45) mentions that 'any profits or gains 'arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections .... Be chargeable to income-tax -under the head Capital gains and shall be deemed to be the income of the previous year in which the transfer took place . iv. In case of the head of income income from other sources , the charging section (s.56) mentions that 'income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head Income from other sources ', if it is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident of India. It is evident that it is for this reason, there is no mention of the words 'in India' in any of the charging sections. 9.4(vii) Thus, in case of non-residents, the words 'in India' has to be read in the charging sections automatically by virtue of section 5(2) of the Act and there is no requirement of providing it separately for non-residents. Only in case of residents, when the Legislature is of the view that the word 'India' is to be inserted for serving any specific objective, it does so by amending the Act. 9.4(viii) Reference to section 54 (and other such related sections beginning from section 54A to 54H, as and when existing on the statute book) has been made in the charging section while providing for charge of income under the head 'capital gains' (s.45), hence, the words 'in India' has to be automatically inserted therein when dealing with the income of non-residents. These sections (that is, section 54, and other such sections) are not by way of deductions per se, but form a part of the charge itself. This is evident from the fact that in all the charging sections related to different heads of income, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference to section 54 is made in the charging section 45, and hence it is a part of the charging section in relation to capital gains. It is now necessary to cite section 54 of the Act as it stood in AY 2012-13: Profit on sale of property used for residence. 54. (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 date 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid. 9.5(ii) As has been mentioned above, section 45, the charging section in case of capital gains, deems such income to be the income in the previous year in which the transfer of capital asset takes place. Section 54(1) , when it uses the words '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', it qualifies and modifies this charge. It actually acts to change the timing of the charge of capital gains in two stages. This change is subject to significant conditions to be observed by both the assessee and the Revenue, which bear great import in case of examination of applicability of section 54 in relation to non-residents. The conditions imposed by section 54(1) of the Act are of two types and are examined below for highlighting their import while applying them in case of non-residents: i. If the amount of capital gain is greater than the cost of new asset purchased or constructed, then the differenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 5(2) into section 54 read with section 45, it becomes evident that the application of section 54 in case of non-residents can only be made when the new asset is purchased or constructed in India. Then only can the conditions imposed in section 54 be applied jurisdictionally and be given effect to. This aspect is of great significance, because if the new asset so constructed or purchased is transferred after three years, these two conditions are not applicable for both residents as well as non-residents. Thus, the test for applicability of the provisions of section 54(1) of the Act in a case is actually dependent upon whether it can be applied when the new asset is transferred within 3 years. As mentioned above, this test fails in the case of a non-resident if he or she constructs or purchases a new residential house outside India and transfers the same within 3 years of purchase or construction. 9.5(iv) Even in a case where the Tax Treaty applies, the situation remains the same. For example, the India-UK DTAA allows for taxation of income from capital gains in accordance with provisions of Domestic Law. As mentioned above, the IT Act, 1961 prohibits taxation of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant Sales Tax Law should be disallowed under section 43B of the Act. The Income Tax Officer disallowed the deduction of Sales Tax collected by the assessee for the last quarter of the accounting year as the same was paid in the subsequent year. The aforesaid difficulty was cured by the insertion of the first proviso w.e.f. 01.04.1988. The Hon'ble .Apex Court held that when a proviso is inserted to remedy unintended consequences and to make the provision workable, the proviso which supplies an obvious omission in the section and which is to be read into the section to give it a reasonable interpretation, it could be read as retrospective in operation to give effect to the section as a whole. The Hon ble Apex Court 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. 9.6(iii) It needs to be mentioned here that in case of section 54(1), the amendment has been inserted by the same Finance (No.2) Act, 2014 with effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India did not come under the purview of section 54 of the IT. Act 1961. The AO has also mentioned the intention of the legislature while introducing the provision u/s. 54F of the IT Act 1961 and importantly the applicability of provisions of the IT. Act 1961. On the other hand the Assessee cited the case laws in support of its contention, that amount invested in purchasing the property out side India is eligible for deduction u/s 54 of the IT Act 1961. After careful consideration of the facts of the case, what emerges is, whether the assessee is eligible to claim deduction u/s 54, even if he / she invests the amount/ purchases a property abroad. In my opinion it is not the intention of the legislature, as the deduction allowed to the assessee is to encourage housing for self and also construction activity in India. The section is intended to give impetus to the construction of residential houses. If these provisions are interpreted on the basis of the rules of the purposive interpretation and legislative intent, the benefit of this section can be made available only when the purchases/construction of the residential house in India, it is not for any other purpose. The above vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Order, dated 31-08-2012. The Tribunal in Farhad Bottlewala's case (supra) noted the distinction brought out by the Mumbai Bench between the provisions of sections 54 and 54F in the case of Girish M. Shah - a decision rendered by subsequent Mumbai Bench of ITAT following Mrs. Prema P. Shah (supra) - and following the decision of the Ahmedabad Bench in the case of Leena J. Shah (supra) held in favour of the Revenue. Thus, it is very clear that, in order to clear the controversy arising out of these decisions because the purpose of introducing these exemptions was not to incentivize the taxpayers purchasing the residential accommodations for investment purposes rather than for their own self-accommodations the amendment to these sections was thought of, Moreover, the amendment seems to fall in line with the following observations of the Supreme Court in the case of Padmasundara Rao vs. State of Tamil Nadu [2002] 255 ITR147 which were to the following effect- Two principles of construction - one relating to casus omissus and the other in regard to reading the statute as a whole appear to be well-settled. Under the first principle a casus omissus cannot be supplied b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the grounds that the investment in new residential property is made in a property situated outside India. It was submitted that the impugned assessment year is AY 2014-15 and the amendment was made in Section 54/54F of the 1961 Act wherein deduction for the investments in the residential house property shall be only allowed if residential property is situated in India, vide Finance Act 2014 w.e.f. 01.04.2015. Thus it was submitted that this condition of investing in residential property situated in India has been imposed w.e.f. assessment year 2015-16 and the impugned assessment year under consideration being AY 2014-15, the assessee cannot be denied benefit of deduction u/s. 54 of the Act. The assessee placed reliance on the decision of Hon ble Gujarat High Court in the case of Leena Jugalkishor Shah v. ACIT reported in (2017) 392 ITR 18 (Guj) , wherein Hon ble Gujarat High Court decided the issue in favour of the tax-payer by holding that deduction u/s 54F shall be allowed for purchasing a residential property outside India. The assessee also relied upon the decision of Mumbai-tribunal in the case of Ashok Keshavlal Tejuja v. ACIT (2018) 91 taxmann.com 28 (Mum -Trib) , where one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent invested in the new residential house is not chargeable to tax under section 45 of the Act. The existing provisions contained in sub-section (1) of section 54F, inter alia, provide that where capital gains arises from transfer of a long-term capital asset, not 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 portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax. The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid sub-section (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India. It is further proposed to amend the aforesaid sub-section (1) of section 54F so as to provide that the exemption is available if the investment is made in one residential house situated in India. These amendments will take effect fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of three years after that date 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,- **** **** Amended Section 54(1) of the 1961 Act , as amended by Finance Act, 2014 w.e.f. 01.04.2015 Profit on sale of property used for residence. 54. (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 date [constructed, one residential house in India], then], instead of the capital gain being charged to income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2014 wherein deduction is now made available for investment made in residential property situated in India. The circular also provides that amendment will take effect from 1st April 2015 and shall accordingly apply in relation to assessment year 2015-16 and subsequent assessment years. Section 54(1) was amended as we have seen both the unamended and amended provisions of Section 54(1) to carry out this proposed amendment. This casted an additional responsibility on the tax-payers to restrict their investments in new residential property situated in India and has to be held prospective unless clearly stipulated by law bringing amendment . The memorandum itself speak that the aforesaid amendment to Section 54(1) shall apply wef 01.04.2015 and shall apply to assessment year 2015-16 and subsequent assessment year. Presently, we are concerned with AY 2014-15 which is prior to the assessment year 2015-16 from which the aforesaid amendment was brought into statute. 6.2 We have observed that Hon ble Gujarat High Court in the case of Leena Jugalkishor Shah (supra) has decided this issue in favour of the tax-payer and it was held the said amendment in Section 54F is prospective in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. 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. 6.3. We have also observed that the Mumbai-tribunal in series of judgement held in favour of the assessee and in the case of Asho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 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 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, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and hence we refrain from adjudicating the same. We order accordingly. 6.4. We have also held that in following cases , similar view have been taken by AAR/tribunal in favour of the assessee :- a) Advance Ruling, New Delhi in Dipankar Mohan Ghosh, in re. (2018) 401 ITR 129(AAR-New Delhi). b) Mumbai-tribunal in the case of ITO v. Mr. Nishant Lalit Jadhav, ITA no. 6883/Mum/2014 vide orders dated 26.04.2017 c) Chennai tribunal decision in the case of ITO v. Mrs. Saroja Naidu in (2017) 88 taxmann.com 784 (Chennai-trib.), d) Mumbai-tribunal decision in the case of ITO v. Farokh Jal Deboo in ITA no. 4650/Mum/2013 and ITA no. 3478/Mum/2013, vide common order dated 05.02.2016, e) Mumbai-tribunal decision in the case of Dhun Jehan Contractor v. ITO , vide order dated 13.05.2015 in ITA no. 7058/Mum/2013 f) Mumbai-tribunal decision in the case of ITO v. Anil P. Mukhi in ITA no. 6803/Mum/2010 , vide order dated 16.02.2012 6.5 . We have also observed that in two cases as is referred to by the AO in his assessment order, the tribunal has taken a view in favour of Revenue in the case of Shri Farhad Bottlewalla v. ACIT in ITA no. 1761/Mum/2012 for AY 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
