2018 (1) TMI 947 - AAR - Income Tax

Non-resident Indian eligible for tax deduction investing in London property

In Re : Mr Dipankar Mohan Ghosh C/o R.N. Marwah And Co.

The applicant, a non-resident Indian, was held eligible for deduction under Section 54 of the Income Tax Act for reinvesting capital gains from a property ... Deduction u/s 54 eligibility - investment outside India - Applicant, being a resident of UK, having sold his share of residential property in New Delhi to the extent of reinvestment in acquiring a residential property abroad i.e. in U.K. - prior to the prospective amendment made w.e.f 01.04.2015 by the Finance Act, 2014. - Held that:- We respectfully follow the decision of the Gujarat High Court in Leena Jugalkishore Shah [2016 (12) TMI 351 - GUJARAT HIGH COURT] rule that the Applicant was entitled to the benefit provided by section 54, on account of his investment in a residential house in London, out of the capital gains arisen in India. Valuation/computation of the cost of acquisition in the hands of the Applicant - determining the method for computing Long term capital gains - property was held by the applicant’s father - Held that:- The period of holding will be determined from the period from which property was held by the applicant’s father. Further 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 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. Issues Involved:1. Eligibility for deduction under Section 54 of the Income Tax Act for reinvestment in a residential property abroad.2. Applicability of judicial precedents and interpretation in favor of the applicant.3. Method for determination of long-term capital gain and applicable tax.Issue-wise Detailed Analysis:1. Eligibility for Deduction Under Section 54:The applicant, a non-resident Indian, sold a residential property in New Delhi and reinvested the capital gains in a residential property in London. The key question was whether the applicant is eligible for deduction under Section 54 of the Income Tax Act for this reinvestment. The Authority examined the provisions of Section 54 as they existed for AY 2012-13, noting that there was no restriction that the reinvestment had to be in India. It was only after the amendment by the Finance Act, 2014, effective from 01.04.2015, that the requirement to invest in a residential house 'in India' was introduced. The Authority concluded that the applicant is eligible for the deduction under Section 54 for the reinvestment in London, as the amendment was prospective and not applicable to AY 2012-13.2. Applicability of Judicial Precedents and Interpretation in Favor of Applicant:The applicant referred to the Gujarat High Court's decision in Leena Jugalkishore Shah, which held that prior to the amendment, there was no requirement for the investment to be made in India. The Revenue argued that the words 'in India' should be read into the relevant sections to align with the intent of the legislature. However, the Authority found that the High Court's decision was directly on point and applicable to the applicant's case. The Authority emphasized that judicial discipline requires following the decisions of higher appellate authorities unless overruled by another competent court. Therefore, the applicant's interpretation, supported by the Gujarat High Court's ruling, was accepted.3. Method for Determination of Long-Term Capital Gain and Applicable Tax:The applicant sought guidance on the computation of long-term capital gains. The Authority noted that the residential property was inherited, and the period of holding should include the period held by the previous owner (the applicant's father). The cost of acquisition should be the fair market value as of 01.04.1981, with the benefit of indexation. The exact computation of capital gains and verification of valuation figures were left to the Assessing Officer. The Authority confirmed that the applicant is entitled to indexation benefits and the cost of improvement incurred.Conclusion:- Question 1: The applicant is eligible for the benefit under Section 54 for reinvestment in a residential property in London.- Question 2: Not required to be adjudicated due to the High Court's ruling.- Question 3: The period of holding includes the period held by the previous owner, and the applicant is entitled to indexation benefits. The Assessing Officer will verify the correctness of the valuation and material figures for computing taxable capital gains.The Ruling was pronounced on 22nd December 2017.