2019 (4) TMI 367 - AT - Income Tax

Tax Tribunal Allows Exemption for Foreign Property Investment under Section 54

Vaijanthi Mahavir Oza Versus Income Tax Officer- (International Taxation) -3 (3) (1), Mumbai

The tribunal allowed the appeal of the assessee, holding that for the assessment year 2014-15, the exemption under Section 54 is available for investment ... Disallowance of exemption u/s.54 - Profit on sale of property used for residence - scope of amendment - Investment made in Residential house outside India - scope of amendment made u/s.54 - Whether allowably of exemption only in case residential house situated in India is effective from 1.4.2015 i.e. A.Y. 2015-16 and therefore not applicable in the current assessment year? - HELD THAT:- The said amendment is held to be prospective in the case of Leena Jugalkishor Shah(2016 (12) TMI 351 - GUJARAT HIGH COURT) to be held applicable from AY 2015-06 and subsequent assessment years. Presently we are concerned with AY 2014-15 which is prior to aforesaid amendment in Section 54 of the 1961 Act and hence we are of the considered view that the assessee is entitled for deduction u/s. 54 of the Act on the investment made in residential property situated outside India from long term capital gains earned on sale of property situated in India. The appeal of the assessee is allowed. Issues Involved:1. Eligibility of the assessee to claim exemption under Section 54 of the Income Tax Act, 1961 for investment in a residential house outside India.2. Applicability of the amendment made to Section 54 by the Finance Act, 2014, effective from April 1, 2015, to the assessment year 2014-15.Issue-wise Detailed Analysis:1. Eligibility of the Assessee to Claim Exemption under Section 54 for Investment in a Residential House Outside India:The core issue revolves around whether the assessee can claim exemption under Section 54 of the Income Tax Act, 1961, for investment in a residential house situated outside India. The assessee declared capital gain on the sale of a residential building and claimed a deduction under Section 54 based on the investment made in a residential property in Michigan, USA. The AO disallowed the claim, arguing that the investment in a residential house outside India does not qualify for exemption under Section 54. The AO's detailed reasoning included references to various case laws and an analysis of the Income Tax Act's provisions, emphasizing that the Act extends only to India and that the exemption under Section 54 should be interpreted as applicable only to investments within India.The CIT(A) upheld the AO’s decision, emphasizing the legislative intent behind Section 54, which aims to promote housing within India. The CIT(A) highlighted that the amendment to Section 54 by the Finance Act, 2014, explicitly states that the investment must be in a residential house in India, effective from April 1, 2015. The CIT(A) also referenced the legislative intent and the purposive interpretation of the statute to support the decision.2. Applicability of the Amendment Made to Section 54 by the Finance Act, 2014, Effective from April 1, 2015, to the Assessment Year 2014-15:The assessee contended that the amendment to Section 54, which specifies that the investment must be in a residential house in India, is applicable only from the assessment year 2015-16 onwards and should not affect the assessment year 2014-15. The assessee relied on various judicial precedents, including the decision of the Hon’ble Gujarat High Court in Leena Jugalkishor Shah v. ACIT, which held that the amendment to Section 54F (similar to Section 54) is prospective and applies from the assessment year 2015-16 onwards.The tribunal considered the rival contentions and the material on record. The tribunal observed that the amendment to Section 54 by the Finance Act, 2014, effective from April 1, 2015, applies to the assessment year 2015-16 and subsequent years. For the assessment year 2014-15, the pre-amended provisions of Section 54 apply, which did not explicitly restrict the exemption to investments in residential houses situated in India. The tribunal noted that various judicial precedents, including the decisions of the Hon’ble Gujarat High Court and the Mumbai Tribunal, have consistently held that the exemption under Section 54 (and Section 54F) was available for investments in residential houses outside India for assessment years prior to 2015-16.The tribunal concluded that the assessee is entitled to claim exemption under Section 54 for the investment made in a residential house in Michigan, USA, for the assessment year 2014-15. The tribunal allowed the appeal of the assessee, holding that the amendment to Section 54 is prospective and applies from the assessment year 2015-16 onwards.Conclusion:The tribunal allowed the appeal of the assessee, holding that for the assessment year 2014-15, the exemption under Section 54 is available for investment in a residential house outside India. The amendment to Section 54 by the Finance Act, 2014, which restricts the exemption to investments in residential houses situated in India, is applicable from the assessment year 2015-16 onwards. The tribunal's decision is in line with various judicial precedents, including the decision of the Hon’ble Gujarat High Court.