NRI entitled to section 54F LTCG exemption for Canadian property investment in pre-2015 transactions

ITAT Mumbai allowed NRI assessee's appeal claiming LTCG exemption under section 54F for investment in residential property in Ontario, Canada. AO disallowed exemption arguing property must be in India and that 2015 amendment adding "in India" was clarificatory and retrospective. ITAT held the amendment was prospective, not applicable to pre-2015 transactions, following Bombay HC precedent. For the relevant year, "in India" restriction cannot be read into section 54F provisions, entitling assessee to exemption for Canadian property investment.

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Issues:
1. Assessment order being time-barred
2. Disallowance of deduction u/s. 54 of the I.T. Act

Analysis:
1. Assessment Order Being Time-Barred:
The appeal was filed against the order of the Ld. ITO under Section 147 read with Section 144C(13) of the Income-tax Act, 1961 for Assessment Year 2013-14. The primary contention raised by the assessee was that the assessment order was beyond the prescribed time limit specified under the Act. The Ld. A.O. was required to pass the assessment order within one month from the end of the month in which the statutory period of filing objections expired. The assessee argued that the addition made by the A.O. was erroneous as the objections were dismissed by the Hon'ble DRP without proper direction. The Tribunal considered various judicial pronouncements and held that the exemption u/s 54F would be available on property purchased outside India before 01.04.2015, as the amendment was prospective in nature and could not be applied retrospectively. The decision of the Hon'ble Bombay High Court in a similar case supported this interpretation. Consequently, the Tribunal held that the assessment order was time-barred, and the appeal was allowed on this ground.

2. Disallowance of Deduction u/s. 54 of the I.T. Act:
The assessee had sold an immovable property and invested a significant amount in purchasing a new residential property in Ontario, Canada. The A.O. sought to disallow the claim of exemption under section 54F on the grounds that the property was not purchased/constructed in India. The A.O. contended that the amendment in section 54F, which introduced the requirement of constructing a house in India, was clarificatory and applicable retrospectively. However, the assessee argued that the amendment was prospective from AY 2015-16 only. The Tribunal analyzed the nature of the amendment, considering whether it was clarificatory or substantive. It noted that the amendment expressly stated it would come into force from 01.04.2015, indicating prospective application. The Tribunal relied on legal principles to determine that the amendment was not clarificatory and could not be applied retrospectively. Citing precedents and the language of the relevant sections, the Tribunal held that the assessee was entitled to claim exemption u/s 54F for the investment made in the residential property in Ontario, Canada. Consequently, the disallowance of deduction u/s. 54 was overturned, and the appeal was allowed on this ground as well.

In conclusion, the Tribunal allowed the appeal filed by the assessee, holding that the assessment order was time-barred and that the assessee was entitled to claim the deduction under section 54F for the investment made in the residential property in Ontario, Canada. The technical grounds were deemed academic and not decided. The order was pronounced on 12.07.2024.

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