TaxTMI 
TaxTMI 
2019 (4) TMI 367
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....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 have appreciated that amendment made u/s.54 in regard to 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." 3. The brief facts of the case are that the assessee has declared capital gain on sale of residential building of Rs. 1,30,30,360/-. The AO assessed long term capital gains of the aforesaid property at Rs. 1,68,71,359/- . The learned CIT(A) while adjudicating first appeal filed by the assessee was pleased to accept contentions of the assessee and the long term capital gains declared by the assessee in return of income were accepted and the additions so made on this ground stand deleted by learned CIT(A). The decision of learned CIT(A) has attained finality as it could not be shown by learned DR that Revenue has filed an appeal before tribunal challenging ....
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....; 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 provisions of the Act in a holistic manner and in the appropriate context, to arrive at its proper meaning, that is, the context of section 54. In the case laws cited by the A0s, such a view has been taken. 9.3 On the other hand, the assessees (and their ARs) rely on the following decisions of Hon'ble ITAT: Prema P. Shah Vs. ITO 282 ITR 211 (Mum)(2006) Dr. Girish M Shah (ITA No.3582/Mum/2009) Ms. Dhun Jehan Contractor (ITA No.7058/Mum/2013) Giridhar Mohanani (ITA No. 4591/ Mum/2013) Mrs Varsh Girdhar (ITA No. 4592/Mum/2013) Vinay Mishra Vs ACIT 30 taxmann.com 341 (Bang)(2013) N. Ranganatham Vs ITO 51 taxmann.com56 (Chennai)(2014) ITO (IT)-1(1) vs Farokh Jal Deboo (ITA No.4650/ Mum/2013) In these case laws, it has been pointed out that there is no mention of the word ....
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....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 'capital gains', that is, in section 45, it is part of the charging section and thus, automatically includes the words 'in India' in case of non-residents on account of provisions contained in section 5(2) of the Act. This is elaborated at length in the following paragraphs. 9.4(i) A reference is first made to section 5(2) of the Act, which provides for the Scope of Total Income in the case of a non-resident: (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which - (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Thus, t....
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.... 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 these heads of income in order to be chargeable, and, also for the purpose of computation of 'total income'. If there is any income which falls outside these heads of income, there should be a separate charge for the same (as is done in case of certain items of income included while aggregating the income - by way of sections 68 to 69D of the Act, which provide for a separate charge for such items). 9.4(iii) The first step thus involves the characterisation of income - under what head of income it can be put. If the income is of the nature of salaries and it is to be placed under the head "Salaries" then for chargeability of income under this head and its computation, the provisions contained in Chapter IV-A of the Act shall apply. ....
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.... 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 not chargeable to income-tax under any of the heads specified in section 14, items A to F. It can be seen that none of these charging sections for respective heads of income mention that the income should accrue or arise 'in India'. In other words, there is no condition or presumption that the income should 'accrue or arise' in India. 9.4(vi) As already mentioned above, the reason for this is imbedded in, and intrinsic to, the charging section for the Income Tax Act, 1961. Section 4 of the Act provides a charge of income-tax for 'total income' of a person. Thus, section 4 has a direct connect with section 5 of the Act which provides for the scope of total income ....
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.... 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 allowable deductions are provided separately. In other words, the allowable deductions are contained in a separate section and not in the charging section itself. This is presented below in a tabular form. SI. Head of income. Charging section Section (s) in which provision made for allowable deductions 1 salaries 15 16 (under the head 'deductions from salaries 2 Income from 22 24 (under the head 'Deductions from house property income from house property ) 3 Profits and gains 28 29 (under the head 'Income from profits of business or and gains of business or profession, how profession computed'). Secti....
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....ous 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 than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. (2) The amount of the capital gain which is not appropriated by the assessee towards the purch....
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....wo 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 difference of the two is to be taken as income of the previous year of capital gain. But an additional condition is imposed, that of computing the capital gain arising on transfer of the new asset within three years of its purchase or construction. In the case of such an eventuality, the capital gain is to be computed by taking the cost of the asset so transferred as Nil. Taking the case of a non-resident who has sold residential house in India and purchased or constructed a new residential house outside India, the implication of this condition would be to extend the jurisdiction of the IT Act, 1961 over a non-resident on transfer of a capital asset in form of an immovable property situated outside India for purpose of charging income under the head capital gains and also providing for its cost of acquisition to be Nil. However, as mentioned above, the conjoint reading of section 4 with section 5(2) of the Act strictly prohibits this action and is abhorrent to th....
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....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 from assets situated outside India in case of non-residents. In any case, a Treaty does not provide for the charge of income - that is only provided by the Domestic Law of a Contracting State. Treaty only acts as a sieve allowing some items to continue to be charged in the source State and some not. As the Domestic Law of India itself prohibits charging of income arising from capital gains outside India in case of a non-resident, there is no jurisdiction over such taxation as envisaged in section 54 (1) of the Act for three years over the new asset and its transfer. This anomaly withers away if the words 'in India are read into section 54 read with section 45 on account of provisions of section 5(2) of the Act in the case of a non-resident. 9.6(i) When the Finance (No.2) Act, 2014 inserted the words 'in India' into section 54(1) of the Act with effect from 01.04.2015, so far as non-residents were concerned, this insertio....
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....e 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 effect from 01.04.2015 and it has been shown above in para 7 that if it is not given clarificatory nature in case of a non-resident (even otherwise, the words 'in India' are operating in the background, without the insertion), anomalous situations arise. Thus, the words 'in India' are present there from the very beginning in case of non-residents. In other words, in case of non-residents, the new asset purchased or constructed has to be 'in India' for application of section 54 in their case. 9.7 The arguments outlined in detail above were not presented before Hon'ble ITAT Benches in the decisions mentioned earlier. Thus, these have not been considered by Hon'ble ITAT. In light of what has been outlined above in paras 4 to 6, it is evident that provisions of section 54 can apply in the case of a non-resident only when the new residential house is purchased or constructed in India by virtue o....
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....isions 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 view has been fortified by the amendment brought in IT Act 1961. The changes in section 54 of the IT. Act, 1961 are discussed as under 1. The provision of section 54 prior to its amendment in the Finance (No. 2) Act, 2014 introduced recently reads as under: ____________________Section 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 res....
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....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 by the Court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the Legislature. "An intention to produce an unreasonable result", said Danckwerts L. J. in Artemiou vs. Procopiou [1966] 1 QB 878 (CA) "is not to be imputed to a statute if there is some other construction availa....
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....herein 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 of us being Accountant Member was part of the Division Bench which pronounced the said order and deduction u/s 54F was allowed for making investment in a residential property situated outside India. The assessee also relied upon the ruling passed by Authority for Advance Rulings, New Delhi in Dipankar Mohan Ghosh, in re. (2018) 401 ITR 129(AAR-New Delhi), which AAR held in favour of the tax-payer on this issue. The assessee also relied upon the decision of Mumbai Tribunal in the case of ITO v. Mr. Nishant Lalit Jadhav, ITA no. 6883/Mum/2014 , order dated 26.04.2017 for assessment year 2011-12, ITAT Chennai Bench decision in ITO (International Taxation-2(1)), Chennai v. Mrs. Saroja Naidu in (2017) 88 taxmann.com 784 (Chennai), and decision of Mumbai-tribunal in the case of ITO v. Shri Farokh Jal Deboo in ITA no. 4650/Mum/2013 and ITA no. 3478/Mum/20....
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....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 from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years." 5.2 The said decisions as well copy of the aforesaid circular are placed in paper book filed by the assessee with the tribunal, which is placed in file. The Ld. DR on the other hand had relied upon the appellate order passed by Ld. CIT(A) and prayed that the appellate order of learned CIT(A) be upheld . 6. We have considered rival contentions and perused the material on record including cited case laws. We have observed that the assessee has sold property in India on which long term capital gains arose and the assessee claimed deduction u/s. 54 of the Act with respect to investment made in the residential property situated outside India in Michigan, USA. The authorities below have denied the deduction u....
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.... 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 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,- The Memorandum to Finance Bill (No. 2) of 2014 while bringing amendment to Section 54/54F of the 1961 Act by Finance Act, 2014 , is reproduced hereunder: " Capital gains exemption in case of investment in a residential house property The existing provisions contained in sub-section (1) of section 54, inter alia , provide that where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and 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 year ....
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....ear 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 nature and prior to AY 2015-16 , the deductions u/s 54F shall be allowed for making investment in a residential property situated at outside India for the AY's prior to AY 2015-16, by holding as under:- " 9. We have heard learned counsel for the parties. We have perused the order of the Tribunal. There is no finding recorded by the authorities below that the appellant-assessee has not invested the sale proceeds in a residential house. It is also not in dispute that the appellant has not purchased the residential house in United States of America. In fact, she has purchased a residential house in U.S.A. out of the capital gain on sale of the plot in India and thus she has fulfilled the conditions stipulated in section 54F of the Income-tax Act. She has inves....
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....re 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 Ashok Keshvlal Tejuja (supra) wherein one of us being Accountant Member was part of the Division Bench who pronounced the said order , has held in favour of the tax-payer by allowing deduction u/s 54F of the 1961 Act for Ay 2011-12 for making investment in residential property outside India prior to amendment in provisions of Section 54F by Finance Act, 2014, by holding as under " 5. We have considered rival contentions and perused the material on record including cited case laws before us . After hearing both the parties, we are of the view that there is an amendment by Finance Act 2014 in Section 54F, with effect from 01.04.2015 wherein the benefit of deduction u/s 54F will be allowed only when reinvestment in residential house property is made within In....
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....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, there is no scope for importing into the statute the words which are not there. Such importation would be not to construe but to amend the statute. If there is any defect in the Act, it can be remedied only by the legislation and not by judicial interpretation. 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 tha....