2010 (2) TMI 960 - AT - Income Tax

The assessee had claimed cost of index and improvement - For deduction u/s.54 of the Income tax Act, 1961(the Act), - We find that in that case deduction u/s.54F was considered whereas in the case before us the status of the assessee is Non Resident Indian and the issue is with regard to the deduction u/s.54 of the Act. Further, the order of the Jurisdictional Tribunal has more binding effect. Therefore, the decision relied on by the revenue is not applicable to the facts of the present case. - Accordingly we are inclined to uphold the order passed by the ld. CIT(A) in allowing the claim of the assessee. The grounds taken by the revenue are therefore, rejected.

Summary

Issues:
1. Calculation of capital gains and allowable expenses.
2. Eligibility for deduction under section 54 of the Income Tax Act, 1961 for the purchase of a house in Canada.

Issue 1: Calculation of Capital Gains and Allowable Expenses:
The appellant, a Non-Resident Indian, sold a flat in Mumbai and claimed capital gains for the Assessment Year 2004-05. The Assessing Officer computed the long-term capital gain based on the sale value and allowable expenses. The Assessing Officer considered the sale consideration as per section 50C(3) of the Act, indexed purchase price, cost of improvement, and allowable expenses. However, certain expenses like professional fees were disallowed. The Assessing Officer calculated the net capital gain and completed the assessment accordingly. The appellant claimed deduction under section 54 of the Act for purchasing a house in Canada, which was contested by the Assessing Officer.

Issue 2: Eligibility for Deduction under Section 54 of the Income Tax Act:
On appeal, the ld. CIT(A) observed that the appellant had utilized the entire sale consideration in purchasing a new asset in Canada, fulfilling the conditions of section 54F. The ld. CIT(A) noted that section 54F does not specify that the new asset must be in India. Referring to the Mumbai Tribunal's decision in Mrs. Prema P. Shah vs. ITO, the ld. CIT(A) directed the AO to allow the deduction under section 54F. The revenue challenged this decision, arguing that the investment in a new residential house in Canada should not qualify for exemption under section 54F of the Act.

The Tribunal, after considering the submissions and relevant precedents, upheld the ld. CIT(A)'s decision. It noted that the appellant's case was similar to Mrs. Prema P. Shah's case, where the right to claim benefits under section 54 was not excluded for property purchased in a foreign country if all conditions were met. The Tribunal emphasized that when there are two views, the interpretation favoring the assessee should be adopted. The Tribunal dismissed the revenue's appeal and affirmed the allowance of the deduction under section 54 of the Act for the appellant's purchase of a house in Canada.

In conclusion, the Tribunal upheld the decision of the ld. CIT(A) and dismissed the revenue's appeal, allowing the appellant's claim for deduction under section 54 of the Income Tax Act, 1961 for the investment made in a new residential house in Canada out of the capital gains arising from the sale of the residential house in Mumbai.